Only a UBI can solve indigenous poverty---pragmatism is key

For centuries, American public policy has treated Indigenous Americans as second class citizens—enforcing migration, barring citizenship, and refusing to give them the fundamental rights granted to them by the Constitution. All of this produced large economic disparities that continue to this day. Indigenous Americans are 35 percent more likely to be in poverty than non-Indigenous Americans, and their median income is a third lower. While public policy has historically been used to marginalize Indigenous Americans, it can also be used as a tool to build them up. In this paper, I examine how a tax-funded Universal Basic Income (UBI) would impact Indigenous Americans.

Background

To conduct the simulation I used data from the Census Bureau’s Annual Social and Economic Supplement (ASEC), which reports on data from 2019. For each simulation, a UBI is given to every American of all ages and funded by a flat tax on Adjusted Gross Income (AGI). AGI includes labor and capital income, and subtracts specific deductions like half of the self-employment taxes and contributions to certain retirement accounts. Unlike taxable income, AGI does not account for most itemized deductions or the standard deduction. I assume no labor supply responses to the new taxes or income.

For each UBI amount ranging from $0 per month to $1,000 per month, I calculated the necessary tax rates (below; each $100 per month requires a 3.3 percent tax on AGI), and change in poverty rates and income distributions for both Indigenous and non-Indigenous Americans after taxes and the UBI.

Results

The simulation shows that a tax-funded UBI has the potential to drastically reduce the poverty rate of Indigenous Americans. A UBI of $100 per month would drop Indigenous poverty below the current non-Indigenous poverty rate. At $250 per month Indigenous poverty rates fall by more than half. A larger UBI of $1,000 per month would drive Indigenous poverty to less than one percent.

Beyond just reducing the overall poverty rate a UBI could shrink or eliminate the poverty gap between Indigenous and non-Indigenous Americans. At all rates of $250 per month or higher, the gap closes within one percentage point. At all rates of $600 per month or higher, Indigenous poverty is lower than non-Indigenous poverty.

A UBI funded by a flat tax would not just benefit those currently living in poverty; our simulation finds that 83 percent of Indigenous Americans would be better off under the program, regardless of the amount.

Further, a UBI could reduce both the median and mean income gaps between Indigenous and non-Indigenous Americans. A $500 per month UBI shrinks the gap in both median and mean resources by about a third.