Even the best case scenario includes cuts to SNAP, EITC, and housing

Rachel Minogue Economic Fellow @ The Third Way, “Five Problems with Universal Basic Income” May 24, 2018 dmr

Poor families could be left more vulnerable If significant tax hikes aren’t viable, then the question remains: what gets cut in order to fund UBI? Under this scenario, UBI becomes stingy and punitive, as a vast amount of important government programs would be on the chopping block. Murray, the conservative UBI proponent, recommends that a $13,000 annual basic income replace all social assistance programs. Consider the value of the benefits people would lose: Medicaid, Medicare, Disability Insurance, the Children’s Health Insurance Program, Social Security, Supplemental Security Income, Unemployment Insurance, SNAP, Section 8 housing vouchers, Pell Grants, the Earned Income Tax Credit, Temporary Assistance to Needy Families. As Dylan Matthews writes, “$13,000 a year doesn’t mean much if you lose insurance that was paying $60,000 a year on chemotherapy.”15 Even a UBI that retains much of the existing social safety net could hit the disadvantaged harder, depending on which tax credits and government assistance programs get cut. Stern listed the Supplemental Nutrition Assistance Program (SNAP), the Earned Income Tax Credit (EITC), and housing assistance as potential policies to end in favor of UBI. But consider one example. In Queens, New York, a single, low-income working parent with three children can receive up to $31,100 worth of benefits annually from SNAP, the EITC, and Section 8 housing vouchers alone, and for good reason.16 Replacing those benefits with a $12,000 UBI for the parent would reduce the family’s income and benefits by $19,100. A fundamental motivation for UBI is to eliminate poverty, but the tradeoffs necessary for funding would likely cause harm to vulnerable populations. This begs the question: If the main difference between UBI and our current safety net is that UBI gives relatively more to people who don’t need help, what would make UBI worthwhile? Some proponents have suggested UBI could be restricted to certain populations in need, but that would defy the universality at the idea’s core. At this point, what they are really proposing is an expansion of the existing safety net. That’s a worthwhile conversation to have, but it’s not about a universal basic income. The idea has been scarcely tested There are a handful of past and ongoing experiments with UBI. Unfortunately, the experiments have been flawed or are too small to effectively prove that UBI could live up to some of its proponents’ claims: Finland’s national social insurance institute, Kela, launched a UBI trial experiment in 2017, with 2,000 Finns aged 25 to 58 receiving approximately $645 per month. A year into its implementation, the Finnish government refused to continue its funding in April 2018, choosing instead to pursue alternative social welfare projects.17 The Alaska Permanent Fund provides an annual cash dividend to all Alaskan residents from oil reserve royalties. The grant’s amount, in recent years roughly $2,000 per person, is far too small to be a livable income and thus has minimal effects on the labor market and is a poor comparison to popular UBI proposals.18 An experiment in Kenya launched by Give Directly in late 2017 compares different UBI methods across 120 villages. According to Business Insider, residents of 40 villages receive $270 annually for 12 years, “effectively doubling most people’s income,” while 80 villages receive the same amount for 2 years.19 While this experiment could produce more compelling evidence than prior trials, Kenya’s economy is at a very different stage of development compared to the US which limits the study’s relevance. Silicon Valley startup accelerator Y Combinator in 2017 began a five-year experiment in giving 1,000 people $1,000 per month and 2,000 people $50 a month, aiming to assess changes to the labor force and quality of life.20 This evaluation could yield important results given its similarities to leading proposals but is still early in the experiment. It will be interesting to see what comes out of future studies and experiments. But policymakers should be wary of studies that simulate the upside of UBI (a monthly income) without simulating its downsides, namely sweeping benefit cuts or tax increases. Conclusion The motivation behind most universal basic income proposals is admirable: reduce widespread poverty and provide lifelong income security to all. But a UBI in reality would likely fall far short of eliminating poverty while imposing large economic costs and ignoring future opportunities for work. It also ignores that American life is rooted in a civic tradition of earning. Seventy-three percent of Americans believe working hard is “very important to getting ahead in life.”21 That’s the highest among advanced economies, with the United Kingdom second at 60% and Germany (49%), Japan (42%), South Korea (34%), and France (25%) far behind.22 Instead of pinning all hopes to UBI, policymakers should focus instead on designing ambitious policies that address the need that Americans have to earn a good life.