A UBI would collapse the entirety of the welfare state---dramatically increases poverty

Basic income — the idea of just giving everyone in a given country a regular, guaranteed cash payment, no strings attached — is still pretty far from being adopted in the US. But it’s been gaining steam as an idea for a while now, most recently garnering praise from Facebook CEO Mark Zuckerberg in his widely viewed Harvard commencement speech last week. But no one quite agrees on what the term “basic income” means.

And in particular, no one agrees on how such a plan would be funded. Conservative and libertarian proponents tend to want to pay for it by eliminating the entire welfare state, including health programs like Medicare and Medicaid and social insurance programs such as Social Security. More cautious center-left or moderate libertarian proponents — who are loath to cut those aspects of the safety net, endanger people’s retirements, and let uninsured sick people die in the streets — tend to only propose funding through eliminating means-tested programs like food stamps and the earned income tax credit, as well as tax benefits such as the health care exclusion and mortgage interest deduction. The most ambitious lefty proponents want to finance the program entirely through new tax revenue.

As two big new reports on the impact of basic income show, “how would we fund it” is a massively important question.

The first, by the OECD (an international organization of developed countries), models a basic income that would "replace most cash benefits for working age households." That includes unemployment benefits, cash welfare, early retirement pensions, child and family allowances, and personal exemptions and standard deductions in income and payroll taxes. They assume no additional tax increases and no changes to programs for retired people, and that "the provision of public services, such as health, education, care, or other in-kind supports … continue[s] unchanged."

The report then calculates how the introduction of a budget-neutral basic income, available to every person below retirement age, would affect rich, middle-class, and poor people in four illustrative countries: Finland, Italy, France, and the UK.

Effects of revenue-neutral basic incomes in the UK, Italy, Finland, and France

OECD

The charts in question are slightly confusing, but the important line is the one with blue circles, showing the percentage change in income for each slice of the income distribution. What you see, consistently, is that the poorest people in each country would gain the most as a result of the change. In the UK, existing spending on the cash programs that would be replaced by a UBI is quite low, resulting in small basic income payments; that means poor but not extremely poor people would lose out a bit. But in Finland, Italy, and France, the greater benefits for the poor would be subsidized by benefits and tax breaks lost by higher-income people.

The biggest losers in each country tend to be the near-elderly; early retirement benefits offered to those below 65 tend to be a great deal more generous than a basic income, so the policy would effectively redistribute that money to people across the age spectrum.

And despite high average increases in income for poor people, a UBI financed through existing benefits would do little to cut poverty, the report finds. So would one set at countries’ pre-established welfare benefit level, and funded where necessary by increased taxes (or decreased taxes in Italy, where welfare benefits are below the budget-neutral UBI level). The average effect on income obscures some specific losers from the policy who would fall back below the poverty line in greater numbers than beneficiaries from the policy would climb above it.

Poverty changes under a basic income in Finland, France, Italy, and the United Kingdom.

OECD

In the UK, raising taxes to pay for a more generous basic income makes it reduce poverty mildly. In every other country, though, a truly universal basic income makes poverty worse, not better.

"Many of those who are brought out of poverty by unemployment insurance and early retirement benefits would fall into poverty again if they received a BI," the report concludes, since a basic income is less well targeted.

An American basic income, funded by cutting everything, would screw the elderly and help almost everyone else

The OECD report is illuminating about the trade-offs posed by replacing existing programs with a UBI — but it concerns countries with larger existing benefit systems than the US has. America has arguably the least generous unemployment insurance and cash welfare programs in the developed world, and offers minimal early retirement support. So funding a large-scale, truly universal basic income out of existing spending would necessarily require using funding not just from working-age cash programs like welfare or unemployment insurance, but in-kind subsidies such as Medicaid and programs for retirees like Social Security and Medicare.

Four researchers at the American Enterprise Institute — Matthew Jensen, William Ensor, Anderson Frailey, and Amy Xu — used three open source models of American tax and benefit policy to calculate the effects of a UBI funded by repealing "most welfare and transfer programs, including Social Security and Medicare," and "most base-narrowing features of the individual income tax system." They throw everything into the pot: Medicare, Social Security, veterans benefits, the standard deduction, every itemized deduction (including mortgage interest). Basically the only major program not repealed is the employer-paid health care exclusion, and that’s just because there wasn’t data available to model the change.