Universal Basic Income

By | Updated Aug 25, 2016 3:33 PM UTC

Should the government guarantee every citizen an annual stipend, no strings attached, no questions asked? That sounds like an idea that would have more liberal backers than conservatives. But what if the stipend took the place of the many programs that make up the safety net in most countries? That might appeal to conservatives but make liberals queasy. The idea is known as universal basic income, though in the U.S. it might be described as Social Security for all. Experiments are planned or underway in parts of Europe, Canada and South America. The results could reveal if a guaranteed basic income makes recipients lazy and unproductive or frees them to be more creative and useful. The results might also shift longstanding debates over the social contract between a government and its citizens: How big should the safety net be, and what mix of incentives and protections would make it more effective?   

The Situation

On June 5, Swiss voters soundly rejected a proposal for a universal basic income that would have given every adult citizen about 2,500 Swiss francs ($2,526) a month. The city of Utrecht in the Netherlands is conducting a pilot program. Finland plans an experiment involving 2,000 welfare recipients next year. The Canadian province of Ontario is also planning a trial. A British proposal is gathering interest. A nonprofit group will soon start giving 6,000 Kenyans a guaranteed income for at least a decade and follow the results. In the U.S., former Democratic presidential candidate Bernie Sanders said he was “sympathetic” to the theory behind a universal basic income but stops well short of advocating it. Hillary Clinton, his rival, seems even less enthusiastic. By contrast, conservative economists, politicians and think-tank scholars are not as hesitant. Marco Rubio, the Republican senator from Florida who was also a presidential contender, proposed the beginnings of a basic income in his 2015 tax plan.

Source: Organisation for Economic Cooperation and Development

The Background

In the 1960s, a basic income was part of the mainstream political discussion in the U.S. President Richard Nixon even proposed an income floor, based on ideas developed by Daniel Patrick Moynihan, then a domestic-policy adviser. The earned-income tax credit, a form of basic income, took its place, but only to supplement the earnings of the working poor. The tax credit was first proposed in 1962 by conservative economist Milton Friedman. One of his aims was to end the “earnings cliff,” in which government aid disappears once income exceeds a cap. Such a limit discourages recipients from working. The tax credit is widely considered an effective anti-poverty program, but the earnings-cliff issue has only gotten worse: The U.S. now has more than 80 low-income programs, each with its own eligibility rules and earnings caps.

 

In 1968, Milton Friedman discussed his proposal for a negative income tax.

The Argument

In Switzerland, backers of the basic income plan said it would have ensured that all citizens had a decent existence and were able to participate in civic life. The government argued that it would have forced a tax increase and caused a shortage of skilled workers, sending jobs abroad. Elsewhere, some progressives have cast the idea as the ultimate expression of what a developed economy can achieve: a way to lessen poverty and inequality, and ease the pain of job loss and economic stagnation. But in the U.S., many liberals see it as naive and a distraction from more practical priorities, such as a $15 minimum wage and paid family leave. And they fear that a basic income would, in the end, be less than what many people get when all the federal government's cash and social-service programs are combined. For conservatives, the attraction is smaller government. Dozens of social-welfare programs now costing U.S. taxpayers about $1 trillion a year could be folded into a basic-income program, they argue. Today, some of the biggest basic-income evangelists can be found in Silicon Valley, where supporters see it as one solution to potentially large job losses — and consumer backlash — from driverless cars, robotics, 3-D printing and other parts of the digital economy. The fear that people with a guaranteed basic income would become slackers may be unfounded. One economist who studied trials conducted in the 1970s in Canada reported the opposite: Recipients were healthier and finished high school at higher rates. Adults with full-time jobs worked the same number of hours with one exception: Women took off more time after having a baby.

The Reference Shelf

  • A Bloomberg View column analyzes the idea’s pros and cons.
  • “The Town With No Poverty,” by Evelyn Forget, is a landmark study analyzing Canada’s experiments with basic income in the 1970s.
  • The Basic Income Earth Network’s website provides history, background and FAQs.
  • Rutger Bregman, a Dutch writer, makes the argument in an op-ed and in a book: “Utopia for Realists: The Case for a Universal Basic Income, Open Borders, and a 15-Hour Workweek.”
  • On Reddit, the “BasicIncome”community gathers articles and commentary from around the globe on the pros and cons of the idea.

 

First published June 3, 2016

To contact the writer of this QuickTake:
Paula Dwyer in New York at pdwyer11@bloomberg.net

To contact the editor responsible for this QuickTake:
John O'Neil at joneil18@bloomberg.net