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Megan McArdle

Four Reasons a Guaranteed Income Won't Work

Why a guaranteed income is a bad policy idea.

Last night, I was part of a Wonkblog debate on guaranteed income. The discussion ranged widely, but I thought I'd write up a few of what I think were the most important points:

Cost: Not a few libertarians have embraced the idea as an alternative to the welfare state. Get rid of all the unemployment insurance and just cut everyone a check once a month. There's a lot to like about this: It has minimal overhead, because you don't need to verify eligibility beyond citizenship, and it may reduce some of the terrible incentives that poor people face under the current system.

There are a couple of problems with this, however. The first is that zeroing out our current income security system wouldn't provide much of a basic income. Total federal spending on income security (welfare, unemployment, etc.) is under $600 billion a year. There are 235 million adults in the U.S. Millions of those are undocumented immigrants, but that still leaves you with a lot of people. Getting rid of all of our spending on welfare and so forth would be enough to give each of those people less than $3,000 a year. For a lot of poor people, that's considerably less than what they're getting from the government right now.

The problem is that if you try to bring it up to something a bit more generous, the cost quickly escalates. Cutting everyone a check for $1,000 a month, which most people in that room would consider too little to live on, would cost almost $3 trillion. But if you means-test it to control the cost, or try to tax most of the benefits back for people who aren't low-income, you rapidly lose the efficiency gains and start creating some pretty powerful disincentives to work.