Guaranteed Income

 VII. Key Issues: Regulation & Reform >> C. Health Reform >> Components of Health Reform >> Public Sector Programs >> Medicaid Reform >> Guaranteed Income (Last update: 1.17.17)

Overview

The idea of a basic income has four core elements: it’s universal, it’s individual, it’s unconditional, and it’s at a level that is high enough for a decent standard of living.

U.S. Proposals

There have been a variety of proposals for a guaranteed income (GI) (also called universal basic income–UBI) to replace the panoply of programs that constitute the safety net, including Medicaid. The following are listed in reverse chronological order.

  • Independent Review (2015)The Independent Review’s Spring 2015 symposium offers 4 conflicting perspectives on this controversial proposal and on government’s role in social welfare spending in general.
  • Daniel Mitchell (2013). Mitchell, a Cato Institute Senior Fellow, says that a preferable approach would be to block grant all welfare spending and return it to the states. That would allow states to experiment with alternative approaches to welfare reform (including a guaranteed income) from which all could learn better what works and what doesn’t.
  • Charles Murray. Murray, a libertarian,  proposed a constitutional amendment to provide a guaranteed income of $10,000 a year for all American adults over the age of 21 who are not in prison. Designed to replace all current welfare programs as well as agricultural subsidies and corporate welfare, he argued it would be cheaper than maintaining the current welfare system in the coming decades. A full version is described in his book In Our Hands: A Plan To Replace The Welfare State (2006). after someone’s total annual income reached $25,000 a 20 percent surtax tax would be imposed on “incremental earned income,” capped at $5,000 once someone earns $50,000 a year.
    • Unlike many GI plans, Murray’s proposal requires that $3,000 of the $10,000 grant be spent on health insurance.
    • This coverage should cover high-cost single events such as surgery, all genetically based diseases and catastrophic long-term illnesses or disability. Insurance carriers would have to treat the entire population as a single pool
  • Friedrich Hayek (1979). The Austrian economist advocated a “minimum income for everyone” in the third volume of Law, Legislation, and Liberty (1979), characterizing it as a “wholly legitimate protection against a risk common to all.”
  • Milton Friedman (1962). This Chicago School economist advocated a negative income tax (NIT), which would not guarantee a set income for every adult, but would provide payments to Americans based on how much below a certain threshold they earned. Friedman conceded that the NIT “reduces the incentives of those helped to help themselves, but it does not eliminate that incentive entirely, as a system of supplementing incomes up to some fixed minimum would. An extra dollar earned always means more money available for expenditure.”  According to economist Veronique de Rugy, “There is some evidence that a guaranteed minimum scheme would undermine incentives to seek employment. Four landmark experiments in the 1960s and ’70s examined the Negative Income Tax’s impact on labor supply. The recipients of NIT grants tended to work fewer hours compared to control groups that did not receive the grants.”
  • Thomas Paine (1795). A fierce champion of liberty, Paine proposed a national income in the pamphlet Agrarian Justice (1795): 1) those age 21 should be paid fifteen pounds sterling, “as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property;” 2) the sum of ten pounds per annum, during life, would be paid to every person reaching the age of 50.

Experiments in U.S.

  • Y Combinator. On 1.27.16, this company that funds start-ups put out an RFP: “We’re looking for one researcher who wants to work full-time on this project for 5 years as part of YC Research.  We’d like someone with some experience doing this kind of research, but as always we’re more interested in someone’s potential than his or her past.  Our idea is to give a basic income to a group of people in the US for a 5 year period, though we’re flexible on that and all aspects of the project—we are far from experts on this kind of research.  We’d be especially interested in a combination of selecting people at random, and selecting people who are driven and talented but come from poor backgrounds.  We’re open to doing this in either one geographic area, or nationally distributed.”

Proposals in Other Countries

  • Finland.
    • According to LA Times (12.27.15), “in Finland, a new conservative-led government announced plans this month to hand out a universal basic income of nearly $900 per month starting in 2017. The basic income payments would replace all other benefits, cutting administration and means-testing costs, and will be paid to everyone regardless of whether they have other sources of income. Opinion polls show 70% of Finns favor the idea, which will cost more than $50 billion a year.”
    • According to Vox (12.8.15), “Finland is on the verge of conducting the most methodologically rigorous and comprehensive test of basic income to date…The €800-a-month figure reported in the international press is just illustrative, Kangas says: “€800 is just one sum, nothing more,” he wrote in an email. “Nothing is fixed yet. It can be any other sum or many other sums.” Indeed, Kangas is looking to test more than one model. He emphasizes that nothing is fixed yet. The research group only makes suggestions, and political decision-makers will then determine which models, which research settings, which target groups, and what benefits levels will be experimented with in 2017 and 2018.”
    • According to Matt Zwolinksi, “there’s a very good chance that Finland will become the first country to implement a nationwide Universal Basic Income (UBI). The country’s Social Insurance Institution (Kela) is studying proposals to replace most of its existing welfare state programs with a simple cash grant – 800 euros for every Finnish citizen, regardless of whether they work, regardless of whether they’re willing to work, and regardless of how wealthy they are or how much other income they earn. The Finnish proposal is explicitly experimental in nature, and will, if adopted, start off on a relatively small scale in 2017, testing not just a full-scale UBI but also a more modest UBI and a negative income tax (NIT) in which benefits will decline as income rises.This initiative will provide very useful information about whether the income effect of UBI (which would imply greater substitution of leisure for work) will be outweighed by the substitution effect (the UBI will have zero work disincentives since it will not in any way be means-tested).”
  • GermanyAccording to LA Times (12.27.15), a small real-life experiment called “Mein Grundeinkommen” (My Basic Income) is taking place in Germany. The privately operated project is financed by crowdfunding donations. Berlin entrepreneur Michael Bohmeyer, 31, decided to launch his “My Basic Income” project in 2014.
    • “A basic income paid out to everyone could unleash enormous amounts of creativity,” said Bohmeyer, who left his Internet start-up business, and for a while was savoring a relatively carefree life, living off those proceeds, when he came up with the basic payment experiment. “Machines are going to be taking care of just about everything for us over time,” added Bohmeyer, who comes from formerly communist eastern Germany. “So to be able to work creatively, people need some security, they need to feel free. And they can get that with a basic income.”
    • At this point, 26 people have been chosen at random to get a taste of basic income. Every few weeks, several more people are selected through drawings to receive 1,000 euros per month each for a year. They’re free to do whatever they want with the money. The recipients are picked from a pool of more than 66,000 applicants and drawings are held whenever enough donations are collected. So far a total of 31,449 people have made donations.
  • NetherlandsAccording to LA Times (12.27.15), “there is growing support for a basic income in the Netherlands.”
  • Switzerland. The Swiss are set to vote on whether their country should introduce a basic national income of 2,500 Swiss Francs ($2,800) a month for every adult, regardless of their salary or net worth. A date for the vote has yet to be announced (Reason, 11.26.13). According to LA Times (12.27.15), the referendum will occur in February 2016.

Analysis

  • Economics Detective (podcast with transcript). The Basic Income Guarantee, Freedom, and the Welfare State. Explains UBI in the context of the competing philosophical theories offered by John Rawls and Robert Nozick.
  • Hammond, Sam. Universal Basic Income is Just a Negative Income Tax with a Leaky Bucket.
  • National Review‘s Jim Manzi argued in 2011 that of all the policy options tested, only welfare policies that included work requirements pushed people off welfare and back to self-sufficiency. Manzi concluded that taxpayers’ moral aversion to subsidizing sloth will ultimately undermine any move to a guaranteed income or negative income tax scheme that lacks work requirements. People, he demurs, seem to prefer the paternalism (Veronique de Rugy, Reason, March 2014).
  • The Great Smoky Mountains Study of Youth assessed a quasi-experimental increase of roughly 20% in the cash income of families benefiting from Indian gambling revenue. The increase amounted to about $4,000 annually per capita. A study of the impact concluded:  Our results indicate that there are large beneficial effects of improved household financial wellbeing on children’s emotional and behavioral health and positive personality trait development. Moreover, we find that these effects are most pronounced for children who are lagging behind their peers in these measures before the intervention. Increasing household incomes reduce differences across adolescents with different levels of initial emotional-behavioral symptoms and personality traits.
  • On Point with Tom Ashbrook. Time For A Guaranteed Basic Income? (podcast: 1.14.16). What if every American was guaranteed, by the government, a minimum basic income? It sounds radical, unthinkable by many old measures. But a surprising span of supporters – left and right – is now saying “think again.” The new economy is so unpredictable that people need a floor to stand on. And a guaranteed income would be instead of a whole lot of existing welfare programs. This hour On Point, the surprising chorus of voices saying guarantee Americans a basic income.