Good and Bad Basic Income

Americans are about to participate in a public debate on the idea of basic income whether they want one or not. The debate will occur because the concept is on the verge of becoming a mainstream political issue.

Gallup has started conducting polls on universal basic income (UBI) a sure sign of mainstream awareness. An October 10, 2017, Gallup/Northwestern University poll found that 48% of Americans supported UBI and 52% opposed it.

More importantly, politicians have begun to notice. A minor; and somewhat slimy, Democratic Presidential candidate Andrew Yang has made a $1,000 a month UBI a centerpiece of his campaign. The California Democratic Party has added the phrase basic income to its platform.

Since the issue is on the cusp of sparking debate, it is a good time to evaluate basic income notions and consider their merit. The best way to do this is to take a look at good and bad schemes for basic income.

A Good Basic Income Scheme

A good and perhaps workable basic income scheme is presented by Facebook (NASDAQ: FB) co-founder and Obama campaign architect Chris Hughes in his interesting book Fair Shot: Rethinking Income Inequality and How we Earn.

Hughes’ suggestion is to raise taxes on the rich and pay everybody who makes less than $50,000 a year a $500 a month basic income. This plan is beneficial because it would give working class and lower-income people a stake in the survival of our capitalist system.

One of the greatest dangers in America today is that a lot of average people are no longer benefiting from our economic system. That makes beliefs like Marxism, socialism, Communism, fascism, and Nazism attractive to them.

Such people will be attracted to individuals promising to dismantle the current economic order and revive the past or radically redistribute wealth. The most blatant example of this is President Donald J. Trump (R-New York) and his imbecilic tariff policy; which is designed to recreate the manufacturing economy of the 1950s.

Something to remember is that a hungry man has every incentive to kill, pluck, and cook the goose that lays the golden eggs. America is full of hungry people who are getting little or nothing from the current economic order. They have no reason to preserve it, and every incentive to vote for extremists that would wreck our economy.

How a $500 a Month Basic Income can Help Workers and Stimulate the Economy

Hughes’ proposal is constructive because it would give those groups not participating in the current economic revival an incentive to support it. Those groups include; working-class whites, rural whites, persons without college degrees, African Americans, poor Hispanics, the middle-aged, and the elderly.

Another obvious benefit to Hughes plan is the facilitation of income redistribution without a massive expansion of the bureaucracy. Instead, the government can send the money to people via the same system as Social Security and use existing tax data to determine incomes.

On a moral level, Hughes scheme would not discourage work because it would not provide enough money for people to live on. Although a $500 a month payment would benefit many working families immensely.

Many workers would be able to afford a good reliable vehicle for the first time in their lives under the Fair Shot plan. The present-day reality in America requires the vast majority of people to have a car to get to work. Many families are just one breakdown away from job loss; and the digital poorhouse, because they lack access to a reliable automobile.

Yet, in today’s market, even a decent used car (one that will actually run and get you to work each day) will cost a minimum of $5,000 or $6,000. Under such circumstances, most workers have to finance even a used vehicle which requires a minimum monthly payment of $100 to $200 plus insurance.

With Fair Shot in place, many more workers would be able to finance a new car, which would greatly increase the job opportunities available to a lot of them. More job opportunities would be available because the workers would have access to reliable transportation. Many more people would be able to participate in gig-economy opportunities like Uber; and delivery services such as GrubHub, if they had access to better cars.

Increasing the number of new car buyers would stimulate the economy by creating high-paying jobs for auto workers, auto service technicians, and car salespeople.

A Realistic Basic Income Scheme

Other amenities workers might afford with the Hughes’ basic income proposal might include internet service, better housing, college tuition, trade school, home repairs, daycare for working moms, better food, health insurance, life insurance, smartphone service, education, etc. Even if workers spent the $500 at the corner bar they would benefit the economy.

Obviously, a $500 a month basic income would not replace basic social programs such as unemployment insurance, food stamps, Social Security, etc. but it would augment them.

Such a program would be affordable; Hughes estimates it would cost around $290 billion a year.[1] Less than half the cost of America’s $611 billion defense budget. That means it should be possible to finance the Fair Shot scheme with manageable tax increases. It would also be possible to cover much of its costs with the proceeds a Sovereign Wealth Fund that invests in the stock market.

To be most beneficial, Fair Shot would have to be combined with other progressive policies. These include true single-payer health insurance (Medicare for All), a $15 or higher minimum wage, and a base Social Security payment of $1,000 or $2,000 for the elderly and disabled. The Fair Shot alone would help, but it would be far more effective when combined with those policies.

A Very Bad Basic Income Proposal

A very bad basic income proposal is the centerpiece of Andrew Yang’s slimy presidential campaign. Yang proposes to give every American between ages of 18 and 65 a $1,000 a month universal basic income (UBI).

The proposal would be paid for by a value-added tax (VAT) national sales tax on goods and services. That would disproportionately hurt the working class and might cancel out the benefit of the UBI by increasing the cost of all goods and services.

A horrendous side effect from this system would be to allow the wealthy; most of whom get their money from investments, to pay even lower taxes than they are right now. The worst case result of Yang’s proposal would be lower economic activity, high unemployment, and a situation where tens of millions have nothing to live on but his UBI.

The cost of Yang’s proposal would be astronomical. It would cost around $205.8 billion a month or around $2.469 trillion a year. That would raise the federal budget from around $3.76 trillion to $6.229 trillion. This figure is based on estimates that around 63$% of the US population is between 18 and 65 and a national population of 326.77 million.

Instead of low-income individuals, Yang’s plan would most benefit the middle and upper middle classes. They would get an extra $1,000 a month to invest in the stock market; country-club memberships, trips to Las Vegas, or a new Mercedes.

Yang’s plan seems tailored to appeal to one of Trump’s major constituencies; those desperate to preserve the appearance of a middle-class lifestyle on a shrinking paycheck. Much of Trump’s appeal is to those mostly white; middle-class and middle-aged folk, who fear their position in society is threatened. Yang is targeting the same voters with a blatant bribe.

Yang’s scheme would also encourage generational conflict because seniors would see the UBI as a threat to Social Security. His plan would probably throw many into poverty at 65 when the UBI disappeared.

Yang’s proposal is basically an attempt to appeal to naked greed and buy votes. Worst of all, Yang would pay large numbers of people not to work and lend credence to the allegation that Basic Income is nothing but bread and circuses.

The Basic Income is an interesting policy that might have great benefits to our society. Hopefully, self-serving politicians like Andrew Yang will not reduce it into a tacky tactic for buying votes.

 

[1] Fair Shot: Rethinking Income Inequality and How we Earn Page 93