A More Achievable UBI

It seems like everyone already finished discussing Universal Basic Income, but better late than never!

I usually try to avoid current, popular policy debates since it doesn’t seem like I will have much to add at the margin. Here, instead of rehashing the existing arguments, I will focus on why I have changed my mind somewhat and suggest a more politically and technically feasible alternative with most of the benefits of a full UBI.

I generally approve of a UBI, and I would be happy to see it implemented in the U.S. because I believe that stronger system of redistribution in the U.S. is both moral and practical. However, my interest in a UBI specifically has waned a bit and I want to highlight why I have changed my mind.

First, as you are reading arguments for and against a UBI, consider how many of them are really just arguments for or against welfare in general. Few of these points are specific to a UBI, which suggests that the same ideas can justify other, reasonable welfare policies.

Second, as Esther Duflo and Abhijit Bannerjee point out in their book Good Economics for Hard Times, the U.S. is a developed country with high state capacity and can carry out effective, targeted welfare programs. While UBI is often admired for it’s simplicity, countries like the U.S. are not limited to simple policy and can pursue more complex, effective plans.

Third, there can be large gains from better targeting welfare. This point builds on the previous one and further justifies engaging in more complex welfare policy in the States. It is well known that a UBI will direct large amounts of money at the American middle class, and, a better welfare policy could instead focus benefits on the poorest Americans.

Ideally, this system will provide a stipend for people with no earnings and smoothly phase out these benefits at higher incomes.

This system of basic income with reduced benefits at higher earnings is an established, economist-approved policy called a negative income tax (NIT). Essentially, an NIT supplements the earnings of people at the bottom of the income distribution, and produces a system of net payments which is similar to a UBI (once the increased taxes required to fund a UBI are taken into account).

Fortunately, we already have such a program, it’s called the Earned Income Tax Credit (EITC).

Unfortunately, the EITC is an NIT with limited eligibility, work requirements, and sharp cutoffs in funding. Payments strongly depend on the number of children the recipient has. Though these restrictions limit the effectiveness of the EITC, the basic ideas of a NIT are already present in this nearly 50-year-old welfare system.

Given this, the alternative to a UBI that I propose is simple. We can cut many existing, ineffective welfare programs in order to fund an EITC with no work requirements and no welfare cliffs. Using the interactive tool from this essay by Andrew Kortina, the current income structure of the U.S. could support a $5000 income for those making no earnings, with a 10% phase out of benefits as income rises, and a top tax rate of 50% (I set the parameters as follows: Radical=1.2, First$TaxFree=30000, MaxRate=0.5). These are pretty conservative settings and could easily be improved upon, but the main point is that a basic income is perfectly achievable with proper tax reform.

The great part about this idea is that it replicates most of the benefits of a UBI by making changes to existing laws, making it much more politically feasible.

But what about the fact that a UBI provides an immediate safety net for entrepreneurs, artists, and other risk-takers? It seems that my plan is inferior to a UBI in this regard. Getting a tax credit such as the EITC at the end of the year is little comfort if you have no income today.

This is why I propose an even more radical change to the EITC: any citizen should be able to request a once-a-month check equivalent to what a person with zero income would receive. Then, at the end of the tax year, each citizen who collected money in this way but had too high of income to be eligible would pay back any money they received (plus interest perhaps). For example, a budding entrepreneur can collect monthly checks to support themselves while working on their startup, and, if they end up getting rich that year, would pay income tax and return the EITC money which supported them.

This provides every citizen with an immediate safety net that doesn’t require jumping through hoops to prove financial need, while the simplicity of the system will reduce administrative costs. Additionally, the modified EITC would provide each citizen with a source of capital that could be used to finance new ventures.

Its clear from this short proposal that commonsense reforms to the EITC can outperform a UBI by more strongly targeting those in need, by being more politically feasible, and by requiring less taxation to finance.

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