Basic Income Faculty Journal Series Posted on Thursday, August 16, 2018

Two Objecions to Universal Basic Income

Michael A. Lewis Professor of Social Work, Hunter College

I graduated with a PhD in sociology from the CUNY Graduate Center in 1996. Shortly after, I co-founded a network of academics and activists interested in promoting discussion of the Universal Basic Income (UBI). That network was called United States Basic Income Guarantee (USBIG) and still exists. When we started USBIG, UBI was not getting anywhere near the attention it is these days. I have no idea if USBIG had anything to do with this. But if our goal was to promote discussion of UBI, for whatever reason, that discussion is in full swing.

Although there wasn’t as much discussion during those early days of UBI as there is now, what discussion there was is remarkably similar to what we hear these days. That is, the main arguments for and against basic income have remained more or less the same. Since at least some readers of this series my have heard of UBI but not be that familiar with it, what I will do in this essay is provide a brief overview of the proposal, as well as some of the discussion surrounding it. More specifically, I will focus on two of the main reasons some think UBI is a very bad idea.

UBI is typically defined as “a periodic cash payment unconditionally delivered to all on an individual basis, without mean test or work requirement (https://basicincome.org/news/2016/10/international-biens-clarification-ubi/). Of course, the “all” in the definition doesn’t necessarily mean literally all. For example, if the U.S. were to allocate a fixed sum of money, on an individual basis, and without means test or work requirement, to all those residing legally within the U.S.; this would still be considered a basic income. Yet neither undocumented persons nor those residing outside the U.S. would be eligible. So, the “all” in the definition of UBI is best understood as all members of some designated political community.

The “without means test” part of the definition is intended to distinguish UBI from some of the standard programs which currently make up welfare states throughout the world. For example, The U.S. has a program called Temporary Assistance for Needy Families (TANF) which only provides benefits to families whose incomes (or means) fall below certain specified levels. UBI would be different.

Every eligible member of the designated political community would receive a UBI, although, once personal income taxes were accounted for, not everyone would necessarily receive the full amount. That is, if UBI were implemented alongside a system of income taxes, to calculate the net amount someone would receive in UBI would require subtracting any taxes they owed from the stipulated UBI amount.

For example, suppose everyone were entitled to a UBI of $1000 per month. If they also owed $500 per month in taxes, their net UBI would be only $500 per month, even though the gross amount would be $1000 for that period. Those with very high incomes would end up owing more in taxes than they’d receive in UBI, making them non-recipients of the benefit on a net basis.

The “without work requirement” part of the UBI definition is to distinguish it from programs, such as TANF, which require beneficiaries to work, or engage in some type of work related activity, in order to receive their benefits. Those who refuse to do so, stand the risk of losing those benefits. UBI does not have such a requirement. This is one reason it’s sometimes referred to as “free money.” And the fact that UBI is sometimes thought of this way leads to one of the main arguments against it, as pointed out in Eri Noguchi’s piece: it would cause people to work less.

In her piece, Noguchi focused on the work disincentive effect of the UBI grant when it comes to the behavior of recipients. Providing people with an income they do not have to sell their labor to receive could result in some selling less labor or, more colloquially, working less. I think Noguchi makes a good case for why such a reduction in labor supply might not be as bad as it is often made out to be. But there is a dimension of the work disincentive concern, having to do with the financing of UBI, she does not address.

Suppose a UBI were financed by an increase in the marginal tax rate on personal income. Since for those who are not independently wealthy, the main source of their incomes is work, an income tax is effectively a wage tax. According to orthodox economic theory, an increase in the marginal tax rate would have two effects: a substitution and an income effect.

An increase in the marginal tax rate means workers would keep less of each dollar they earned; that is, their take-home pay would decrease. So, it would not be as costly to them to work fewer hours as it would have been before the tax increase. This is the substitution effect.

But an increase in the marginal tax rate would also have the opposite effect. If people’s take-home pay decreased and they wanted to maintain their standards of living, they’d have to work more not less. This would tend to increase labor supply and is the income effect of a marginal tax rate hike.

It would be great if economics told us which of these effects will dominate the other. But, alas, it does not. And because it does not, it is hard for us to predict the labor supply effects of an income tax financed basic income.

This is a reason to consider other possible sources of financing. Some have argued that we should finance a UBI by taxing what could be referred to as the “privatization of natural resources” (Standing, 2017). The model here is Alaska. Alaska taxes the profits oil companies make from drilling, invest these revenues in a diversified portfolio, and every year disperses some of the returns to each resident of the state. Some basic income proponents have argued that we should do something similar at the national level. For example, we could tax carbon emissions, allocating the proceeds, on a periodic basis, to each U.S. resident.

The philosophical justification for such efforts is something like the following. Natural resources, like oil and the atmosphere, do not just belong to oil or other types of companies. Neither do they belong only to drivers of vehicles with internal combustion engines. They belong to all of us. And if we allow private companies, as well as individual residents to profit, or otherwise benefit, from these resources, we have every right to require them to compensate us for their use of our shares. A UBI financed from these types of resource taxes would be an excellent way to coordinate such compensation.

Another frequent criticism of UBI, which seems superficially similar to the previous one, is the “no something for nothing” objection. The idea here is that people shouldn’t receive money without having to do anything in return for it. The concern is not, as one might think, that people would work less if they received something for nothing. Even if there would not be a huge decrease in labor supply, proponents of this view still believe it is morally wrong to provide people with free money.

Every time I have heard this second objection, I have wondered what these folks think about inheritance. As I write these lines, there are some who stand to receive vast sums of money and wealth, yet all they did to receive such largesse was be born to wealthy parents, grandparents, or others. I have heard very few people who have voiced the “no something for nothing objection” also argue against inheritance. Yet public policy could be used to abolish this type of something for nothing transfer. For example, a 100% estate tax might do the job.

I suspect the view among such folks is that we do not have the right to tell people what to do with their money. If they want to leave it to their children or grandchildren, who are we to stop them? I am going to resist the urge to challenge this “their money” notion and assume, for the sake of discussion, these critics of UBI are right. That is, I will assume we are talking about their money. This particular response seems to imply that allowing people to do what they want with their money takes priority over making sure no one receives something for nothing. This leads me to a question.

Many proponents of UBI argue that it would be a way of enhancing people’s economic security, as well as allowing them to spend less time working and more doing other things they’d rather do instead. Some of these might be things most of us would rather people not spend more time doing. The classic example, of course, is consumption of dangerous drugs. But some folks who spend less time working will spend more of it caring, learning, playing, or engaged in other pursuits, having nothing to do with drug use, in an effort to enhance their lives or those of others. If allowing people to allocate their money as they see fit has priority over preventing folks from receiving something for nothing, why doesn’t economic security and enhanced freedom to live one’s life as one pleases enjoy that same priority? Is it obvious that allowing the Bill Gates of the world to leave as much money as they want to their kids is enough to override the something for nothing objection, while granting people a UBI, which could enhance freedom, as well as decrease the likelihood of destitution, is not?

 


 

 

 


Michael A. Lewis is a social worker, sociologist, and former community organizer. He currently teaches courses in economics and public policy at the Silberman School of Social Work.