ECONOMY

What is Universal Basic Income (UBI)?

DEFINITION

Universal basic income is a proposed government-guaranteed payment that each citizen receives. The purpose of the universal basic income is to provide all citizens with the necessary means to improve their standard of living and purchase essentials.

 

Definition and examples of Universal Basic Income

A government-sponsored program, universal basic income pays a fixed monthly amount to every eligible citizen or resident. This type of government benefit aims to relieve the financial burden on residents by providing them with enough money to cover their basic needs.

These programs are experimental or in development, so there is no criteria as to who receives income. Some people believe all citizens should be eligible, regardless of their income. Others believe only those who earn below a certain amount should qualify. Some people believe a government sponsored income is neither necessary nor fair for all.

Note:

GBI (guaranteed basic income) is not the same as UBI. GBI gives income to certain groups depending on their financial needs. UBI, however, is given to all.

 

Universal Basic Income: How it Works

The basic idea behind universal basic income is that tax revenue can be used to create programs to pay all residents within the jurisdiction of a government. The state or federal government will divert a certain amount of tax revenues for this program, and then distribute the funds to residents.

The economists Kalle Mne and Debraj Ry, for example, propose a system of payments tied to the output of a country. The economists suggest that between 10% and 12% of the gross national income should be allocated to universal income payments. The payments would rise and fall according to the income levels of the country, as well as inflation. 

Milton Friedman proposed a negative income-tax in 1962. However, Friedman’s idea is more in line with GBI in that only certain people would benefit. His idea was that those earning below a certain income would receive a credit. The tax collected from families who earn above a certain level would pay for it. 

 

What is the purpose of UBI?

A universal basic income provides everyone with an income that ensures they can meet their basic needs, such as housing, food, and clothing, while also providing them with additional support during difficult times.

This was the case during the COVID-19 Pandemic. As a result, unemployment soared and the federal government stepped in to increase unemployment benefits. The result was a rise in unemployment, which led to the federal government increasing unemployment benefits for those who were in financial hardship.

Note:

Some people believe that a UBI will negate the need for social programs such as the Supplemental Food Assistance Program (SNAP), federal home assistance or Temporary Assistance for Needy Families.

 

What Would the Cost of Universal Basic Income Be?

7 Each person in the workforce would need to pay $1.968 trillion annually for a GBI of $12,000. Many supporters of UBI argue that it would not be necessary to add to the current welfare spending. A basic income would enable the government to reduce redundant programs and associated bureaucratic expenses.

With more than 300 millions Americans, $12,000 per annum would cost over $3.6 trillion annually.

 

UBI: Difficulties to be faced

9 Raising the U.S. Minimum Wage is difficult even though 62% Americans support increasing it to $15 an hour according to a Pew survey from 2021.

Some plans call for a tax increase on the wealthy, while others say corporations should be taxed. Some plans, for example, call for an increase in taxes on the wealthy while others suggest companies should be taxed.

 

History of Universal Basic income in the U.S.

In the U.S., there have been several attempts to implement UBI. For instance, in 1968 the President Johnson administration tested the negative income tax on New Jersey and Pennsylvania. The study found that people who received negative tax benefits decreased their work effort despite being offered incentives to increase earnings. Seattle and Denver tested a higher-paying programme. Both studies found that there was a reduction in the incentive to work.

The earned income tax credit today is a guaranteed income. The credit is a percentage of the earned income, up to a certain maximum. The credit grows along with the income and encourages people to work. As income increases, the credit decreases.

Note:

The critics argue that the earned income credit disincentivizes people to earn more. This is an argument also used against universal basic income.

Stockton in California launched a pilot GBI program for two years. The program gave $500 per month to 125 residents. The experiment showed that GBI helped many people find full-time jobs, provided food for many and reduced the volatility of income in lower-income families.

 

The Pros and Cons Of Universal Basic Income

Pros

  • Waiting for a better job or higher wages could be a long wait.
  • People can return to school, or stay at home to take care of a family member.
  • Can help to remove the “poverty-trap” from traditional welfare programmes

You can also find out more about Cons

  • People may not be motivated to work by a free income
  • Can we perpetuate the falling participation rate in the labor force?
  • Comfortable money

Pros Explained

  • Workers can wait for better conditions: A basic income that is unconditional would allow workers to wait until they get a better job, or a higher wage.
  • People can return to school or care for relatives at home. They would be less stressed if they had to take care of family members.
  • Can help eliminate the “poverty-trap” of traditional welfare programs. Many existing programs have been criticized for keeping individuals below the poverty level. Welfare recipients can lose their benefits if they earn too much even though their income is not equal to the cost-of-living. A basic income can be a springboard for the welfare system, rather than a shackle. 15

Cons explained

  • Free Income may not encourage people to find jobs Oren Cass is a senior fellow of the Manhattan Institute. He says UBI will make work appear optional.
  • Could perpetuate a falling labor force rate. Some people might choose to accept the payments and not work to get a job, reducing a already-falling labor force rate.
  • Money to the Comfortable: Universal Income means that everyone is entitled to it, regardless of their wealth or income.

The Key Takeaways

  • A universal basic income ensures that everyone receives a minimum wage, regardless of whether they are employed or not.
  • UBI is designed to help people who are struggling with poverty, unemployment, transitional periods or other income gaps.
  • Pilot programs are being tested in many countries, cities, and states to determine the effectiveness of universal basic income.

 

FAQs (Frequently Asked Questions)

What countries offer a universal income?

The only countries that offer universal basic income are Iran and Mongolia.

 

Who is eligible for Universal Basic Income?

Qualifications for UBI payments differ depending on the proposal. All permanent residents should be able to take part in the program. UBI is similar to Milton Friedman’s negative income tax and guaranteed basic income. However, they exclude citizens if their income exceeds a certain threshold.

the authorAaron Krause

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