Universal Basic Income – What Is It and Why Are People Talking About It?

Universal Basic Income (or UBI) is a trendy social policy concept being tossed about by a wide variety of thought leaders from Silicon Valley to the Washington DC think tanks.  Whether it is a solution to combat the loss of jobs through automation, stimulate innovation and entrepreneurship, or help complement the existing social safety nets of society, there are a myriad of proponents and detractors with compelling arguments on both sides.

How do you feel about a fixed payment from the government with no strings attached, regardless of your employment status?  The thought would be that government would provide every citizen a fixed payment to fund basic living expenses at a certain age for life.

A fixed cash payment from the government is not a new concept.  Several foreign countries (Canada, Finland, and the Netherlands) have experimented with this concept on a limited scale with varying disputed results.  Milton Friedman and Martin Luther King, Jr. advocated a basic income policy in the 1960’s to help mitigate poverty.  In addition, President Nixon’s proposal (called the Family Assistance Plan) was presented to the Senate in 1970 but failed to garner enough support to become law.  Hawaii is currently studying the possibility of implementing a universal basic income.

THE ROBOTS ARE COMING!!

One of the top concerns prompting the discussion for a UBI is the coming impact of automation on jobs. Economists are debating and trying to project the effect of the automation movement.  A 2016 study by the World Bank estimated that as many as two-thirds of the jobs in developed nations could be susceptible to replacement by robots.  A similar study done by two members of Oxford University estimates that 47% of US jobs could be displaced by technology over the next 20 years.  These technologies can and will cause disruptions in the job and labor markets without a doubt.  One of the unsettled issues is whether there will be enough unemployment benefits for these displaced workers.  Proponents argue UBI payments would provide funds to sustain the displaced workers while they retrain and transition to new jobs.

Another goal for the proponents of Universal Basic Income is that it may reduce or eliminate social welfare programs.  We know changes in current other social welfare programs resulting in a reduction in benefits would meet resistance in the current political climate.  Proponents argue that UBI would be much easier to implement because it eliminates the need for eligibility requirements.  For this reason, Libertarian proponents push the policy of a UBI in the hope that it will simplify government redistribution and cut back on fraud and waste.

What is the Cost?

Cost estimates for a UBI payment of $10,000 per year to eligible citizens would cost $3 trillion.  This leads many economists to conclude that this policy would not be feasible.  For purposes of context, please consider that the total U.S. Federal Spending and Revenue for fiscal year 2016 in the chart below.

As you can see above, the total budget is $3.9 trillion; and even if entitlements are reduced/replaced, there is no possible way to fund a UBI without significant increases to revenue.  Many estimates would include a doubling of the personal income tax rate while also increasing the corporate income tax.

While Universal Basic Income could be beneficial to people in immediate need, no matter what the cause, the complications are many.  More importantly, the cost would be unbearably expensive in the country’s current revenue and spending structure.  Discussion will continue, but until automation replaces enough unskilled workers to cause social unrest, I think the reality of a universal basic income will remain a discussion topic for government officials, academics, and futurists, but it will not be a program that comes to fruition in our near-term reality.