The Progressive Case for Replacing the Welfare State with Basic Income
(This article was originally published on techcrunch.com)
It appears some establishment voices have picked up on a way of opposing the idea of the monthly citizen dividend of about $1,000 per month, known as universal basic income (UBI), in a way that successfully leaves some progressively minded people afraid.
The fear inspired is that those with the greatest need may be left worse off with UBI compared to the existing status quo of more than 100 government programs that currently comprise the U.S. safety net that UBI has the potential to entirely or mostly replace.
The argument goes that because we currently target money to those in need, by spreading out existing revenue to everyone instead, those currently targeted would necessarily receive less money, and thus would be worse off. Consequently, the end result of basic income could be theoretically regressive in nature by reducing the benefits of the poor and transferring that revenue instead to the middle classes and the rich. Obviously a bad idea, right?
This new argument has been made most notably by the White House’s own chief economic adviser, Jason Furman, perhaps after himself reading the words of Robert Greenstein of the Center on Budget and Policy Priorities (CBPP).
The problem is that those who make this particular argument are building somewhat of a straw man, not only because of the blanket assumptions they are making around a very specific tax-neutral design, but also because they aren’t publicly acknowledging just how poorly our present means-tested programs are targeted by virtue of their applied conditions, and just how unequal one dollar can be to one dollar, however counterintuitive that may seem.
Basically, this particular argument would only make sense if we in no way altered our tax system to achieve UBI, and if our programs worked as we assume they work because that’s how they should work. The problem is they don’t work that way.
Assuming things work as we think they work is exactly one of the biggest obstacles we’ve always had to improving anything, because to fix something we first need to understand it’s broken. If it ain’t broke, don’t fix it, right? Well, guess what? Our safety net is broken, and it’s broken at such a fundamental level, there’s no fixing it, because it is by design. A net full of holes must be replaced by a floor free of holes and that floor is unconditional basic income.
Nothing but net holes
In the United States today, on average, just about one in four families living underneath the federal poverty line receives what most call welfare, which is actually known as Temporary Assistance for Needy Families, or TANF. It gets worse. Because states are actually just written checks to give out as they please in the form of “block grants,” there are states where far fewer than one in four impoverished families receive cash assistance.
In Oklahoma, seven out of 100 families living in poverty receives TANF. In Wyoming, merely one in 100 of those living in poverty receives TANF. Where does the money go instead? It goes to educate the children of those earning over six figures. It goes to programs trying to convince women to get married. And it goes directly to state government treasuries so they can cut taxes on the rich. The fact is that cash welfare, as it exists today, is not given to the overwhelming majority of those living in poverty who need it.
Single adults without children know this better than anyone. They even have their own moniker: ABAWDs (Able-Bodied Adults Without Dependents). ABAWDs have the lone distinction of being the only demographic in the U.S. to be literally taxed into poverty, all 7.5 million of them. Because they earn income and because they do not have the child necessary to qualify for virtually any assistance — even the earned income tax credit (EITC), which is meant as a boost for low-income workers through the tax code — those earning enough to be above the federal poverty line can end up beneath the poverty line after paying taxes. And those already beneath the poverty line are pushed even deeper, effectively punished for being childless and working.
Combine all of those without dependents with all of those with dependents but without sufficient income to qualify for EITC and living in states averse to cash assistance, and the reality is that tens of millions of adults and children fall straight through the net purportedly designed to catch them. Any net is mostly nothing but holes, and nowhere is that more true than in the United States.
Assumption: Everyone living beneath the poverty line receives cash assistance.
Observation: Most don’t.
The same is true of housing assistance. There is a belief that poor people galore are sitting on easy street with affordable living conditions, where housing vouchers are given away like Halloween candy to anyone with a hand out.
The truth is that 24 percent of those who qualify for housing assistance get it, and getting it can mean years of waiting on lists. Here in New Orleans, where I live, the wait list is opened about every seven years or so, and when it is, tens of thousands apply despite fewer than 1,000 people becoming new recipients of vouchers each year.
Additionally, vouchers are not at all “just like cash.” Cash is accepted in payment by all landlords everywhere. Section 8 vouchers, meanwhile, are accepted only by those who choose to accept them, which is few and far between, and certainly not in what are considered to be “high opportunity” neighborhoods. This is true even of “supervouchers” that are specifically designed for that purpose.
Assumption: Everyone living in poverty receives housing assistance.
Observation: Most don’t.
Food stamps, too, are not given to everyone living under the poverty line. About one-quarter of those living in poverty get no government food assistance, and of those who do, a third of them still need to visit food banks for added assistance because the amount given is nowhere close to being sufficient to get people through each month.
Estimates point to food stamps lasting on average about three weeks of every month. Worse yet, food stamps can even have harsh time limits (e.g. three months of SNAP every three years), growing restrictions on how they can be used (sorry, no seafood allowed) and work requirements (30 hours per week).
This is food we’re talking about. Why should any bureaucrat ever exist between the most basic human need of all — the need to eat — and access to food?
Assumption: Everyone living in poverty receives food assistance.
Observation: Some may temporarily, but the amount is insufficient and full of costly strings.
However, one of the best examples of all the vast differences between the assumption and the observation of how government benefits work is how we target those with disabilities. It has been estimated that 22 percent of adults in the U.S. have some form of disability. At the same time, 4.6 percent of adults age 18–64 in the U.S. are receiving disability income. So again, about one-quarter of those we say we should be targeting actually receive anything, while the bulk get nothing.
The absolute worst thing though, and what too few people seem to know, is that when it comes to disability income, you are essentially not even allowed to earn additional income. If you’re on SSDI and earn one dollar over $1,090 in a month, you are dropped from the program and lose 100 percent of your benefit. That is the steepest of “benefit cliffs” and it’s the equivalent of taxing those with disabilities at rates far greater than 100 percent as a reward for their labor. It’s also the exact opposite of a basic income that is never taken away.
It is this clawback of means-tested benefits with the earning of income that is possibly the single greatest flaw of all targeted assistance, and also the single most ignored detail when people defend the current system over the introduction of a basic income that would replace it. Simply put, $1,000 per month in welfare is not at all the same thing as $1,000 per month in basic income. It’s not just apples and oranges. It’s rotten apples and ripe oranges.
With welfare, because it is targeted and therefore withdrawn as income is earned, people on welfare are effectively punished for working. Their total incomes don’t really increase with employment. Welfare functions in many ways as a ceiling.
With basic income, because it is unconditional and therefore never withdrawn as income is earned, people with basic incomes are always rewarded for working. Their total incomes always increase with any amount of employment. Basic income therefore functions as a floor.
Do you see the difference?
So when someone says the details matter when it comes to the idea of basic income and suggests the possibility that it could be regressive, and even increase inequality by taking money being targeted at the poor and giving it to the non-poor, understand that the details of the details matter even more than just the details.
The regressive argument operates on the myth that for every four people living under the poverty line, four people get an amount of assistance that lifts them far above the poverty line, and that $1 of welfare is exactly equivalent to $1 in basic income.
The basic income argument operates on the reality that for every four people living under the poverty line, only about one person gets an amount of assistance that does more to trap them in poverty than to lift them out of it, and that $1 of welfare is worth far less than $1 of basic income.
It’s really important to understand this, so let’s zoom in a bit on a worst-case scenario. Let’s assume we replace all of our programs targeted at the poor with UBI, including even Medicaid (which I don’t recommend unless we replace it with universal healthcare instead), and that we provide the UBI to adults only, with nothing for kids (something else I don’t recommend).
Using an example of a single parent with two kids within the current system, we could regressively replace around $45,000 of benefits (if we also eliminate child care, which is yet another detail I don’t recommend) with $12,000 in cash. That is a worst-design scenario and totally regressive right? No. It’s actually partially regressive and mostly progressive.
Although true that one in four would be worse off in such an inferior UBI design, it’s also true that three of four would be far better off because they would no longer receive little to nothing. As an oversimplified example for the sake of clarity, that means instead of the distribution across four adults being $45,000/$0/$0/$0, it would be $12,000/$12,000/$12,000/$12,000. That is more progressive as a whole than it is regressive, and inequality is reduced overall, not increased, because the total at the bottom went from $45,000 across four people to $48,000 across four people. And that is for basically the worst possible, most unrealistic of UBI designs.
But again, those numbers cannot be compared dollar for dollar. Welfare dollars disappear with work and basic income dollars are kept with work. That same parent receiving $45,000 for nothing, if they got a job paying $30,000 right now would receive $20,000 in benefits. That would be a gain of $30,000 combined with a loss of $25,000. That’s a gain of $5,000 for a $30,000 job, or in other words, an income tax of 83 percent. Who else is taxed at 83 percent? No one. In fact, the richest are taxed the least because their income, which isn’t derived from work, is special. It’s simply capital gains, which is taxed at 20 percent.
Even more troubling, welfare dollars themselves are not equivalent to each other. Despite it being against the law to vary welfare dollars along racial lines, that’s exactly what we do. How? It’s again due to the nature of block grants for states. When Bill Clinton signed his welfare reform into law, he agreed to write checks to the states and let them handle how they dish out welfare. As a result, just five years after welfare was reformed into what it is today, 63 percent of those in the programs with the least-harsh conditions were white and 11 percent were black, while 63 percent of those in the programs with the most-harsh conditions were black and 29 percent were white.
In other words, a dollar in welfare has about three to five times as many strings for someone who is black than someone who is white. These strings absolutely affect end results. Joe Soss, co-author of Disciplining the Poor: Neoliberal Paternalism and the Persistent Power of Race describes his findings thusly:
“The stringency of the rules matter tremendously for outcomes. The tougher the rules — and the more frequently people are punished for breaking them — the worse the outcomes are for people after they finish the program. In fact, in the toughest programs, people actually end up in worse shape after they get through them than they were before they got the benefits to begin with. And remember, they were in such a bad situation that they had to turn to a welfare program that’s been so stigmatized that pretty much everyone wants to avoid it. We also found that people who go through the toughest programs learn lessons about government that lead them to retreat from participating in politics. They become less likely to make their voices heard, and less likely to participate in elections and community organizations.”
Does this sound like a just and equitable system? Or does it sound more like a racist meat-grinder?
The bare naked truth of our present welfare system is a racially biased, overly paternalistic, unnecessarily controlling, grossly exclusionary system of punishment and blame that limits opportunity and taxes working beneficiaries more than any other worker in any income tax bracket.
It doesn’t abolish poverty. It helps sustain it. And this is the system establishment voices wish to improve upon in piecemeal fashion, possibly because they’re not the ones being chewed up and spit out by it, or even neglected by it entirely.
However, even if all of the above is clearly understood, there is one absolutely vital thing remaining to understand about basic income that cannot be replicated in any other way, by any other means. Because basic income lacks conditions and is paid regardless of work, it provides recipients the power to refuse to work. This is the real fear of those who worry a basic income will result in people working less, but it is also its greatest strength.
The ability to say no to an employer provides people the bargaining power and the choice to determine how they work, where they work, for how much and for how long. No other policy does that. A minimum wage certainly doesn’t. Wage subsidies certainly don’t. Without basic income, the labor market is coercive, and that means people accept what they can get. With basic income, wages for low-demand jobs must go up and/or hours must go down in order to attract people with incomes independent of work to do them, or those same jobs must be automated to be performed by machines instead, whichever is cheaper.
A basic income is most simply a minimum income floor. It’s a new starting point above the poverty level instead of below it. There will still be jobs for people to earn additional income and those jobs can pay more if people hate doing them. Additionally, considering a potential future where there’s half as much employment, that also means just as many can be employed if we all work half as much so as to better share the remaining employment. And with the increased bargaining power UBI provides, that can also mean getting paid more for less work.
Basic income is not some regressive conspiracy of the Silicon Valley elite to create a neo-serfdom where the entire population only earns a maximum of $12,000 per year. That is the exact opposite of how it works. With basic income, $12,000 becomes the new absolute minimum for everyone and no one is a serf because everyone’s basic needs are covered. Poverty is eliminated. Inequality is reduced.
Additionally, everyone is free to earn any additional income, and on their terms. For the first time, everyone will have the individual negotiating power to dictate terms to employers that must be met. People who have this fundamental power are those who can then make further desired changes in the economy, in their businesses, in their governments and in their lives.
So you tell me. Would you prefer conditional welfare nets or would you prefer an unconditional basic income floor? Because one of these options is a relic of history, and the other is a road to the future.
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