The Case Against a Universal Basic Income That Isn’t

Daniel Hemel
Jul 10, 2016 · 6 min read

The chairman of President Obama’s Council of Economic Advisers, Jason Furman, made waves last week with a speech at NYU in which he rejected calls for a universal basic income (transcript). I generally think that Furman’s arguments on questions of economic policy are cogent and compelling. His arguments against a UBI, however, strike me as uniformly unpersuasive.

The case for a UBI rests on two premises: (1) low-income individuals (and not just the “deserving poor”) are entitled to some level of state support; (2) at least some of that support should come in cash rather than in kind. If you agree with those two premises, then you support a universal basic income — all the rest are details. (Some readers might ask at this point: But wouldn’t a UBI go to everyone — and not just low-income individuals? Well, yes and no. More on this point below.) One might think, then, that any case against a UBI should challenge one of these two premises (or both). Furman challenges neither.

Furman’s first argument against a UBI is that:

We should not advance a policy that is premised on giving up on the possibility of workers’ remaining employed. Instead, our goal should be first and foremost to foster the skills, training, job search assistance, and other labor market institutions to make sure people can get into jobs, which would much more directly address the employment issues raised by AI than would UBI.

This is rhetorical legerdemain. Some people support a UBI because they think that artificial intelligence will lead to widespread unemployment. But that is hardly a “premise” of a UBI. Thomas Paine supported a UBI, and not because he was worried about robots taking all of our jobs. Some UBI advocates believe that a moral state must be justifiable to all members of society, and that a UBI is a means of ensuring that the state can be justified to those who benefit the least from the legal and market institutions that the state supports. Other UBI proponents believe that all individuals (or, at least, all law-abiding individuals) contribute through their abidance to the production of social surplus, and are thus entitled to a share of the surplus that results from their behavior. These and many other arguments for a UBI are not “premised on giving up on the possibility of workers’ remaining employed.” They are instead premised on the belief that even nonworkers are entitled to some level of state support in cash form.

Moreover, the choice between a UBI and job training is a false choice. We can have both. If we respect the autonomy of low-income individuals and generally think they know what’s best for themselves, then why not offer an unconditional cash grant that recipients can use — if they choose — to pay the cost of enrolling in a job skills program? To be sure, some might argue that low-income individuals don’t know what’s best for themselves and need the state to channel them into job training. But that is definitely not Furman’s argument (and I would be surprised if he thought that were the case).

Furman’s second argument against a UBI fares no better:

[R]eplacing our current antipoverty programs with UBI would in any realistic design make the distribution of income worse, not better. Our tax and transfer system is largely targeted towards those in the lower half of the income distribution, which means that it works to reduce both poverty and income inequality. Replacing part or all of that system with a universal cash grant, which would go to all Americans regardless of income, would mean that relatively less of the system was targeted towards those at the bottom — increasing, not decreasing, income inequality. Unless one was willing to take in a much larger share of the economy in tax revenues than at present, it would be difficult both to provide a common amount to all individuals and to make sure that amount was sufficient to cover the needs of the poorest households.

No it wouldn’t. As Benjamin Leff points out, “if one were willing to reform the income tax along with instituting a UBI, one could easily target the benefits of the UBI to the poor simply by taxing away the grant for higher-income earners.” Let’s say we institute a UBI and set the basic income for single individuals at $4,229 per year. (The number seems random but won’t in a moment.) Let’s also say we want to target the UBI only to individuals in the bottom two income tax brackets (i.e., up to $37,650 per year for single filers). Right now, we have a 10% rate for income up to $9,275 and a 15% rate from there until $37,650, so a single person with $37,650 in taxable income pays $5,184 in taxes. Now let’s say we raise the bottom two rates to 25%, along with implementing a UBI (and let’s say that the UBI itself isn’t taxed). Our single filer with $37,650 in taxable income now owes $9,413 in taxes and receives a UBI of $4,229, so her net payment is $5,184 — exactly what it was before. Every individual with more than $37,650 in taxable income is unaffected by the policy change; every individual with taxable income less than $37,650 receives more through the UBI than she pays in income taxes.

The “universality” of a universal basic income is little more than an accounting trick (and perhaps a branding strategy). In my example — a UBI with offsetting adjustments to the bottom two bracket rates — Warren Buffett would technically receive a UBI, but his net payment to the Treasury would remain the same. I don’t know whether describing the basic income as “universal” will make it more politically palatable or less so. It seems to have made the policy look less attractive to Furman, but he is hardly the median voter.

Third and finally, Furman acknowledges that “some of the motivation for UBI has nothing to do with future technological developments” but instead rests on the premise that a UBI would be “simpler, fairer and less distortionary than the social assistance system we have today.” (This would seem to be in tension with Furman’s earlier suggestion that a UBI is “premised on giving up on the possibility of workers’ remaining employed.”) Furman continues:

[S]uffice it to say that today’s system could be improved . . . . But at the same time, a wave of recent research has found that many of the common criticism of these programs — for example, that they discourage work, or that they do little to reduce poverty — have been greatly overstated, and a number of programs — including nutritional assistance, Medicaid, and the Earned Income Tax Credit (EITC) — have important benefits for the long-run earnings, health and educational attainment of children who grow up in recipient households.

Let’s stipulate that the Supplemental Nutrition Assistance Program, Medicaid, and the EITC do not discourage work (and that the EITC affirmatively encourages work). Let’s also stipulate that the UBI is, by any measure, “simpler” than SNAP, Medicaid, and the EITC (I assume that Furman would concede as much).

But would a UBI be fairer than existing social assistance programs? The answer depends in part on whether you think individuals who don’t work (or work only part-time) are entitled to at least a subsistence-level income from the state. The EITC only benefits workers who earn income, and SNAP comes with work requirements as well. If one believes that the state ought not provide assistance to the “undeserving poor,” then that is indeed a reason to favor the status quo over a UBI. Yet again, that is not Furman’s argument — and likely not a view to which he would subscribe.

Last but not least, the case for a UBI need not rely on the premise that the welfare state isn’t working. One can acknowledge that in-kind welfare benefits and conditional cash transfers are better than nothing at all while also arguing that unconditional cash transfers are even more effective. Or one can remain agnostic as to the relative efficacy of in-kind transfers and conditional and unconditional cash payments but still support a UBI on non-utilitarian grounds. Again, all it takes to support a UBI is to believe that low-income individuals are entitled to some level of state support — with no strings attached — in the form of cash. Arguments against a UBI that don’t take aim at these premises aren’t really arguments against a UBI.

Whatever Source Derived

Thoughts on tax and the law

Daniel Hemel

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Assistant Professor; UChicago Law; teaching tax, administrative law, and torts

Whatever Source Derived

Thoughts on tax and the law

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