Targeted Income
Recently, more and more countries have been switching over to an economic system of private ownership. This capitalistic system has resulted in enormous economic growth in some countries such as China. It may seem great on the outside as we see the emergence of beautiful cities and the luxuries of the future. But, capitalism does not benefit all. Capitalism increases the extremities on both sides of the spectrum, the rich become richer and subsequently the poor become poorer. Many people have introduced solutions to this problem of poverty, one of these being a Universal Basic Income or UBI. A UBI is a guaranteed payment that each citizen receives regardless of wealth. Some say that a UBI would be effective at reducing the poverty gap, but I claim that a targeted basic income towards low-income households would be more effective because it would feasibly reduce the income gap.
The strongest argument against the funding of a UBI is where would the money come from to fund it? Many argue that the funding for a UBI would have to come from the cutting of the social safety-net program in order to meet budget goals. Or, that it would have to come from a Value Added Tax(VAT), which would be a 10% added tax on all goods. Regardless of the method of funding, people say that it would be inefficient, result in lots of debt and be too expensive. The UBI would increase our already large debt, “we project that same UBI plan would increase federal debt by over 63.5 percent by 2027 and by 81.1 percent by 2032” (https://budgetmodel.wharton.upenn.edu/issues/2018/3/29/options-for-universal-basic-income-dynamic-modeling). A UBI is extremely expensive to implement and would put us in even more debt. This is not feasible in the long run as our country needs to focus on reducing our debt instead of increasing it. This type of UBI would never be passed, and adding onto the already large cost it brings, it would be ineffective at reducing the income gap which is its intended purpose.
Many people propose we should cut social programs to reduce the total cost of a UBI. The problem with this reasoning is that it would actually cause the income gap to worsen. Lower income households wouldn’t receive as much relative aid as they did since everyone is receiving the same amount of money which would mean the gap between how much money everyone has is still the same. As Greenstein says in CQResearcher, “If you cut programs targeted on low income people and redistribute the money in equal payment amounts that go all the way up the income scale, you’re increasing poverty and inequality.” Basically, a UBI could do exactly the opposite of what it is intended to do due to the nature of how it is funded, it could result in the poor actually becoming poorer. Most programs are geared towards low income people so that they receive more aid, but if you cut these programs then redistribute the money you are giving less money to the lower income and more to the higher income relative to before a UBI. With this in mind, I would say that it is reasonable not to implement a UBI as it could worsen what we see now.
Rather, a more beneficial way would be through an opt-in system for lower income people. An opt-in system would allow people to choose whether to receive cash or receive federal funding through welfare programs. The money that people request for cash would be paid for by taking money out of the social-welfare program, this way welfare programs aren’t completely cut out of the system, they just aren’t as prominent. This would also reduce the costs. This option would only be available to low-income individuals as implementing a UBI to individuals of all incomes would be too costly. Additionally, this would solve the problem of poverty and inequality; by only granting a UBI to lower-income individuals as opposed to everyone all the way up the income scale you are directly benefiting them as opposed to everyone. This is because we would be giving more money to the poor and none to the rich so the gap would decrease.
The ability to choose between welfare programs and cash would allow individuals to have freedom in their source of federal aid. Individuals who prefer cash have the opportunity to spend their money on what they want, and those who would prefer to still receive welfare programs don’t lose out as they can still benefit from these programs. This would allow individuals to focus more on their current needs instead of getting generalized needs that don’t help when they have a crisis. For example, if one was very low on food or needed to pay rent they could use the money for that, but through welfare programs they wouldn’t have that opportunity. The only problem is that this could still be very expensive.
Giving people straight cash would be more costly than welfare programs. But, there are methods we can take to reduce the costs. Many large corporations do not pay any federal income tax and we can begin by taxing them. One of these companies is Amazon who paid “$0 in federal income tax in 2018” (https://smartasset.com/financial-advisor/universal-basic-income). The amount of money that these companies make is tremendous that even taxing a fraction of their revenue would make a large impact. Yet, for some reason we do not tax these companies and let them walk away tax-free. It would be reasonable to start taxing these companies to fund a targeted income to make it more feasible. These measures taken would help reduce the costs associated with my proposed opt-in plan yet some would still be opposed to it and believe it would be too costly.
It is possible that even after taxing large corporations and only giving income to lower income people we could still be at a deficit, but this economic deficit is not nearly as bad as it seems. People fail to realize the economic benefits that come with giving people cash. Putting more money into the hands of Americans will permanently grow the economy. According to a 2017 report by the Roosevelt Foundation, “an unconditional cash assistance program of $1,000 for all adults annually would expand the economy by 12.56 percent over the baseline after eight years”. (https://econreview.berkeley.edu/unboxing-universal-basic-income/). Of course, this statistic applies to giving cash to everyone so the increase in the economy wouldn’t be nearly as great. But, the fact still applies that giving people cash will stimulate the economy even if it is not as many people. This is because more cash will mean more spending which will help boost the economy. So, even if this targeted income puts us in a little bit of debt it will pay itself back. Targeted income also has been shown to improve the economy in other ways, it increases output, employment, labor force participation, and wages. For these reasons, a targeted income would help lower-income individuals escape the cyclic nature of poverty and fund itself through the nature of spending in the economy.
The current UBI system proposed has a good thought behind it but unfortunately its implementation is poor. It would be very expensive and would require us to add a Value added tax which would hurt the economy as it would create more inefficiencies in the market and people would not spend as much. Additionally, it may require us to cut social programs that are targeted towards the poor then redistribute that money to everyone. This would have the opposite effect of its intended purpose and increase the income gap as poorer people would be receiving less relative money than they did before. The best way to combat these flaws would be to implement an opt-in system for low income people. They would be able to choose if they want to receive cash or government funding, giving them freedom in their spending. This would not be nearly as expensive as it would only be applied to a lower percentage of the population and it would actually benefit them as we are only helping them so the gap would be reduced.
