Economics/Class Relations

We Can Do Better than UBI

A practical way to aid the poor

 

The pandemic exposed the inadequacies of the global welfare system. In the search for a more effective way of helping people, there is growing movement on the Left toward a UBI, or Universal Basic Income. But I argue that a UBI is untenable. Instead, a Negative Income Tax (NIT) offers a more affordable, better-targeted, and simpler replacement for most social programs.

Targeted and Cheaper

Presidential Candidate Andrew Yang propelled the idea of a UBI into the mainstream. Yang’s plan would indiscriminately send monthly checks of $1000 to every American. But at a cost of over $3 Trillion a year, or 3/5th of the total Federal budget, a UBI is simply too expensive without massive tax hikes. For most people, Yang’s UBI would only hand back money it had already taken through taxes, yielding no net benefit.

There is an alternative to a UBI that, believe it or not, is championed by the Libertarian Right: a Negative Income Tax (NIT). A NIT is actually another form of a UBI, albeit one that uses the tax system to target its beneficiaries. To differentiate between a UBI and NIT, however, we will use the term “UBI” to describe an Andrew Yang-style universal check system.

Unlike a UBI, which is a flat universal benefit, a NIT sets a threshold and a phaseout rate. Perhaps you want to eliminate poverty ($13,000 a year). With a 50% phaseout rate, you would set the threshold at twice the target, or $26,000. For those who earn less than $26,000 the government would pay them 50% of the difference between their income and the threshold. So if someone earns $10,000 a year, the government would pay them $8000. If someone earned nothing, they would get the $13,000 UBI. Hence, a “negative” tax.

Importantly, because a NIT is targeted and gradually phases out as income approaches the threshold, its overall cost is about half the cost of a UBI, at $1.8 Trillion, and roughly in with current spending on social welfare.

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