Making Sense of Guaranteed Annual Income

While the notion of a Guaranteed Annual Income (GAI) has not entered the national conversation in this bizarre election year, this ambitious policy proposal has lately gained an increasing number of proponents amongst intellectuals of the left and right. Yuval Levin, editor of the conservative policy journal National Affairs, recently called GAI the left’s “most interesting policy idea” [1].

Guaranteed Annual Income, also commonly referred to as Guaranteed Basic Income, Universal Basic Income, or some variant of these terms, is by no means a new idea. It has been promoted by some economists, including the libertarian icon Milton Friedman, since the early 1960s and its contemporary proponents included such disparate figures as Martin Luther King Jr., Senator George McGovern, and President Richard Nixon. Nixon’s attempt to institute a form of GAI failed, however, and the idea faded into the background as the national policy conversation moved on from the Great Society of the 1960s to Reaganomics and neoliberal reforms in the 1980s [2].

Today, however, GAI is regaining advocates on both sides of the political spectrum. Conservatives such as Charles Murray have suggested eliminating all welfare programs in favor of a $10,000 annual payment to all Americans of 21 years and older, and similar ideas that attempt to simplify welfare programs have been advocated by Republican legislators like House Speaker Paul Ryan and Senator Mike Lee of Utah. Conservative proponents believe GAI would eliminate the bureaucratic red tape and financial inefficiency of current welfare programs and empower individuals to lift themselves out of poverty [3].

On the left, economists such as Robert Reich have encouraged GAI as a way to combat rising income inequality, and as a solution to the potential future mass unemployment caused by labor automation [4].

GAI is not without its detractors, however. Many on the left are as reluctant to propose new welfare programs as they are to eliminate existing ones. Conservative critics see GAI as yet another expensive expansion of the welfare state and fear that it would disincentivize work [5].

Given the current state of American politics, it may be some time before GAI gains serious legislative traction. Earlier this year, Swiss voters rejected a proposal for basic income by an enormous margin, and any such idea may prove even more contentious in the U.S. [6]. As concerns over labor automation and the cost of entitlement programs grow, however, the idea of GAI can be expected to gain yet more prominence; for now, its appeal cannot be dismissed.
Sam Fraser

The rise of the populist left in America has precipitated discussion on a variety of topics. Among several high-profile issues, such as campaign finance reform and single-payer health care, the concept of a guaranteed annual income, or GAI, has reentered the public eye.

The guaranteed annual income is exactly what it sounds like: an annual sum to be paid to every citizen of the United States. An invention of the 60’s and 70’s, this novel form of welfare was endorsed by Martin Luther King, Jr. [7], Milton Friedman [8], Paul Krugman [14], four other Nobel Prize-winning economists [9][10][11][12][13], and was almost passed into law by President Nixon [15]. However, the project lost steam when Nixon resigned, slowly fading into obscurity as more pressing issues entered the public sphere. However, though the grand concept of a universal American GAI has languished, it exists in a diminished form. The state of Alaska provides all its citizens a $900 sum per year, a form of GAI known as Universal Basic Income (UBI). Around 10% of Americans are also eligible for the Earned Income Tax Credit (EITC), a form of GAI known as the Negative Income Tax, which results in a sum given to citizens who meet the government’s income and employment standards.

The concept of a UBI is derived from the basic principles of human rights enshrined in the Declaration of Independence and the UN Human Rights Charter. Life, liberty, and the pursuit of happiness are simply not accessible to the United States’s poorest citizens. As much as 43% of the country lives paycheck-to-paycheck [16], without the liberty to pursue what makes them happy in life. Living in poverty directly affects one’s health and wellbeing. Low-income families have a 66% higher probability of infant mortality, are 5% more likely to become obese, have higher rates of injury and mental health problems, and are 2.5 times as likely to develop vision, hearing, speech, or mobility issues [17]. The increased crime and health expenditure correlated with poverty rates in the United States are estimated to reduce economic output by 1.5% of GDP [18]. Simply put, without a minimum income, the poorest Americans are excluded from the basic premise of the American Dream.

Though the morality behind the idea of a GAI is not often contested, the concept is often dismissed as idealistic and unrealistic, or too expensive to be implemented effectively. The fact that it is supported by a number of America’s most prominent economists should dampen that assumption. A GAI is not meant to be implemented in conjunction with the current welfare state. Thousands of conflicting and ineffectual programs, along with unnecessary bureaucracy, would be swept away in favor of an equalizing and efficient system of payment to every citizen in the United States. The Foundation for Law, Justice and Society has estimated that a basic income of $10,000 per citizen would equal the cost of the country’s entire welfare state. A GAI would stable, too. While the cost of the welfare state is expected to grow beyond inflation every year, GAI would remain static, meaning the system would be more than a trillion dollars cheaper than the current welfare state in 2028 [19].

Though the cost of the program may be achievable, critics question whether a UBI would deter people from working. Notwithstanding the conflicting incentives of our current welfare programs, many of which punish recipients for finding a job by cutting off benefits, multiple studies have discovered that a UBI has a much smaller impact on workforce participation than what many critics assumed. In a multiyear study of a negative income tax in Seattle and Denver, men, primarily adolescents, were found to lower their workforce participation rate by 7% while women, primarily single mothers, were found to decrease workforce participation by 17% [20]. Despite this decrease in the workforce, the benefits of a GAI were clear. In New York, experimental cash transfers to low-income families were found to reduce poverty, increase savings, improve educational outcomes, and increase on-time graduation rates [21]. Another experimental UBI program in Manitoba found that hospitalization rates decreased 8.5% for families on the program [22].

However, the strongest evidence for a greatly expanded GAI comes from the runaway success of the EITC, which gives a tax credit to low income families. The program has been proven by a number of studies to improve educational outcomes in children, increase the recipient’s earning potential, and decrease that individual’s chance of developing a disability or other chronic illness. In 2013 alone the program was credited with lifting 9.4 million people out of poverty, half of them children [23]. According to University of California’s Hilary Hoynes, the EITC “may ultimately be judged one of the most successful labor market innovations in U.S. history.” More than three-fourths of economists that possess a membership in the American Economic Association recommend the expansion of this program over an increase of the minimum wage [24].

Other than the obvious economic benefits of a GAI, the concept has clear philosophical appeal. A GAI would promote equality, eliminate poverty as we know it, and free the poor to pursue their happiness. The argument for a GAI writes itself: it’s only a matter of time before this commonsensical approach to welfare is implemented on a much broader scale to benefit all Americans.
Daniel Walker

Mr. Walker’s first argument for the implementation of a GAI addresses the myriad of problems associated with living in poverty. I wholeheartedly agree. In fact, I would argue that poverty alleviation should be a centerpiece of any balanced fiscal policy. The problem with Mr. Walker’s argument is that giving people money through a GAI would fail to alleviate poverty, and would only succeed in perpetuating it. According to The Economist, most of the money would immediately be distributed toward the capital-owning class of Americans through higher rent, housing costs, etc. [25] One top of that, the cost of providing a GAI would equate to significantly higher taxes across the board, as I point out in my first argument. This would contract economic growth, increase unemployment, and exacerbate poverty in the long run.

Mr. Walker goes on to argue that a GAI would be an ideal replacement of our current welfare system. The problem is that his math is grossly incorrect. He assumes that the average recipient of a GAI would receive $10,000 while the average welfare recipient receives an average of $34,658 in total monetary benefits [26]. Under the new welfare system laid out by Mr. Walker, those most vulnerable in our society would receive less from the government while taxes are raised. If a proper GAI was to be established, it would take a doubling of the current budget. Such a policy would pose grave fiscal consequences in the long term.

Lastly, when Mr. Walker refers to the morality of the policy, I think we should heed the advice of famed economist Milton Friedman, who said “One of the great mistakes is to judge policies and programs by their intentions rather than their results” [27]. In intent, the policy’s lack of regard for the nuanced poverty problem America faces in terms of racial inequality is immoral, and as a result, GAI would cause the perpetuation — rather than the solution — of poverty. Across the board, GAI would push the racial aspects of poverty under the rug and make it harder to address discrimination and injustice going forward. More than anyone else, a GAI would benefit those already winning a corrupt game.
Chris Raguz

With entitlement reform looming ominously in America’s future, some have looked to the Guaranteed Annual Income (GAI) provided by several Northern European countries as the answer to our unsustainable social safety net. Real incomes for many have not risen in decades and a guaranteed income is being marketed as the panacea for many of the nation’s budding income inequality problems. There are several reasons providing a GAI would be the wrong decision for the U.S.

The first and perhaps the biggest immediate barrier to enacting a GAI is cost. Total government spending on income security is about $600 billion dollars. This includes spending on welfare, unemployment insurance, social security, and more. With 235 million adult citizens in America, we could provide a GAI of $3,000 a year, keeping with the current budget allocation for income security [28]. This is not nearly enough income for people to live off of. Increasing the GAI to, say, $12,000 a year ($1,000 a month) would cost an additional $3 trillion (five times the current budget allocation for income security). To put that into context, the projected federal revenue for fiscal year 2016 stands at only $3.4 trillion [29]. The government would either have to raise taxes on everyone considerably or balloon the national debt to catastrophic levels in order to fund a GAI that many would consider inadequate regardless.

The second major problem with a GAI is that it leads to work disincentives. At a logical level, it seems ridiculous to think that the government could provide an income to everyone and that people would somehow work the same amount. Indeed, the empirical research shows that when GAIs have been implemented in the past, people worked significantly less than under a social safety net like the one the U.S. has now [30]. The negative consequences of such an effect are twofold. First, when people work less, productivity, the main driver of economic growth, goes down. Second, when people decide not to work, as is probably the correct decision when considering taking a minimum wage job or taking care of your family, it makes it harder to reenter the workforce later. Once people leave the workforce, employers are unlikely to hire someone with a resume gap. This only leads to further income inequality and higher structural unemployment.

Third, a GAI would be the wrong policy prescription for America because of the country’s demographics and racial history. African Americans are three times more likely to suffer from poverty than white Americans [31]. This is due to past racial injustice as well as a current system unfavorable to economic mobility for African Americans. In countries where GAIs have been implemented, the populations are homogenous. Even if we could successfully implement a GAI in America with no negative economic repercussions, such a policy would institutionalize the racial income inequality of America’s past. When poverty is dealt with as a monolithic problem, the dynamic issues attached with it are pushed to the side and forgotten. When all poverty is treated the same, African Americans are told that their unique poverty no longer warrants specific justice. For a heterogeneous country like the U.S., a GAI is the wrong choice to deal with complex, racially-tinged poverty.

Finally, the implementation of a GAI in the U.S. would do nothing for the wealth gap, despite its purpose to do so. This is because the added consumption would be disproportionately high pressure on housing prices and rent. As the Economist explains, money from a GAI would mean more for a person below the poverty line, but that money would immediately be redistributed to the capital-owning class of Americans [32]. Since housing is the biggest cost associated with living in America for those living below the median income, the extra money they would receive from the government would be factored into their rent or in the higher price of buying a home. While more money would be in circulation and would seemingly be in the pockets of those who need it most, the manufactured rise in income would be immediately absorbed into the cost of living.
Chris Raguz

Mr. Raguz points to ­several potential drawbacks that could hinder both the implementation and the overall effectiveness of a GAI in the United States. Though a guaranteed annual income has potential drawbacks, I believe its potential benefits far outweigh the benefits of our current welfare system. To begin, when considering the cost of a GAI, Mr. Raguz forgets to include all forms of welfare, of which the total cost, including Medicaid, is estimated to be $1,084 billion. Raguz’s $600 billion quote ignores public funding of healthcare [33]. Also, it is rather disingenuous to dismiss GAI as prohibitively expensive, considering how the current welfare system is absolutely unsustainable, with spending on Social Security, Medicare, and Medicaid projected to rise from 9% to 28% of the federal budget in 2050 [34]. Were a GAI to replace all current welfare and be paid only to those individuals over 18 years old making lower than the median income, a sum of $9,225 could be paid to every qualifying citizen without costing the government an extra cent. Indeed, the resulting increase in efficiency gained from streamlining the hundreds of federal welfare programs would in fact save the government money. Though switching to a GAI would incur high upfront transitioning costs, the resulting efficiency and long-term savings under such a program makes it not only worth the investment but the only rational decision.

Mr. Raguz assumes that a GAI is something to be lived off of instead of income, while decrying a future idle and welfare-reliant underclass that a GAI would create. He asserts that a UBI would reduce incentives to work by an unacceptable amount, citing an article which cites another article which discusses the effects of several experimental negative tax schemes implemented throughout the 60’s and 80’s. However, a real-world example of a successful GAI, the Earned Income Tax Credit (EITC), has demonstrated that basic income schemes can be designed in such a manner that they encourage employment. Specifically, the EITC has been found to markedly increase the workforce participation of single mothers and nominally of single men [35]. This real world example provides absolute and incontrovertible proof that a GAI and a welfare program that supports labor force participation are not mutually exclusive.

Lastly, Mr. Raguz asserts that impoverished African Americans deserve more government support than their white counterparts in the same economic status due to the unique racial injustices African Americans have suffered in the past. He also seems to be under the impression that a GAI has never been successfully implemented, ignoring the current programs such as the EITC, Child Tax Credit (CTC), and Alaska’s Permanent Fund. Mr. Raguz seems to be under the impression that a GAI would further cement racial income inequality. However, according the government’s own records, the EITC and CTC successfully lifted 10.6 million people out of poverty, many of them black, in 2014 [36]. I fail to see how a GAI would exacerbate racial inequalities, especially if it were to be implemented in a manner that saw poorer citizens receive more money (Negative Income Tax). Such a system would guarantee that the average black American would receive more than the average white American, as black Americans on average make much less than white Americans. A GAI which is intentionally discriminated by race would inject ineffective and divisive identity politics into an already proven and equitable policy.

Mr. Raguz’s last objection against a GAI, that the poor would spend all their new money on increased rent prices, doubles as an argument against any cash-based redistribution programs to the poor, including minimum wage and food stamps. Short of confiscating food and housing from the rich and giving it to the poor, whoever owns the grocery store and the apartment complex will always benefit from government-subsidized money spent on food and housing; it’s a simple and unavoidable cost of capitalism. In the end, Mr. Raguz’s assertion that a GAI would immediately result in increased housing prices is mere conjecture, while no study has pointed out such consequences as a result of any of the U.S.’s current GAI programs. Even if a massively expanded GAI does result in increased housing prices, current programs have been shown to increase academic achievement, improve infant and maternal health, increase future earnings, and reduce poverty [37]. That’s a tradeoff I’m willing to make.
Daniel Walker




























































































Image: “Income and Taxes” by 401(K) 2012 — Own work. Licensed under CC BY-SA 2.0 via Flickr Creative Commons.



Send a Comment

Your email address will not be published.