Kitchen Table Economics

Universal Basic Income—What is It?

Nowadays, it seems like proposals for new government programs are popping up daily. Free college tuition and free health care are among the most common culprits. But recently, a form of another government entitlement program has gained the support from two prominent lawmakers. The policy is called a universal basic income (UBI).

But what exactly is a UBI? Well, it’s basically a program that distributes free money and guarantees a minimum income by the government.

While there are various ways UBI programs can be enacted, the most feasible version would essentially act as a negative income tax—meaning not only do people making under a certain income not pay taxes, but they actually receive money from the government. It ensures that everyone, even those without employment, collects a minimum amount of income each month.

This may sound like a great idea on paper, but in practice, the policy has been proven to create negative incentives. During the late 1960’s and 1970’s, the U.S. experimented with this policy in a number of controlled pilot programs. Although the policy instituted was not necessarily called a UBI, as mentioned earlier, a negative income tax essential acts as one.

The results were unequivocal.

The programs reduced average “desired hours of work” for people across the board. Working hours went down by 9 percent for husbands, 20 percent for wives, and 25 percent for single women who were considered heads of the family. For single men who were not responsible for a family, the number of working hours dropped by 43 percent.

Another consequence of the negative income tax experiment was prolonged periods of unemployment—meaning that after someone lost their job, it took longer to begin a new one. This is likely a result of people being more content with not being employed because they can rely on a guaranteed income from the government.

A federal universal basic income may sound like a good way to ensure income stability for all Americans while keeping the free market structure for goods and services largely intact. However, just as with essentially every big government program, there are unintended consequences that would not only be detrimental to the U.S. economy, but to the root of the American experience: working hard to achieve the American Dream.