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Should Stimulus Checks Last Forever?

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KEY THEMES

Politics
Economy

location

United States

KEY SOURCES

Brookings Institution
World Development
Tax Policy Center
Cato Institute
Roosevelt Institute
Center on Budget and Policy Priorities
Annual Review of Economics

WHY THIS QUESTION MATTERS: 

In less than 30 days, the federal government has issued more than 130 million stimulus checks to individuals and families across the country as a response to the COVID-19 shutdowns. Any individual who made less than $75,000 a year received $1,200 in direct assistance as a part of the CARES Act, which was passed in late March.

A second stimulus bill, the HEROES Act, includes a proposal for a second round of direct payments and some have suggested the need for monthly checks to support those in need. While analysts do not expect the HEROES Act to pass in the Senate, these direct payments have raised interest in the theoretical possibility of providing Americans direct payments on a regular basis. More simply put, what if we just give people money?


This concept is called Universal Basic Income (UBI). While there is no standard definition, the general concept is that all citizens, regardless of income, would receive regular payments from the government as a method of poverty alleviation and support for workers that have been displaced by technology. Today, we’ll walk through the general arguments of UBI supporters and opponents.


History of UBI:

Universal Basic Income is not a new concept. One of the earliest cited discussions of UBI was in 1797, when Thomas Paine outlined options for a lump sum to be granted to all citizens at adulthood. More recently, Martin Luther King Jr. and leaders in the civil rights movement called for a form of guaranteed income to combat widespread poverty and unemployment. In the 2020 election primaries, Universal Basic Income was again brought to the forefront as one candidate called for a $1,000 per month “freedom dividend” which would go to every adult in the United States. The argument is that we need to protect employees from unavoidable job losses due to advanced technologies and automation. 

So what is a UBI?

A UBI is a form of guaranteed income that provides direct payments from the government to individuals and families. According to the Brookings Institution, there are three main objectives of a UBI:

  • Countering possible job losses from automation, including at-risk occupations like truck drivers;

  • Strengthening social contracts and trust in government by redistributing oil revenues (i.e. the Alaskan oil dividend); 

  • And acting as a deliberate poverty-reduction instrument.

Currently, the United States doesn't have an income guarantee other than welfare programs like Supplemental Security Income, which provides aid based on age and disability. Other programs, such as unemployment insurance and Family Assistance Plan also provide direct payments to individuals but only on a conditional basis. For example, an unemployment check requires that you are unemployed and actively seeking employment. Thus, these programs do not fit the “universal” basic income, which would be granted to every citizen unconditionally. 

Recent UBI Pilots:

Meanwhile, Alaska has the longest-running UBI called “Alaska’s Permanent Fund Dividend (PFD). On a yearly basis, Alaskans receive a check from the $65 billion Fund which is tied publicly owned oil production. Each Alaskan receives roughly $1,000 to $2,000 per person. However, this program is small in comparison to the monthly UBI proposals that are currently being discussed. 

So what are the benefits and drawbacks of monthly UBIs? We’ll talk through both sides.

THE COMMON THREAD:

Both sides say that regardless of your race, creed, or financial position at birth, you should have the same opportunity for success as anyone else.

FIND YOUR THREAD:

Supporters say that a UBI would help alleviate poverty and has the potential to streamline the welfare system. Opponents say that a UBI would actually hurt the poor and be unaffordable.

What do you think?

​YES, UNIVERSAL BASIC INCOME IS A GOOD IDEA.

Reason 01

A UBI would more equitably redistribute the profits of advanced technology and natural resources.

  • Advances in artificial intelligence, robotics, and other technologies have called into question the future of work. The dilemma is that with these technologies productivity will increase but many people will lose their jobs (self-driving trucks are an example). A system where part of the increase in productivity is taxed, and then distributed as cash transfers to all citizens, whether they are working or not, could help resolve some of the tension. Brookings Institution


  • In addition to more equitable distribution of technology advances, a UBI may also be used to more equitably distribute natural resources. For example, in Alaska residents receive an annual dividend in the form of direct cash, supported by the state’s publicly owned oil production. This unique experiment redistributes wealth from public funds back to individuals and the private sector. World Development

Reason 02

UBI creates a more efficient welfare system.

  • Economists have long argued that cash is the most valuable form of assistance, assuming people will make decisions in their own best interest. It’s easier for the government to write checks than pay directly for housing, food, or utilities. And households can use the cash to meet their most urgent needs. Tax Policy Center

  • Subsidizing food or fuel or water implies that the poor have to consume these commodities, even if the quality is very low, to receive the benefit. By contrast, a cash transfer means that the poor person can choose how to spend the money. Brookings Institution

  • If used to replace existing welfare programs, an ideal UBI effectively sidesteps many of the traditional welfare state’s conventional problems. Printing checks requires minimal oversight and monitoring as compared to managing a complex welfare system. Part of the promise of UBI is limiting bureaucracy and dollars lost in the transfer. Cato Institute

Reason 03

A UBI would stimulate the economy.

  • When households, especially poorer households, receive cash they are more likely to spend it than save it. This has a positive effect on the economy at large. If we funded a UBI without raising taxes, a model from the Roosevelt Institute predicts that GDP would grow by an eye-catching 12.56%, in the case of the full $1,000/month UBI. The model also predicts that even in tax-financed UBI scenarios, the economy would grow. Roosevelt Institute


NO, UNIVERSAL BASIC INCOME IS NOT A GOOD IDEA.

Reason 01

A UBI may actually hurt the poor and disincentivize work.

  • Right now most of our social programs are conditional - based on need, age, disability, etc. UBI would hurt the poor because the government would have to reallocate money up the income scale, regardless of need. Brookings Institution

  • If you take the aid dollars targeted to our most disadvantaged communities (bottom fifth or two-fifths of the population) and convert them to universal payments to everyone, you’re redistributing income upward. That would increase poverty and inequality rather than reduce them.
    Center on Budget and Policy Priorities

     

  • Additionally, the assumption that money can cure all problems is flawed rhetoric as it does not address systemic barriers that those of lower socioeconomic statuses face. Brookings Institution

  • A UBI would also disincentivize work. Economists agree that welfare programs create labor supply disincentives, meaning that individuals reduce their own work because of government benefits. Cato Institute

Reason 02

A UBI would be unaffordable and require significant tax increases.

  • The kinds of UBIs often discussed would cost nearly double the current total spending on the “big three” programs (Social Security, Medicare, and Medicaid). Moreover, instead of replacing the “big three” programs, the UBI will likely be in addition to existing welfare programs, as each addresses needs that would not be well served by a uniform cash transfer. A substantial increase to government revenue would be required to support these programs. Annual Review of Economics

  • Even if the UBI replaced existing welfare programs, the costs would be unaffordable without substantial tax increases. The UBI alone would cost more than today's entire U.S. federal budget. [Note that this analysis excludes the expansion of the federal budget from the COVID-19 stimulus packages] CATO Institute

  • For example, there are over 300 million Americans today. Suppose UBI provided everyone with $10,000 a year. That would cost more than $3 trillion a year — and $30 trillion to $40 trillion over ten years. This single-year figure equals more than three-fourths of the entire yearly federal budget — and double the entire budget outside Social Security, Medicare, defense, and interest payments. It’s also nearly equal to 100 percent of all tax revenue the federal government collects. Center on Budget and Policy Priorities

Reason 03

Current UBI proposals have varying objectives and would be politically infeasible at a large scale.

  • What is the objective of a UBI? There is little agreement on a definition of what exactly a UBI is. Some propose UBI as a replacement for the current “welfare state.” Others see it as an addition to current welfare programs. Further, some argue for a UBI to replace an individual’s income, while others argue a UBI should augment income. Without answers to these questions, it's politically infeasible to enace a UBI. Annual Review of Economics

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