Every so often a new study is released, concluding that a universal basic income (UBI) is needed to fix this country’s welfare system. Most recently, the Roosevelt Institute claimed that switching to a UBI system could actually grow the economy by $2.5 trillion by the year 2025.
The study is full of hypothetical situations in which Americans receive a UBI of varying amounts. The research concludes that the higher the UBI, the more prosperous the economy. But like many UBI apologists, the study misses the major problems with such a system. Here are the three main ones:
1. It’s Expensive
Proponents claim that the UBI would be an efficient replacement for the country’s bloated welfare apparatus, and so would actually reduce overall costs.
Unfortunately, a welfare state by any other name is still a welfare state. And the UBI is just replacing one pricey system for another. And unlike the current welfare state, which has standards for determining who qualifies for certain aid, a UBI would be given to everyone. This would dramatically increase the pool of citizens receiving benefits from the state and inflict massive expenses across the board.
The Roosevelt Institute study posits two different ways to fund the UBI. But neither would benefit the national economy or the taxpayer. The study’s “positive” findings about economic stimulation are only applicable if the program is funded by increasing the federal deficit. So basically, in order to “grow” our economy, we must first plunge the American people even further into debt.
The second scenario presented in the report was a UBI funded through increased taxation. In this instance, the study found no net benefit to the overall national economy. In fact the report even went so far as to state:
When paying for the policy by increasing taxes on households rather than paying for the policy with debt, the policy is not expansionary. In effect, it is giving to households with one hand what it is taking away with the other. There is no net effect.”
There would be an effect, however, on the American taxpayer. When the Resolution Foundation, a think tank in the UK crunched the numbers to see what the cost would be to the taxpayer, they found that the amount paid would actually be much more than the amount received.
Commenting on the problems with the UBI as they related specifically for the UK, Robert Colvile writes:
…From the first pound you earned to the £43,001st, you’d pay a combined rate of income tax and National Insurance of around 35-40 per cent, after which the higher rate of tax would kick in as normal. In other words, to get that £3,692 from the Government, you’d pay thousands of pounds more.”
What this type of proposal really means is that a vast sum of people will be paying more in taxes than they already do. Colvile also notes that “In fact, it would represent a transfer of £120 billion of extra taxation into the welfare state – the equivalent of the entire budget of the NHS in England.”
If this is the case for the UK, it would most certainly be the case for the US.
This money has to come from somewhere. It will not appear out of thin air. And unfortunately, it is the American people who would be stuck with the bill for a grandiose UBI system.
2. Incentives Work, Handouts Don’t
Incentives are a powerful force. And there is no greater incentive than financial security and holding a job is essential to that end. When something comes easy, it is easily taken for granted. And while it would be nice to believe otherwise, giving cash handouts to every American incentivizes them to try that much less.
By removing the financial incentive to work, the state is encouraging idleness, something contrary to the entrepreneurial spirit so deeply woven throughout our country’s history.
During the Clinton era, the welfare state saw tremendous decreases. But that didn’t mean there were millions of Americans struggling to get by. Employment actually increased because individuals were incentivized to get jobs when there was no longer a guaranteed safety net.
3. The Welfare State Isn’t Going Anywhere
As previously mentioned, there are always claims that a UBI could decrease, reform, or even abolish our welfare system. But no one seems to have any idea as to how this transition would actually look.
This is because there is no transitory plan in place. And any such plan that came to fruition would surely be political suicide since you run the risk of angering someone. And for politicians who rely on the support and approval of their constituents, this is sure to bring some unwanted criticisms.
Anyone in the policy realm knows that there is no better way to alienate older constituents than threatening to take away their Social Security benefits. In fact, even the mere mention of decreases usually causes rooms of senior citizens to fear for their well being. Even if there is an alternative plan presented to them, it does not calm the fears of what might happen during the transitionary period. It is for this reason that Social Security is often called the “third rail” of politics.
Additionally, trying to get individuals transitioned off of one welfare plan, and into the next requires, at least temporarily, the funding of both programs. A decision to enact a UBI would not magically abolish the American welfare system. America’s welfare programs have been around for so long, it would take time to unroot it. Too many people have become reliant on our welfare state to have it simply wiped out overnight.
And who is going to pay for the process in the meantime? Well, the American taxpayer of course.
If anything, incorporating a UBI in America would most likely result in an additional layer of the welfare being added on top of our existing programs. This would, in effect, increase the state’s power rather than decrease it. Governments are rarely keen on relinquishing their power, and there is great power in controlling the welfare of the citizenry. It is therefore highly unlikely that the welfare state as we know it today would simply cease to exist.
There Is No Welfare Utopia
Bastiat famously said, “The state is that great fiction by which everyone tries to live at the expense of everyone else.” This is exactly why any form of welfare state is bound to fail. You cannot take from one, give to another and expect everyone’s hardships to be solved.
The UBI creates the illusion of decreasing the welfare state when the facts of the matter all point to the contrary. Everyone would like to live in a society where no one wanted for anything and everyone was provided for. But we live in a society of individuals with individual aspirations and goals. Pretending that we can centrally plan a welfare system with so many distinct wants and needs is unrealistic and unobtainable.
Our current system cannot be maintained because it’s too expensive. Period. Already programs like Social Security are projected to run out of money within the next decade and there is no plan for how to approach this coming storm. Why would anyone think broader welfare state situation would be any different?
If we cannot financially maintain our current system, it would be an unwise to believe we could somehow afford a UBI. As Colvile says when comparing one welfare system with the other, “It’s old wine in new bottles – redistributive, seventies-style taxation under a trendy new branding.”
Brittany Hunter is an Associate Editor at FEE.