What Is Universal Basic Income (UBI)? Pros & Cons

T. Josiah Haynes Contributor
What Is Universal Basic Income (UBI)? Pros & Cons

Universal basic income (UBI) is a proposed assistance program in which the government gives every citizen a monthly or yearly check. Most versions of UBI dictate that everyone receives the same amount no matter their income level.

This is a controversial political topic in the United States although a majority of Americans now support it. It is meant to reduce income inequality and meet basic needs like food security and healthcare. In the real world, some UBI programs have been successful while others have created unexpected problems.

Proponents of UBI have included Martin Luther King, Jr., Richard Nixon, and Elon Musk.

In 2019, Andrew Yang made UBI a cornerstone of his presidential campaign, committing to provide $1,000 a month to every US citizen. He called it a Freedom Dividend. His full-throttled endorsement of UBI exposed many more Americans to the idea than ever before.

Let’s review the pros and cons of UBI, as well as the history of how it’s been implemented in recent years.

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What is universal basic income (UBI)?

Also called guaranteed income programs or unconditional cash transfers, universal basic income (UBI) is a sociopolitical money transfer policy proposal in which a government gives all of its citizens the same amount of money on a regular basis without any test to determine eligibility.

Two people talking about UBI might not be talking about the same specifics. Let’s break down what a UBI policy needs to truly be “UBI”:

  • Universal — Everyone needs to get the payment, with no means test. Many UBI programs even pay out to children and adults alike.
  • Basic — This payment is an unconditional baseline for everybody and should not change due to employment or other factors. Employed and unemployed people should both receive the same payment.
  • Income — UBI plans should send regular payments to its beneficiaries. Although many plans dole out a yearly payment, monthly payments are more in line with the philosophy behind UBI: a regular income.

How does universal basic income work? UBI works by giving everyone within a geographic or political region unconditional payments at regular intervals. This type of program requires the cash to come from somewhere — usually state-owned investments or increased taxes.

What is the difference between a living wage and universal basic income? A living wage is the minimum amount of income from your job you need to make to pay your necessities, such as housing and food. A universal basic income provides money whether or not you’re working, but is generally not enough money to replace a living wage.

What are the pros and cons of universal basic income? The pros of universal basic income are poverty reduction, health improvement, and more power to students and parents. The cons of UBI include the exorbitant expense and the enlargement of government bureaucracy.

Related Reading: Freedom of Religion in the US: History & Key Arguments 

Pros of Universal Basic Income

UBI reduces poverty.

It feels obvious and intuitive that universal basic income would reduce or eradicate poverty. If you give people more money each month or year than a defined poverty line, that should immediately reduce poverty even in the face of increased automation and lost job safety nets.

For example, in the US, if a single person makes under $13,000, they are defined as below the poverty line. Andrew Yang’s UBI proposal would give everyone in the country $12,000 a year, lifting nearly everyone below that line above the poverty line.

UBI has reduced poverty in Kenya, in Namibia, in Brazil, in parts of Canada, in Alaska, and a few other parts of the world.

Different UBI programs have had different levels of economic security. In Finland, although mental health improved, their two-year universal basic income experiment with a control group did not seem to decrease poverty.

Some critics say that UBI would reduce poverty for employed persons but not for unemployed persons in poverty. This criticism still admits UBI would significantly reduce a lot of poverty.

UBI improves health.

Universal basic income improves health outcomes — both physical and mental. The most common reasons for improved health seem to be less hesitation to go to the hospital and decreased malnutrition.

In Namibia, UBI recipients used the health clinic more often. According to this 2007-2012 trial, UBI also reduced child malnutrition by more than half.

In India, UBI recipients sought healthcare more often. Households’ food sufficiency increased, leading to reduced childhood malnutrition.

UBI even seems to improve mental health, not just physical. The Canadian UBI experiment showed significantly fewer hospital visits based on mental health problems and accidents. Kenyans receiving UBI also reported higher psychological well-being.

UBI decreases school dropout rates.

If families receive a basic income, their children are more likely to finish high school.

A 1970’s Canadian basic income program led to lower dropout rates among high schoolers.

In Namibia in 2007, families receiving UBI were able to provide school supplies and uniforms. Plus, with less emphasis on providing income for the family, parents more often encouraged children to remain in school instead of dropping out to get a job. The dropout rate fell from 40% to almost 0% in just one year.

UBI empowers caregivers and homemakers.

Universal basic income helps those who stay at home to take care of children or loved ones who are unable to care for themselves.

These occupations, despite their intensive nature and time commitment, often pay $0 — although there are tax breaks that likely won’t cover 100% of caregiving costs. UBI provides a basic income for these unpaid workers.

UBI increases birth rates.

If people have a guaranteed basic income, they are more likely to plan to have children. As birth rates decline throughout much of the world, incentives to bear children may become more and more important.

Alaska’s yearly UBI program has led to an increase in birth rates, while the rest of the US faces plummeting birth rates.

It’s worth noting that some environmentalists believe that each baby born increases a family’s carbon footprint and so is morally questionable. In this case, UBI increasing birth rates would be a con.

Cons of Universal Basic Income

UBI is too expensive and hurts the economy.

Universal basic income is too expensive for a government to run (more taxes), and it makes goods more expensive. UBI is socialism at its boldest, according to detractors.

UBI in the United States would cost an estimated $3.8 trillion every year. That’s three-quarters of the government’s entire yearly tax revenue. Taxation would most certainly follow.

Plus, UBI reduces the incentive to work full-time jobs, which impacts the job market and the overall economy. Fewer workers could drive up wages, but it may also drive up prices and make everyday life more expensive.

On top of all that, pumping government money into the economy almost always causes inflation. That means the cost of goods goes up, but wages can’t keep up, so individual purchasing power actually decreases, making everything more expensive in real dollars.

UBI benefits everyone, not just the people who need it.

Universal basic income is universal, instead of equitable. Welfare and social security should give poor people money, not the rich and powerful as well.

A more equitable solution would be to give a universal basic income of $12,000/year which decreases by $0.10 for every dollar you earn

For example, if your income is $120,000/year, you would receive no UBI. If you earn $60,000/year, you receive $500 a month or $6,000 a year. If you earn $10,000/year, you would get $11,000 that year — which equals about $917 each month. (Decreasing by $0.15 for every dollar you earn is another option that further focuses UBI towards those who need it most.)

UBI increases big government.

If universal basic income goes into effect, the oversized US bureaucracy will get even bigger. For a majority of US citizens, that is a bad thing.

Libertarians prefer small government and lower taxes. The government has proven time and time again that it is inefficient. Where private sector capitalist entities must compete and innovate to succeed, government never needs to compete or innovate to operate.

The coronavirus pandemic was essentially the only time in modern history that the majority of Americans wanted their government to do more. Most of the time (including now), a majority of people in the US think the federal government holds too much power. UBI would greatly expand the federal government’s power and bureaucracy, against the wishes of the people.

There are better alternatives to UBI.

Andrew Yang claimed that $1,000 a month would empower individuals to start small businesses, create jobs, and stimulate the economy.

Critics of this claim might recommend more entrepreneur education in schools or for adults to show people that they can invest in starting a small business with what they have.

Another alternative to UBI would be tax breaks — especially favored by libertarians and lower-tax conservatives. This solution may directly impact ultra-low-income families less than UBI who already pay zero or few taxes. On the other hand, a rising tide lifts all ships; the economic boost from tax breaks would benefit almost everybody indirectly.

Yet another alternative was experimented with in the previous century: negative income tax, which Libertarian economist Milton Friedman advocated for. If you make below a certain threshold, you would get negative income tax in the form of a cash payment.

UBI Around the World

Kenya, 2016-present

In Kenya, the nonprofit GiveDirectly is making UBI payments to thousands of citizens across 245 villages. This UBI program has reduced poverty and improved mental health.

Since 2016, adults receive about $23.00/month. These UBI payments stimulate the economy and benefit the nearby villages as well.

Iran, 2011-present

In 2011, the Iranian government made monthly deposits into individual family accounts that equaled about 29% of the country’s median household income. This program was meant to compensate for phasing out subsidies for bread, water, and fuel.

This economist concluded that Iran’s cash transfer program did not significantly affect the labor force in either direction. This program is currently the only UBI program in the world to run nationwide.

Brazil, 2003-present

Many Brazilians have received some form of basic income since 2003, although the first system (Bolsa Família) was scrapped in 2021 and replaced with Auxílio Brasil. This is not pure UBI since there are a few conditions, such as keeping kids in school and vaccinated.

Recently, Brazil’s UBI program has paid about one fifth of the minimum wage every month — mostly to low-income families. Proponents say Bolsa Família has reduced poverty, child labor, malnutrition, and suicide rates.

A Brief History of UBI Initiatives in the United States

The two primary examples of UBI initiatives in the USA are the Permanent Fund Dividend in Alaska and the Eastern Band of Cherokee Indians Casino Dividend in North Carolina.

Alaska, 1982-present

Since 1982, Alaska has given every resident a dividend from state-owned oil revenue investments. This payment ranges from $1,000 to $2,000 per year.

According to multiple studies, Alaska’s version of UBI was not meant to reduce poverty yet it has reduced poverty rates by at least 2%-3%.

Before the financial crisis of 07-08, the reductions in poverty were more obvious; poverty (#48 among the 50 states) used to be very low in Alaska compared to per capita income (#19).

When economists investigated whether the annual payments disincentivized citizens to work, they found the payments had “no effect on employment”.

In recent years, PFD (Permanent Fund Dividend) payments have resulted in strange political maneuvering. In 2018, the incumbent Democrat campaigned on reducing payouts to fund the government while the Republican challenger campaigned on increasing payouts. The Republican won in a landslide, but he has been unable to find the money to fulfill his campaign promise.

North Carolina, 1996-present

In North Carolina, the Eastern Band of Cherokee Indians Casino Dividend unconditionally gives out $2,000-$6,000 annually to every tribe member.

Since the program began in 1996, revenue from a casino on tribal land has been distributed to every tribal member. There is no means test; the money is given without strings attached.

Researchers determined that this dividend doesn’t make recipients work less. Instead, the dividend results in accelerated education, improved mental health, decreased addiction, and reduced crime.

California, 2018-present

California cities have featured several UBI programs that sought to expand the welfare system beyond just unemployment benefits.

In 2019, the mayor of Stockton, California began an 18-month basic income pilot program where 125 residents received $500 a month — part of the privately-funded Stockton Economic Empowerment Demonstration Project.

In 2021, the mayor of Compton, California started handing out up to $600 a month to a maximum of 800 low-income residents. The basic income pilot program is funded by anonymous donors, not taxpayer dollars.

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