Universal Basic Income

There are multiple objectives a welfare program should achieve. Economist Ed Dolan offers the following four criteria in which to evaluate welfare programs:1 1) A good welfare program leaves few, if any, people below the poverty line; 2) Whether or not the program is targeted for those who need it most; 3) A good welfare program would keep work incentives intact, at least as much as possible; 4) A good welfare program would reduce administrative costs and waste. The UBI accomplishes all of these goals except for one, but I will explain this in a moment. M specific UBI involves a minimum income of $10,000—unconditional, you earn it whether or not you are working—and all welfare programs (even EITC!) except social security (would be phased out, I will elaborate if my opponent brings up costs), medicare, and medicaid. This would eliminate all poverty for families of two or more, and eliminate poverty for the vast majority of single person households. The reason I would not abolish medicare and medicaid is because the UBI would likely not be high enough to cover both their welfare and medical needs. We would also eliminate most middle class and upper class loopholes and tax credits in order to increase the UBI funding pool. The UBI benefit will outweigh the loss in credits for most middle class families. 1. A UBI would leave few, if any, people below the poverty line A properly crafted UBI would leave virtually everyone above the poverty line. My proposed UBI would keep anyone who earns just a few thousands dollars a year—something that can easily be done doing odd jobs occasionally—above the poverty line, and people who earn $0 would be only a little shy of it. All households with more than one person would be lifted above the poverty line. A UBI would fulfill this goal. 2. A UBI would not be targeted—and that’s a good thing! This is the only criteria a UBI does not meet, but this is actually a good thing. Why? Because means-tested programs focus on targeting. It focuses on giving aid to only those who need it. But the consequence of this is a decline in work incentives because means tested programs phase out over time and impose high marginal tax rates on the next dollar earned, thus discouraging work effort. Not only that, but an untargeted welfare program increases administrative efficiency because you do not need workers to make sure each family receiving benefits needs it—the untargeted aspect of the UBI means it can be administered through the tax system and be calculated by a computer algorithm. 3. A UBI would preserve work incentives overall, and do so better than any means tested system Implementing a UBI to a society where welfare did not exist at all would reduce work incentives. But a society without assistance for the needy is not desirable. Free markets have made us so wealthy that it is not only feasible to eliminate poverty, it is desirable because no one should starve in a wealthy society like as ours. The UBI would significantly increase work incentives compared to a means-tested welfare system because there is no phase-out of benefits. Phase-outs work the same as high marginal tax rates. In other words, for every extra dollar a poor person earns, they gain less than a dollar of disposable income. Let me give an example. Say we have a phase out of 0.75 cents per dollar earned. This means if I make one extra dollar from work, I lose 0.75 cents in benefits, and only get 25 cents. This means my marginal tax rate is 75%, which clearly disincentivizes work. Is the extra 25 cents worth it? Is it worth working for an extra dollar to only receive 25 cents? For some people, the answer is yes. But for others, the extra work may be worth one dollar, but the extra work is not worth 25 cents. Thus, a means tested system is destined to significantly reduce work incentives. This is not the case under a UBI. People will obtain the $10,000 benefit no matter what—if they earn a million dollars or $2,000 dollars, they will still get $10,000 in benefits each year. There is no phase out. No tax levied on every extra dollar earned. To further analyze this, let's look at economic theory. There are two effects of a UBI (and welfare in general) on work incentives: the income effect and the substitution effect. The income effect generally reduces work. As disposable income rises, people tend to use more of that money to go on vacation and work less. The substitution effect generally increases work effort. As disposable income rises, the opportunity cost of not working grows larger. This increases work effort. Both of these effects work simultaneously. How would it work under a UBI? Look at the following graphic.2 Now assume we are at arrow one before the red and green lines cross (green = UBI, red = means tested, blue = no welfare). For this group of people, the income effect and the substitution effect simultaneously increase work incentives because the opportunity cost of not working grows with an added UBI and the income effect increases work effort. The reason the income effect actually increases work effort here is because having more disposable income means more leisure time in the future, but as you are poor in this part of the graph you cannot afford to take time off. So both of these effects under a UBI serve to increase work effort more than they do under a means tested program. Now look at arrow 2: a person’s income a little above the crossover point. The substitution effect is stronger under a UBI than under a means tested regime because there is no longer a 0.75 cent reduction in benefits for each dollar earned (in fact, the marginal tax rates under the current welfare system often exceed 100%, so by using 75% I am being generous).3 Now the income effect is greater under a UBI at this point of the graph than under a means-tested regime, but the substitution effect is likely much larger than the income effect at this point because it will only be as large as the difference between the UBI and the means tested regime—the income effect between no welfare and a UBI is fairly large here, but that is because earned income is a lot higher under UBI than under nothing. At this point in the graph, the difference in disposable income between a UBI and means tested is not very large, so the positive work incentives will outweigh the negative ones here. Now look at arrow 3. This represents people who wish to work less and qualify for government assistance instead of losing benefits and hopping onto the blue line (which is how it works in the U.S. right now because the phase out eventually ends up being zero). The UBI would remedy this because no phase out means no working less in order to qualify for a benefit—you always get the benefit—so, at this part of the graph, the UBI would enhance work incentives. Now jump to arrow 4. At this point, a means tested system ceases to offer benefits because they have been phased out—the individual at arrow 4 is middle to upper class. At this point, a UBI only has an income effect compared to a means tested system. This means, for the upper and middle class, a UBI would reduce work effort. However, the effects are going to be small because the higher the income, the smaller percentage of that income will come to a UBI. So while it will disincentivize work for these people, the effect will be small, and virtually zero for the rich. Thus, economic theory dictates that a UBI would increase work incentives compared to a means tested system. As Ed Dolan argues, a UBI “would substantially increase work incentives for low-income households while having small disincentive effects, if any, for middle- and upper-income households.”2 For this reason, Dolan believes work effort will be higher on aggregate under a UBI than under a means-tested system. 4. A UBI would reduce administrative waste This is the clearest and least disputable benefit of the UBI. A UBI would require no verification of personal characteristics. A means tested system would: you have to determine whether or not a person actually needs assistance. A UBI would just be integrated into the tax code and calculated by a computer. A person who made $0 would receive the money no questions asked. For people who earn $1 - infinity, you would receive the $10,000 minus taxes due. So a person earning $1 owes essentially no taxes, so he would get $10,001. But a person earning $100,000 will earn $110,000 minus taxes due. The only welfare program that is simple enough to virtually eliminate administrative costs is the UBI. Failures of the current welfare system A UBI is so important because the current system does not work. The poverty rate has remained virtually the same since the War on Poverty was declared, despite trillions in welfare spending.4 As noted in round 1, we have 126 different welfare programs. Each of these programs simply add to the red tape, and with no decrease in poverty since the late 1960s, these programs seem to add little to no benefit. My opponent will likely be providing a counterplan, as the failure of the current welfare state is fairly obvious. The failures of the current welfare system require that we get something done, and an unconditional UBI best protects work incentives, reduces administrative waste, and reduces the number of people below the poverty line 1. http://www.economonitor.com... 2. http://www.economonitor.com... 3. http://www.forbes.com... 4. http://object.cato.org...