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Frank Bernheisel: The View From Here
Frank Bernheisel
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Frank Bernheisel
Posted 10.24.20
Just Outside Washington

FRANK BERNHEISEL

UNIVERSAL BASIC INCOME ~ NOW!

There is far too much poverty in the United States *

In 2018, 38.1 million people lived in poverty the U.S. That means the poverty rate for 2018 was 12 percent.

A detailed, mainstream economics approach to poverty, which I found helpful is Isabel Sawhill's book, Forgotten Americans: An Economic Agenda for a Divided Nation**.

She points out that economic growth will not solve the problems caused by the decline of well-paying manufacturing and other jobs.

This decline is due to improved technology and automation, both of which will continue. The decline is also due, in part, to "off-shoring", which may or may not be reversed.

I think Andrew Yang was on the right track when he proposed a Universal Basic Income (UBI) as a solution to poverty in the U.S.

UBI is also called basic income guarantee or guaranteed annual income. It is a governmental public program for a periodic payment delivered to all citizens of a given population without a means test or work requirement. It should be large enough to meet a person's basic needs.

The transfers effected by UBI are like those produced by negative income tax (i.e., money credited as allowances to a taxed income and paid as benefit when it exceeds debited tax).

In his presidential campaign, Andrew Yang proposed a UBI, which he called a "Freedom Dividend". His plan would provide every U.S. citizen age 18 and older $1,000 per month ($12,000 per year).

Yang said, "The Freedom Dividend would provide money to cover the basics for Americans while enabling us to look for a better job, start our own business, go back to school, take care of our loved ones, or work towards our next opportunity". (https://www.yang2020.com/)

UBI is not a new idea.  In 1775, Thomas Paine in Agrarian Justice advocated a "dividend" or UBI to all U.S. citizens as compensation for "loss of his or her natural inheritance, by the introduction of the system of landed property"(the 1775 version of oligarchy).

  • In 1945, the United Kingdom implemented unconditional family allowances for the second child and subsequent children of every family.

  • In the 1960s and 1970s, the U.S. and Canada conducted several experiments with a UBI using negative income taxation. Milton Friedman, conservative economist from the University of Chicago, was in favor of a UBI.

    The longest running UBI in the U.S. and maybe, worldwide, is the State of Alaska’s Permanent Fund Dividend (PFD). The PFD is a dividend paid to Alaskan residents that have lived within the state for a full calendar year and intend to remain an Alaskan resident indefinitely. As a result of the PFD, Alaska ranks second lowest in income inequality of U.S. states, just above Utah (Wikipedia, List of U.S. states by Gini coefficient).

    The PFD has been in effect since 1976, and last year paid every Alaskan citizen $1606.

    The UBI concept is articulately defended by Rutger Bregman a Dutch historian and author. He published four books on history, philosophy, and economics, including his book on UBI: Utopia for Realists: How We Can Build the Ideal World.

    He presents his views of poverty and a UBI in several TED talks and elsewhere. This talk is 15 minutes: https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lack_of_character_it_s_a_lack_of_cash?language=en

    UBI is not just a liberal idea. Milton Friedman, conservative economist from the University of Chicago, was in favor of a UBI. Ed Dolan, an economist and senior fellow at the libertarian-leaning Niskanen Center says, the economic consequences of making monthly payments to citizens could also include cutting programs like Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families, along with so-called "middle class welfare" like mortgage interest deductions.

    Dolan thinks that "by replacing means-tested welfare with a UBI, you would increase work incentives for low-income workers." Ed Dolan is only looking at the tip of the iceberg.

    According to the Heritage Foundation, the federal government funds 89 interrelated means-tested programs through four independent agencies (Federal Communications Commission, Legal Services Corporation, Appalachian Regional Commission, and Corporation for National and Community Service) and 10 Cabinet-level departments (Health and Human Services, Agriculture, Housing and Urban Development, Labor, Treasury, Commerce, Energy, Interior, Education, and Homeland Security).

    Altogether, these programs provide cash, food, housing, medical care, social services, job training, community development funds, and targeted education aid to low-income persons and communities. State governments also fund welfare.

    The cost of these programs in Fiscal Year 2016 was more than $1.1 trillion; federal expenditures accounted for $829 billion (74 percent), and state expenditures accounted for $297 billion (26 percent).

    As Ed Dolan pointed out, a lot of money and bureaucracy could be eliminated by a UBI. How much simpler would the Covid-19 payments have been if the U.S. already had an individual account and payment system for every citizen.

    A UBI of $1200 per month would cost the U.S $2.8 trillion per year for 200 million citizens over 18. Clearly even if we save all the $1.1 trillion that Heritage talks about the U.S. would need more revenue for a UBI.

    James A. Baker III, George P. Shultz, and Ted Halstead proposed the U.S. institute a carbon tax to address climate change***. They also proposed the money from the carbon tax be returned directly to the American people in the form of quarterly checks, or dividends, a UBI.

    Under their proposal, a family of four would receive a UBI of approximately $2,000 per year in the first year, based on a $40 per ton carbon tax. The amount would increase over time as the annual carbon fee increased.

    One of the big criticisms of a UBI is the people would stop working. Yang's website states people would still work and cites a 2016 Harvard-Massachusetts Institute of Technology study that found cash transfers do not have an effect on work behavior. The UBI Alaska pays its citizens has not stopped Alaskans from working in really tough Alaskan jobs like salmon fishing and logging.

    To make the UBI work, more than carbon tax revenue and savings from existing programs is needed. Additional tax revenue would be required. A roll back of President Trumps tax cut for the wealthy and big corporations would more than cover the gap. A roll back of President Bush's tax cut would be more than enough and could even help the U.S. pay down the National Debt.

    *The Federal government's official poverty threshold in 2018 for a family of four was about $25,700 per year. Poverty is defined by the Office of Management and Budget (OMB) and measured by the Census Bureau. Poverty does not strike all demographics equally. For example, in 2018, 10.6% of men and 12.9% of women lived in poverty in the U.S. As Isabel Sawhill points out, the poverty rate for married families is lower than single parent families. In 2018 the rate for couples was only 4.7%, but the rate for single-parent families with no wife present was 12.7% and for single-parent families with no husband present was 24.9%. **Isabel Sawhill is an economist at Brookings; her book is reviewed by the NY Journal. https://www.nyjournalofbooks.com/book-review/forgotten-americans ***The Strategic Case for U.S. Climate Leadership How Americans Can Win with a Pro-Market Solution, James A. Baker III, George P. Shultz, and Ted Halstead, Foreign Affairs, May/June 2020

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