Does UBI Increase Poverty?

A universal basic income (UBI) is a cash payment made to everyone without needing to prove they are willing to work. It is a common way of reducing poverty and has been used worldwide for decades.

A UBI can be paid out monthly or in annual lump sums. The amount is set so that it covers a person’s living costs.

Supporters

In the wake of a presidential election and a global pandemic, many have called for the government to provide a basic income guarantee. A universal basic income (UBI) would provide a basic payment for everyone in the country, regardless of income or employment status.

The UBI supporters believe it will help alleviate poverty in the United States by addressing the root causes. This will include reducing hunger and unemployment and improving education outcomes.

They also believe that it will allow citizens to spend their money how they wish and make it easier for them to earn more income. This will make the economy more robust and efficient, boosting growth and job creation.

The government provides aid to poor people through SNAP (food stamps), Medicaid, TANF, the EITC, and advanced child tax credits. These programs help tens of millions each year and significantly reduce poverty.

Proponents

UBI advocates argue that the program could reduce poverty and increase economic stability; improve population health, primarily through reduced stress and stress-related behaviours; and promote entrepreneurship.

Critics worry that UBI will lead to a wealth transfer from the middle and lower classes to the rich. This could make it politically impossible to implement, especially if the rich are against it.

For example, a UBI paired with other safety net programs could reduce poverty among individuals with the lowest incomes, differently-abled individuals, older adults, and children2.

Opponents

Primary income proponents argue it will reduce poverty by empowering people and encouraging them to take risks. It would allow people to pursue more creative and rewarding activities, find more satisfying work, or work less.

In addition, supporters of the UBI argue that it would replace many means-tested programs, reducing government waste and leaving people better off.

The bottom line is that a UBI is a daunting financial undertaking. It would cost at least three-fourths of the federal budget outside Social Security, Medicare, defence and interest payments and could double it over ten years.

Conclusions

While some forms of UBI are likely to reduce poverty and boost well-being, other proposals could increase poverty. For example, one version of UBI based on current benefit levels would reduce poverty overall.

A UBI that did not reduce the incentive to work, such as Kenya’s, might be more likely to encourage people to stay or return to work. This would significantly improve current social security benefits.

A more comprehensive approach to reducing poverty and improving income security, based on means-tested welfare programs, maybe more politically acceptable.