Those calling for a government-funded universal basic income are acting as though it’s a hot new idea. It’s not. It’s been tried before—and it didn’t work.
In essence, universal basic income—also known as guaranteed minimum income—provides cash payments to all citizens, regardless of need.
This has been tried before—and the results weren’t pretty.
Advocates range from tech billionaires Elon Musk and Mark Zuckerberg to libertarian scholar Charles Murray.
Some U.S. cities are trying out the idea themselves. The city of Stockton, California, will begin a privately-funded, 18-month pilot program in early 2019. Chicago Mayor Rahm Emanuel also recently announced a task force that will consider implementing it there.
The problem? This has been tried before—and the results weren’t pretty.
The Negative Income Tax Experiment
The best available evidence about the potential effects of these programs comes from the federal government’s “negative income tax” experiment.
The experiment, which ran from 1968 to 1980, consisted of four random, controlled trials across six states designed to test the negative income tax. Similar to the universal basic income, a negative income tax guarantees a minimum income, which phases out as earnings increase.
The experiment’s planners hoped that providing a minimum income would encourage work. But the results showed the opposite.
In his 1984 book Losing Ground, Murray himself described the negative income tax experiment as “the most ambitious social-science experiment in history.”
“No other even comes close to its combination of size, expense, length, and detail of analysis,” he wrote.
As Murray recounted, the experiment’s planners hoped that providing a minimum income would encourage work. But their worst fears were realized when the results showed the opposite.
Evaluations of the experiment found that the negative income tax reduced “desired hours of work by 9 percent for husbands, by 20 percent for wives, and by 25 percent for single female heads of families.”
For single males who were not heads of households throughout the experiment, the reduction in hours worked per week was a staggering 43 percent.
If recipients lost their jobs during the experiment, they experienced significantly longer spells of unemployment compared with non-recipients—more than two months longer for husbands, almost a year longer for wives, and longer still for single mothers.
Murray concluded that the effect of the negative income tax on reducing work was “unambiguous and strong.”
For every $1,000 in additional benefits, there was an average reduction of $660 in earned income, meaning that $3,000 in government benefits were required to increase net income by $1,000.
These studies also made clear that it was the receipt of unconditional aid, not the phase-out of benefits, which led to the reduced work effort.
In Losing Ground, Murray concluded that the effect of the negative income tax on reducing work was “unambiguous and strong.”
The Drawbacks of UBI
To his credit, Murray has acknowledged that such disastrous results should be expected if guaranteed income is an add-on to, rather than a wholesale replacement of, the existing system of welfare and social insurance.
In fact, he asserts in Losing Ground that the true negative effects in the negative income tax experiment are understated because these effects were “over and above the effect of the work disincentives in the existing system.”
Instead, Murray argues that the universal basic income will realize its full potential “only if it replaces all other transfer payments and the bureaucracies that oversee them.”
The most apparent flaw with the concept is that it fails to require work or work preparation for its recipients.
But while his proposal is respectable in its intent, it presents several new problems.
First, Murray proposes eliminating Social Security and Medicare payments to pay for a universal basic income. This would shift resources from the elderly to the non-elderly, including childless adults who are capable of self-support.
Second, universal basic income payments would be given to all citizens, including middle- and high-income earners. By not targeting payments to those with low incomes, the proposal would transfer funds away from the vulnerable to the relatively affluent.
But the most apparent flaw with the concept is that it fails to require work or work preparation for its recipients. Although the current welfare system does little to encourage self-support, a comprehensive universal basic income policy would remove the idea of personal responsibility entirely.
It’s a misguided approach.
People Enjoy Working
Public opinion and social psychology indicate that adopting policies with a demonstrated track record of discouraging work would be a bad development.
A better alternative to a universal basic income would be to expand the earned income tax credit.
In the 2016 General Social Survey, for example, 70 percent of Americans agreed that they would enjoy working in a paying job, even if they didn’t need the money. Moreover, prominent social psychologist Jonathan Haidt argues that work is a central pillar of human well-being and happiness.
Policy should be designed to reward work rather than replace it. Therefore, a better alternative to a universal basic income would be to expand the earned income tax credit.
Unlike the former, which gives out payments regardless of work, the earned income tax credit supports work with cash benefits. In addition to making it more generous, reforms to the earned income tax credit should work to reduce fraud and disincentives to marriage in the program.
Universal Basic Income Just Won't Work
Supporting work through the earned income tax credit is consistent with American values of dignity and self-sufficiency. The Heritage Foundation has proposed ways to reform welfare programs to promote those goals.
Evidence from the negative income tax experiment strongly suggests that a comprehensive universal basic income program would significantly reduce work and increase dependency.
Perhaps advocates are hoping for a different result this time around. But if history is any indication, they are bound to be disappointed.