What Is Universal Basic Income (UBI), and How Does It Work?

What Is Universal Basic Income (UBI)?

Universal basic income (UBI) is the concept of a government program in which every adult citizen receives a set amount of money regularly. The goals of a basic income system are to alleviate poverty and replace other need-based social programs that potentially require greater bureaucratic involvement. The idea of universal basic income has gained momentum in the U.S. as automation increasingly replaces workers in manufacturing and other sectors of the economy.

Understanding Universal Basic Income (UBI)

The idea of providing a basic income to all members of society goes back centuries. The 16th-century English philosopher and statesman Thomas More mentions the idea in his best-known work, "Utopia".

• Thomas Paine, a pamphleteer whose ideas helped spur the American Revolution, proposed a tax plan in which revenues would provide a basic government income.
• Martin Luther King, Jr., proposed “guaranteed income” in his book "Where Do We Go from Here: Chaos or Community?" published in 1967.

While the federal government provides financial support for low-income Americans through the earned-income tax credit (EITC), Temporary Assistance for Needy Families, and other programs, a system of universal income has never taken hold in the United States. The concept rose to the national consciousness around 2020. The renewed interest has to do with fundamental changes to the economy—namely, the growth of automation—that threaten to leave many Americans without jobs that pay a subsistence wage.

In 2023, researchers at OpenAI—a leading artificial intelligence (AI) research organization—and the University of Pennsylvania published a working paper analyzing the impact of the technology on the labor market. Per their analysis, 80% of the U.S. workforce could have at least 10% of their work tasks affected by large language models, a type of AI that can process and generate text. According to the study, 19% of workers could see 50% or more of their tasks impacted.

Supporters of universal basic income believe a guaranteed payment from the government can help ensure that those who are left behind by this economic transformation avoid poverty. Even if government-sourced income isn’t enough to live on, it could theoretically supplement the income from the lower-wage or part-time jobs they are still able to obtain.

Proponents also believe that a universal payment system would make it easier for people to receive assistance who are in need but have trouble qualifying for other government programs. Some Americans seeking disability insurance payments, for example, may lack access to the healthcare system, thereby hindering their ability to verify their impediment.

Political Support for Universal Basic Income (UBI)

Many of UBI’s supporters come from the more liberal end of the political spectrum, including former Labor Secretary Robert Reich and past head of the influential Service Employees International Union, Andy Stern. Support for a government-supplied income stream has been endorsed by several prominent figures on the right as well.

Among them is the late conservative economist Milton Friedman, who suggested that private charitable contributions aren’t enough to alleviate the financial strain many Americans endure.

In 1962’s "Capitalism and Freedom", he argued that a “negative income tax”—essentially a UBI—would help overcome a mindset where citizens aren’t inclined to make sacrifices if they don’t believe others will follow suit. “[W]e might all of us be willing to contribute to the relief of poverty, provided everyone else did,” he wrote.

Libertarian philosopher Charles Murray believes that guaranteed income would also cut government bureaucracy. He has proposed a $10,000-per-year UBI, as well as basic health insurance, which he says would allow the government to cut Social Security and other redistribution programs.

Criticism of Universal Basic Income (UBI)

Despite its promise to curtail poverty and cut red tape, universal basic income still faces an uphill battle. Perhaps the most glaring downside is cost. According to the nonprofit Tax Foundation, Andrew Yang’s $1,000-a-month Freedom Dividend for every adult would have cost $2.8 trillion each year (minus any offsets from the consolidation of other programs).

Yang proposed covering that substantial expense, in part, by shrinking the size of other social programs and imposing a 10% value-added tax (VAT) on businesses. He also proposed ending the cap on Social Security payroll taxes and putting in place a tax on carbon emissions that would contribute to his guaranteed income plan.

Whether that set of proposals would have been enough to fully offset the cost of a hypothetical Freedom Dividend remained in question, however. An analysis by the Tax Foundation concluded that Yang’s revenue-generating ideas would only have covered about half its total impact on the Treasury.

Among the other criticisms of UBI is the argument that an income stream that’s not reliant on employment would create a disincentive to work. That, too, has been a subject of debate. Yang has suggested that his plan to provide $12,000 a year wouldn’t be enough to live on. Therefore, the vast majority of adults would need to supplement the payment with other income.

Example Universal Basic Income (UBI)

Universal basic income received considerable attention during the first stage of the 2020 presidential campaign after entrepreneur and former Democratic candidate Andrew Yang made the idea a cornerstone of his campaign. Yang’s “Freedom Dividend,” as he called it, would give every American over the age of 18 a $1,000 check every month. Those enrolled in federal assistance programs could continue to receive those payments or opt for the Freedom Dividend instead.

Yang contended that the labor force participation rate—that is, the percentage of Americans who were working or looking for work—was at its lowest in decades. “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,” his campaign website noted.

Yang would later drop out of the presidential race. Though his proposal for a federal basic income has not been tested, a number of local jurisdictions have experimented with UBI pilot projects.

Pope Francis, a staunch advocate of the disenfranchised, has framed the issue in moral terms. In an Easter 2020 letter, the pontiff wrote the following of a universal basic wage: “It would ensure and concretely achieve the ideal, at once so human and so Christian, of no worker without rights.”

The Bottom Line

Universal basic income proposes that the government regularly give every adult citizen a set amount of money, typically without conditions related to wealth or employment. The aims of such a system include reducing poverty and helping individuals meet basic needs. UBI proposals have been piloted in cities across the U.S., though they have been limited in scope. The idea of UBI has attracted significant attention since 2020, particularly given ongoing developments in artificial intelligence and automation.