Imagine, for a moment, a world where most of one’s basic financial needs are automatically met. You can stay at home to take care of your children, you can pursue more hobbies, or you can continue to work a job to gain disposable income.
Welcome to the world of universal basic income (UBI). According to the World Bank, there are three main criteria. First, it must be unconditional. This money goes to you regardless of employment, income, or other factors. Second, it must be cash-based. It can’t be a check or other system where you have to deal with a bank. Cash payments allow people to spend the money on whatever they want, be it food, clothes, or transportation. Third, and similar to the first criterion, it must be universal. This money must be given to every single American citizen. Whether you’re working a minimum wage job in Wyoming, a successful engineer in Michigan, or a student in Iowa City, you get $1000 every month.
“Ok, why not just improve existing welfare programs like Social Security?” It’s a good question. There are a few key ways a UBI is better than improving current welfare, and there are some ways it’s worse. Starting with the good, it prevents a poverty trap. Current welfare programs have many strings attached, such as that you have to be actively seeking employment. In many cases, if you get a job and make a single cent over your quota, all of your benefits can be taken away. UBI was described well in a video by Kurzgesagt as “instead of a ceiling [UBI] creates a floor from which people can lift themselves up.” Another benefit is the universal aspect. There are likely to be fewer opponents to a UBI than other welfare systems because every person receives a benefit. Finally, there is much less red tape. Current welfare programs require extensive paperwork, verification, and monitoring. There is just one requirement people have to meet: Are you an American citizen?
There are many downsides to a UBI, but most of them revolve around the gargantuan cost. Giving all 340 million Americans $12,000 every year is not cheap. Some quick math says it would cost about $4 trillion annually. That is around 14% of the US’s annual GDP. Funding a UBI would require cutting or defunding a few programs as well as implementing new and reformed taxes. Most taxes can be targeted at large corporations or the ultra-wealthy, but the average American will have some slightly increased costs.
The first to be cut would be current welfare programs such as Social Security. A UBI is designed to give everyone the benefits of these programs, not just the elderly and the disabled. Social Security income should still be used to help current recipients get the same amount of income when supplemented with the UBI. Some programs, such as food stamps and housing assistance, should also be kept for particularly disadvantaged citizens. Cutting these programs while still maintaining some for the most underprivileged would save around $1.21 trillion, according to the Treasury, or about a third of the cost. (Quick note: I’m using federal spending from the fiscal year 2024 for all of my calculations.) While the decrease in spending on other welfare programs will cover a sizable portion of the UBI cost, the transition will likely have temporary, albeit negative, effects on vulnerable populations. A temporary fix for this issue could be to implement the UBI for current welfare recipients first. This would provide them with the same funds they received before and ease the slow implementation of the UBI.
Medicare and Medicaid programs should be reformed to increase cost-effectiveness while still covering Americans with conditions or a lack of funds barring them from using private insurance. These changes include allowing these programs to negotiate drug prices directly with pharmaceutical companies, similar to conventional insurance firms. This could allow Medicare and Medicaid to provide quality care similar to that of normal insurance companies.
Finally, military spending can be reduced by 25-30%, saving $175-$210 billion. The federal government reported that $842 billion was spent on defense during the 2024 fiscal year. That is more than all other NATO members, plus Russia and China combined, according to the Stockholm International Peace Research Institute. If defense spending is decreased, it will encourage the US to choose its positions more wisely and, hopefully, but not likely, encourage more ethical engagement in foreign affairs.
There will also need to be new and reformed taxes. These taxes can be implemented in a manner that shifts the burden away from working and middle-class citizens and gives more of the load to wealthy individuals and corporations. First, the federal income tax could be changed to a capital tax (a tax based on one’s net worth rather than just income). This would close a loophole the ultra-rich have been using for years and tax other assets in one’s possession (such as real estate or stocks). Estimates vary on how much revenue a capital tax would generate versus an income tax, but it’s generally estimated to be around $100 billion per year. Next, the corporate tax rate could be raised from 21% to 28%, which is still lower than the pre-2017 rate of 35%. Keeping the corporate tax relatively low will hopefully keep companies from moving their operations overseas and prevent them from increasing their prices too much.
The final tax that would be implemented is a 0.1% financial transaction tax. This tax requires 0.1% of the value of a financial asset (stock, bond, etc.) to be paid to the government when it’s traded. This would ideally shift the burden away from average Americans and make the wealthy investment firms pay a small tax every time they trade.
A common misconception is that people will simply spend the money on alcohol, tobacco, and other products known as “temptation goods”. According to a review by the World Bank, no study on UBI has shown a significant increase in spending on temptation goods. Some showed a decrease in spending on temptation goods. Most people reportedly used the money in UBI trials to cover their basic needs, such as food, healthcare, and education.
“Okay, but won’t inflation just go up?” Not if the program is managed well. Because the UBI described in this article is funded by increased taxes and program cuts, no new money enters the economy. A UBI would also allow people to pursue professional education and work more specialized jobs, increasing economic productivity.
The increase in automation could, in fact, lead to deflation. This is because companies will have lower operating costs, allowing them to sell products for lower prices while still maintaining their profits. The increase in automation is expected to lead to the loss of around 300 million jobs, according to the BBC.
This is where UBI comes in. It will provide the American people with purchasing power during the turbulent economic period that is pretty much inevitable. While the corporations will continue to reap profits, the American people will be able to use the UBI to get good training and work a specialized, AI-proof job or start a business of their own.
In short, the economy is likely going to get worse before it gets better, but a UBI is one of the best safety nets for the US. The only question now is whether the United States will be ready to help its people.
