By Lee Hachadoorian and Frank de Jong
The US economy is in tatters. But this is not only because of the response to COVID-19, which is just the latest disruption. Computers, the internet and automation have been integral in eliminating entire classes of low-skill jobs. The electrification of cars, trucks and busses alone will pink slip millions of jobs in related industries including oil, manufacturing, and service jobs. The gig economy, the last resort for most young people, is making it difficult for millions to carry a mortgage or start a family.
A new source of household financial stability is sorely needed. If left unsupported, few besides those with sufficient sustainable wealth will be able to avoid slipping into a desperate underclass the likes of which we’ve not seen since the Great Depression. Without a dependable financial lifeline, many families and communities will not be able to weather future pandemics, expected technical disruptions or climate-related systemic disruptions.
To bolster and to ensure political and economic stability in the USA, The Robert Schalkenbach Foundation recommends US Federal and State Governments make Basic Income available to all.
A Basic Income:
- Should be financed by economic rent capture, not by additional taxes on jobs, business or sales.
- Will assist those with inconsistent or temporarily reduced income, including startup businesses, businesses retooling and restructuring, artists, gig economy workers, and returning students.
- Will support people wishing to move away from uninspiring, unhealthy or unethical work.
- Will support part-time work and traditionally underpaid or unpaid work such as care-giving, parenthood, community work.
- Will reduce or eliminate employer costs such as those related to pensions, disability and employment insurance.
- Will shore up the financial well-being of our increasingly threatened middle class.
- Would allow jurisdictions either to structure the BI as a payment to all or as a negative income tax as a top-up toward a livable income.
As an entitlement of citizenship, a Basic Income would instill a sense of national pride, a feeling of inclusion, of worth, and engender a re-commitment to the American Dream of liberty and opportunity for all.
How would this help during the current crisis? Due to business closures, in one week jobless claims jumped to over 3 million, the highest level ever US history. The Federal Government has responded with the CARES Act, which will increase unemployment payments, extend unemployment benefits to the self-employed, and extend unemployment benefits to surviving spouses following the death of a primary income earner. A Basic Income accomplishes this goal of income smoothing while also reaching those who are not in the labor force. During this crisis, college students, retirees, and others who may rely on assistance from family members may experience a partial or complete loss of support. Basic Income would provide a base level of cash dispersed throughout the US economy to keep basic needs met and vital businesses going during a critically trying time.
Unless funded by rental value capture, Basic Income programs will be self-defeating. About 30% of the GDP in every jurisdiction is from economic rent, variously called the economic surplus, super profits, royalties, capital gains, unearned income, monopoly profits, or profits without a corresponding cost of production. Every citizen has a right to their share of this surplus wealth. Examples of such programs include Alaska’s Permanent Fund, funded from oil revenues, and Canada’s carbon tax which is rebated to households. But a Basic Income funded by raising taxes on incomes, business transactions, or general sales will merely increase these economic rents (such as payments to landlords) and other economic rents.
While only recently gaining mainstream attention, Basic Income has long enjoyed support from the political left and right, including by Paine, Mill, Hayek, Friedman, Galbraith, along with many others in the Who’s Who of political theorists and economists. Richard Nixon and Milton Friedman suggested using the tax code to implement a negative income tax to eliminate poverty, an proposal that paved the way for the Earned Income Tax Credit. The EITC does not, however, do anything for non-workers, and very little for childless workers. Galbraith criticized a welfare system that discouraged people from working. The EITC partially addresses this concern at a cost of having two systems, one of which is constantly under political attack, the other of which is effective but opaque. In contrast, other developed countries already have extensive social safety nets amounting to a Basic Income in all but name. To turn the present programs into a Basic income program requires only the step of combining existing social payments into a single payment, while also including the working poor.
A persistent criticism of Basic Income is that it would disincentive work. But it is our current system of social support that disincentives work. Moreover, recent studies in behavioral science strongly suggest that with Basic Income, functioning as a grant that does not cease when recipients get jobs, start businesses, or work harder, there is no such disincentive. To the contrary, pilot studies in India and Namibia showed that Basic Income recipients increased their hours worked and their entrepreneurship.
Basic Income cannot cure COVID-19. But it would be a massive boost to the national economy, provide millions of people a degree of financial security, and ameliorate the worst effects of this period of economic retrenchment. And when the social distancing measures are relaxed and the economy starts humming, Basic Income will contribute to a rebound that will help fight off a looming economic depression. It is an idea whose time truly has come.
