December 06, 2019
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Why income guarantees makes sense to reduce poverty

Ben Margot | AP
Ben Margot | AP
A city worker walks away from city hall in Stockton, California.

Half a century ago, Martin Luther King, Jr., George McGovern, and Milton Friedman supported a federal minimum income guarantee. Now, as automation threatens to eliminate entire large occupational categories, a minimum income floor is once again on the political agenda. Cities, such as Stockton, California and Chicago, are running basic income pilot projects, inspired by similar projects in Canada and Finland.

In Maine, LD 1324 has been introduced in the state Legislature, to establish a committee “to study the feasibility of creating basic income security.” The charge of the committee will be to look at a wide range of cash benefit programs, and compare them with the existing welfare system, with a view to creating a better system of income security for all. Among the programs to be considered are a strengthened earned income tax credit, negative income tax, and universal basic income.

It is time to consider the merits of unconditional cash transfers, and universal programs in place of means-testing, at both federal and state levels. The work requirements and time limits currently in place have pushed people off welfare but not out of poverty.

A universal basic income, a regular cash payment that goes to every legal resident, would be the most effective policy against the poverty trap. With many conditional, means-tested benefits, people are trapped in poverty because taking a job means losing their benefits. With a universal basic income, there is no disincentive for taking a job because people will not lose the income.

Second, a cash payment that goes to everyone reaches all those who need it, in contrast with targeted benefits that come with bureaucratic hurdles and stigmatization.

Third, a universal basic income empowers workers in bargaining with employers, or enables them to take low-paid but skill-enhancing internships. Few would drop out of the labor market, because most people want more than a poverty-level income. Evidence from past minimum income experiments shows that the people who withdraw from the labor market are mostly parents staying at home with small children, or teenagers returning to high school. This is counterbalanced by facilitating work for those who now can afford transportation, tools, or training.

The seeming absurdity of giving cash payments to everyone, including billionaires, vanishes once people realize that the amount given is shrunk through increased taxes on the wealthy. Yet, like Medicare, it would be a universal program, increasing its popularity and prospects for funding. So even though the money allocated is spread more widely, the neediest fare better than in targeted programs.

A negative income tax, like a basic income, but means-tested, could virtually end poverty in America, and would be work friendly, because the cash benefit would not be withdrawn as one takes a job, but would phase out at a higher income level. Among existing policies, the closest thing we have to a negative income tax is the Earned Income Tax Credit (EITC), which has successfully lifted millions of Americans out of poverty and into work.

EITC has its limits — it benefits working families with children, but does very little for single workers, and nothing at all for people engaged in full-time child or elder care. This is one of many reasons that one in five children is in poverty, placing the US 34 th out of 35 developed countries for children in poverty. Given the long-term harms of child poverty, the cost of eliminating it is a bargain. The EITC could be turned into a negative income tax by extending it to anyone whose income falls below poverty. At the state level, Maine’s EITC could be increased from its current meager level. It was made refundable in 2016 (so taxpayers owing few or no taxes now get a rebate), increasing after-tax income for 100,000 working families. But the maximum credit is only $315.

More modest universal programs could be considered at the state level, such as a universal child allowance, a carbon dividend, or a resource dividend modeled on Alaska’s Permanent Fund Dividend.

If you support a legislative review of policies for economic security, to address the many challenges of our changing economy, urge Senate and House members to support LD 1324.

Michael Howard is a professor of philosophy at the University of Maine. This column reflects his views and expertise and does not speak on behalf of the university. He is a member of the Maine chapter of the national Scholars Strategy Network.

 



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