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How Covid-19 has changed the conversation around cash handouts and basic income

"The pandemic just highlighted for folks that economic insecurity is so, so pervasive."

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When the first wave of shelter-in-place orders was dispatched in March at the start of the coronavirus pandemic, Sukhi Samra, director of the Stockton Economic Empowerment Demonstration (Seed), saw a spike in interest. The mayor-led program, which provides 125 residents in Stockton, California, with $500 per month, is one example of a universal basic income (UBI) program.

"We got an influx of inquiries from cities and city managers, all wondering how they could mimic what we were doing," she says.

Public support for UBI has remained relatively steady and sizable: In 2020, 45% of those surveyed supported the idea of giving all adult citizens $1,000 a month, according to Pew Research, while in 2019, 43% of those surveyed supported the general idea of UBI, according to Gallup. After New York City mayoral candidate Andrew Yang made it the primary plank in his presidential platform, he received more attention and support than expected.

Still, few government officials have come out for widespread basic income programs.

In response to the pandemic, though, the momentum could be changing. In August 2020, a UBI program in Hudson, New York, HudsonUp, started taking applicants for a pilot that will give 20 residents $500 a month for five years. (The program is partially funded by Yang's nonprofit Humanity Forward.) Hudson mayor Kamal Johnson has expressed support for the program. And more than 30 mayors have signed on to Mayors for a Guaranteed Income, a program that started with Seed and now has extended to other cities including St. Paul, Minnesota, and Compton, California.

"We were met with a lot of skepticism about the viability of the concept, [which was] characterized as a Socialist idea" before Covid-19, Samra says. "The pandemic just highlighted for folks that economic insecurity is so, so pervasive."

Seed, for example, was initially supposed to last 18 months and end in July of 2020. Because of the pandemic, it extended payments by six months.

Economic impact payments have also recently received widespread public support in the United States. A whopping 70% of Americans wanted Congress to distribute a second round of stimulus checks, according to a Gallup poll taken in September, and 66% believed the amount should be $900 or more.

Still, some economists argue that stimulus checks and UBI are too different to compare and that many Americans who approve of stimulus checks wouldn't approve of recurring, unconditional cash payouts. So passing a federal law would still be challenging.

'It's a different approach for an old problem'

Since 2014, Michael Bohmeyer's Germany-based company My Basic Income has given 650 people 1,000 euros per month for a year. The pandemic forced people to rethink the link between working and money, he says.

To Bohmeyer, UBI is an extension of safety nets that already exist, like Social Security or unemployment benefits. "There already is no connection between labor and having enough money to be able to live," he says. "The idea of basic income is just to expand this situation to everyone."

Though everyone needs money, some social safety nets — such as welfare — can carry stigma. UBI "deletes the stigma," Bohmeyer argues, because everyone, regardless of income, will receive it: "It's a different approach for an old problem."

VIDEO4:0504:05
What is universal basic income, according to an expert

Video by Stephen Parkhurst

During the pandemic, Americans have seen the benefits of enhanced unemployment and stimulus checks. "This crisis has made us realize it's not smart to have a society where all the income is based on labor only," Bohmeyer says. "There are times where you just cannot go to work."

Bohmeyer is skeptical as to whether a federal UBI program could pass in the United States, though he argues it's been shown to be necessary: After all, the pandemic's effect on the job market has challenged the idea that your finances reflect how hard you work.

"We have this strong narrative in our society that everyone has to take care of him or herself," he says. "I think these days are over. Thinking that you can manage to make your living all by yourself completely isolated from society, that's a dream, that's not true. Basic income is just a reality check."

This crisis has made us realize it's not smart to have a society where all the income is based on labor only.
Michael Bohmeyer
Founder of My Basic Income

'Most Americans are just one emergency away from financial ruin'

Seed's Samra, however, is optimistic about the future of universal basic income in America. Some 40% of Americans cannot afford an unexpected bill of $400, and this crisis showed how quickly income can dry up.

"Most Americans are just one emergency away from financial ruin," she says.

The pandemic has also put to rest the notion that unemployment checks make people lazy. Those who receive unemployment benefits are more likely to look for jobs than those who run out of money, according to 2020 research from Federal Reserve Bank of Chicago.

The pandemic just highlighted for folks that economic insecurity is so, so pervasive.
Sukhi Samra
Director of the Stockton Economic Empowerment Demonstration

Anecdotally, Samra says she has seen UBI allow people to explore more career options, not fewer. One man who received the Seed stipend was, at the outset, working part time at a distribution center while also holding multiple side hustles, like repairing cars. Now he is a full-time case worker at a nonprofit.

"The only reason he was able to make that career jump was because he was able to take time off to interview and know he wouldn't get behind on his bills," Samra says.

Seed and UBI skeptics contend that unconditional money could result in people buying drugs and alcohol, says Samra. However, data collected by Seed shows otherwise: The typical $500 stipend recipient spends 37% on food and over 22% on "sales and merchandise," which includes purchases at stores like Walmart.

None of the money was spent on drugs and alcohol, and less than 1% was spent on recreational activities.

Bohmeyer, too, found that My Basic Income recipients did not spend the money on recreational activities. Instead, he says, most of the money was put in savings or toward education.

Why UBI is still unlikely to become law in America

Even if you support the idea of UBI, creating a government structure to pay for it seems overwhelming. Both Seed and My Basic Income are funded by private donations.

For an EU government to afford a 1,000 euro per month UBI, Bohmeyer says tax rates would have to be 40% to 50% and go up in proportion with your income. While "this sounds like a lot," citizens would get an unconditional 1,000 euros per month, he says.

"If you are middle-income, you would have just as much money as before, but knowing you could never go lower," he says.

In the U.S., that's a harder sell, says Kyle Pomerleau, a resident fellow at the American Enterprise Institute. While the pandemic caused the federal government to deploy UBI-like payments, it might be misleading to compare support for stimulus checks to support for UBI.

"The debate of stimulus checks isn't exactly the same as the debate about UBI, which would be a consistent feature of the federal fiscal system," he says. "The one-time payments, of course, are very popular. It's during an economic downturn and people feel they've had a rough time with Covid."

The debate of stimulus checks isn't exactly the same as the debate about UBI, which would be a consistent feature of the federal fiscal system.
Kyle Pomerleau
Resident fellow at the American Enterprise Institute

Should UBI be implemented, the tax burden on many Americans would get significantly heavier.

To distribute $750 per month to individuals, you would have to tax people at a 20% rate in proportion to their income, Pomerleau says. This would benefit low-income people most, and those who make between $50,000 and $70,000 would break even, he says, while people who make above $70,000 would lose money.

That won't happen anytime soon, he says, partially because instituting the policy would alienate a "very important constituency": upper-middle-class households. "Those households tend to vote and be engaged, and they probably wouldn't like a system in which they were paying a net tax even after the UBI," he says.

The country could also pay for UBI by reversing the tax cuts that were part of the 2017 Tax Cuts and Jobs Act, Samra says. That's similar to what Vice President-elect Kamala Harris proposed in her Lift the Middle Class Act, in which families that earn under $100,000 would receive $6,000 a year per family, in the form of a refundable tax credit. Single-filers making under $50,000 could receive $3,000.

"That was paid for by reversing the Trump tax cut and making a more equitable taxing structure," she says.

Ultimately, Samra says, "budgets are moral documents," and the pandemic has made Americans assess what priorities are important to fund, and what aren't. "Covid-19 has created a moment and a demand that we rethink what our social safety net looks like."

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