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'Would universal basic income raise taxes?' and other UBI questions answered by experts

"The level of taxes necessary for UBI is very substantial."

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Supporter carries a sign supporting Democratic presidential candidate Andrew Yang's plan for a $1000 monthly universal basic income during a rally in Washington Square Park, May 14, 2019 in New York City.
Drew Angerer | Getty Images

Universal basic income (UBI) is a fiscal program where the government gives every citizen a set, recurring amount of money. Though generally considered fringe, the idea has at various points gotten support from across the political spectrum, including from Martin Luther King Jr. and libertarian philosopher Charles Murray.

Then UBI started attracting mainstream attention after candidate Andrew Yang made it a mainstay of his 2020 Democratic presidential campaign platform. To Yang, and to other entrepreneurs who have said it may become a necessity in the future, UBI could help workers who were replaced by increased automation.

But 2020 highlighted another reason UBI might make sense: widespread job losses from an unexpected event such as a pandemic.

Covid-19 has made people rethink universal basic income, Michael Bohmeyer, founder of company My Basic Income, told Grow. Since 2014, the Germany-based company has given 650 people 1,000 euros for one year.

"This crisis has made us realize it's not smart to have a society where all the income is based on labor only," Bohmeyer said. "There are times where you just cannot go to work."

Although public support for UBI is relatively strong — 45% of those surveyed supported the idea of giving all adult citizens $1,000 a month, according to 2020 Pew Research — skeptics worry that unconditional money would make people lazy or that recipients would squander the cash on vices. Plus, regardless of the level of support for the idea, Americans probably wouldn't accept the taxation required to fund it on a large scale.

Here are three common questions about universal basic income, answered by Bohmeyer and other experts, based in part on the results of real-life experiments worldwide.

Does UBI make people lazy?

No.

This is one of the most common questions Bohmeyer gets and the "most boring," he said. "We have scientific proof from experiments worldwide, all stating that there is no connection between receiving UBI and hours of work you do."

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. And a 2018 study about the Alaska Permanent Fund, a program that gives Alaskans cash dividends every year, showed that the additional money had no effect on full-time labor and part-time labor increased 17%.

"People don't just work for money, they work for identification and purpose and relations to others and structured days," Bohmeyer said. "Of course, everyone needs money so that's a good way of getting money, but that's not the reason they work."

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What is universal basic income, according to an expert

Video by Stephen Parkhurst

The findings were similar in the Stockton Economic Empowerment Demonstration, program director Sukhi Samra told Grow. The mayor-led program provided 125 residents in Stockton, California, with $500 per month for two years.

Anecdotally, Samra said 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 said.

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

Won't people spend UBI on drugs and alcohol?

No.

Data collected by SEED shows that recipients used their basic income on priorities: None of the money was spent on drugs and alcohol, and less than 1% was spent on recreational activities. The typical $500 stipend recipient spends 37% on food and over 22% on "sales and merchandise," which includes purchases at stores like Walmart, Samra said.

"There are people finally able to buy their kids birthday gifts," Samra said. "People who are economically secure take that for granted."

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

There are people finally able to buy their kids birthday gifts. People who are economically secure take that for granted.
Sukhi Samra
Director of Stockton Economic Empowerment Demonstration 

Would UBI mean taxes would go up?

For most people, yes.

For an EU government to afford a 1,000 euro per month UBI, Bohmeyer said 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 said.

In the U.S., that's a harder sell, Kyle Pomerleau, a resident fellow at the American Enterprise Institute, told Grow. "The level of taxes necessary for UBI is very substantial and would require a lot of people to pay more in taxes," he said.

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

The level of taxes necessary for UBI is very substantial and would require a lot of people to pay more in taxes.
Kyle Pomerleau
American Enterprise Institute

UBI advocates like Samra argue that raising taxes on the ultrawealthy would help pay for a UBI program. 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," Samra said.

The payoff of higher taxes is that Americans would be more prepared to handle a number of financial emergencies, including those that affect their community more broadly, Samra said: "Sometimes it's a fire, if you live in California. Sometimes it's hurricanes. There is always something that threatens the economic security of Americans."

Universal basic income would require some citizens to pay higher taxes, Samra said, but they'd also know that UBI proactively kept their fellow Americans from being financially crushed by circumstances out of their control, like a global pandemic.

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