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Is universal basic income better than one-time stimulus payments?

Some legislative proposals would provide Americans recurring monthly payments to tide them over during the pandemic

Summary

Supporters of universal basic income say it would grant people a measure of freedom, but the idea has not taken off globally so far, with funding being a constraint.

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Would you prefer to get a one-time stimulus payment or recurring monthly payments to tide you over the current economic crisis?

The latter would be a form of a universal basic income (UBI). The concept has been around for a while, and in recent years it has been presented as a way of dealing with the potential for large-scale unemployment that might arise if technology enables the displacement of workers.

UBI is gaining more prominence during the COVID-19 pandemic. The crisis has further exposed the financial vulnerability of Americans and there is a school of thought advocating for monthly payments similar to a universal basic income, rather than one-off stimulus payments.

See related: 23% of consumers added to their credit card debt during the pandemic

Government support during pandemic

The U.S. government has already sent out stimulus checks of up to $1,200 per adult based on the Coronavirus Aid, Relief and Economic Security Act, or CARES legislation, that was passed into law. And the pending Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES legislation) seeks to send out additional stimulus checks of up to $1,200 to individuals.

Some politicians have also proposed legislation that would pay out a steady monthly amount, akin to UBI, to Americans for an indefinite period of time.

For one, legislation introduced in the House by Rep. Tulsi Gabbard (D-Hawaii) states that “the federal government should create and provide an emergency universal basic payment of $1,000 per month available to all Americans until the Department of Health and Human Services declares that the COVID–19 outbreak no longer presents a public health emergency.”

The legislation requires that this nontaxable payment be made to all U.S. citizens older than 18.

Another piece of legislation sponsored by Senators Bernie Sanders (I-Vt.), Kamala Harris (D-Calif.), and Ed Markey (D-Mass.) would provide a monthly payment to each household in the amount of $2,000 to each family member. The payments would be retroactive to March and continue for three months following the pandemic.

Harris stated in a news release, “The coronavirus pandemic has caused millions to struggle to pay the bills or feed their families. The CARES Act gave Americans an important one-time payment, but it’s clear that wasn’t nearly enough to meet the needs of this historic crisis. Bills will continue to come in every single month during the pandemic and so should help from government.”

Markey noted in the news release that providing recurring monthly payments makes for “the most direct and efficient mechanism for delivering economic relief to those most vulnerable in this crisis, particularly low-income families, immigrant communities and our gig and service workers.”

And in a May 17 tweet, Sanders noted, “People should not have to risk their lives and endanger their families to have income in a pandemic. One $1,200 check is not enough. We must ensure every person in this country receives $2,000 a month for the duration of this crisis.”

Another legislative proposal from Rep. Tim Ryan (D-Ohio) and a host of other Democratic co-sponsors asks for a $2,000 payment for American citizens, as well as other U.S. residents, for a 12-month period unless the employment situation improves before that.

See related: Half of Americans say their finances are getting worse amid COVID-19

Payment would not be subject to political wrangling

The automatic nature of the payment is one major advantage of the UBI approach.

“Having a UBI in place means cash can be delivered to Americans quickly and easily,” said Miranda Fleischer, a professor at the University of San Diego school of law. “One-off stimulus payments take time to implement, as evidenced by the delays in implementing the CARES Act. Even funneling aid through existing transfer programs – such as the increased unemployment benefits available for COVID-related unemployment – entangles such aid in bureaucratic snafus.”

Such bureaucratic slowdowns have impacted millions of Americans as states’ unemployment systems have been overwhelmed with claims. Additionally, there was no guidance on how to deal with self-employed Americans who were previously not eligible for unemployment benefits.

The regularity of the payment also helps people plan their budgets. And people need not be dependent on the vagaries of government support in case they need to continue social distancing and not go back to work.

Fleischer noted, “A UBI is superior to one-off stimulus payments during a pandemic because it best enables individuals to help slow the spread by staying home and minimizing their economic activity, and the faster the pandemic can be contained, the earlier we can get the economy running again.”

Jim Pugh, co-founder of the Universal Income Project, also agrees that UBI would be better than one-off stimulus payments to deal with the current crisis.

“Given the unpredictable outcomes and duration of the COVID-19 pandemic, UBI would be a much better solution for supporting Americans than the one-time rebate checks that have been implemented so far,” he said. “You want an approach that will continue to support people as long as the crisis lasts.”

And UBI is also better suited to enable Americans to pay their monthly bills by providing ongoing financial relief as the bills pile up monthly.

Although the concept of getting such a steady payment sounds good, the question arises as to how to fund this sort of open-ended payment in today’s climate of government deficits.

Federal Reserve Chairman Jerome Powell noted in a public speech that a deep recession could leave lasting scars on economic productivity by causing long stretches of unemployment and business insolvencies.

“Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Powell said. “This trade-off is one for our elected representatives, who wield powers of taxation and spending.”

See related: Fed says it will continue to support economic recovery

Support from other sources

The concept of UBI has garnered support from other prominent individuals as well.

Former presidential candidate Andrew Yang, for one, proposed a UBI of $1,000 per month to U.S. citizens 18 and older. Since dropping out of the 2020 presidential race, Yang is trying out his idea on a very limited basis in upstate  New York. His nonprofit, Humanity Forward, is proposing to provide 20 people in the town of Hudson a monthly payment of $500 each for five years.

Jack Dorsey, founder and CEO of Square (and Twitter co-founder) is funding an effort called Start Small with $1 billion from his Square equity to provide coronavirus relief.

In an April 7 tweet, Dorsey said, “After we disarm this pandemic, the focus will shift to girls’ health and education and UBI.”

The concept has also garnered the support of others in Silicon Valley, including Facebook CEO Mark Zuckerberg and Tesla co-founder Elon Musk.

The idea has also been proposed in various forms historically by others such as Martin Luther King Jr., Milton Friedman and Thomas Paine. And it’s been tried out in other countries such as Finland, Canada and Kenya, in different forms.

Detractors say UBI is inefficient since the payments would go out to all individuals, even to those who don’t need it, irrespective of their income levels. Some also say that it would discourage people from working and enable spending on vices.

However, research has found that those who work less tend to be teenagers who stay in school to develop skills and new mothers spending more time with their babies.

See related: How coronavirus is changing the future of child care

Looking beyond the pandemic

Some of the general benefits of UBI, looking beyond the pandemic, include that it gives recipients the freedom to decide how to spend the money, rather than stipulating that they only buy certain types of goods, such as the Supplemental Nutrition Assistance Program (SNAP), or food stamp program, does.

Typically, a UBI would replace the vast network of government welfare programs, which would also help pay for the initiative.

“By ensuring that everyone has the money to cover their basic needs, UBI would give struggling people the hand up they need to build a better life, whether that’s going back to school, starting a new business or just taking the time to figure out their right next step,” Pugh said. “This would be good for them, and it would be good for our entire economy, which will benefit from more innovation and a more skilled workforce.”

But for all the advantages cited by supporters, this concept has failed to take off around the world. A Canadian initiative, for one, has floundered due to lack of funding.

And lack of continuity in political support is another issue. It remains to be seen whether the concept will ever take hold in the U.S.

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