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Can the Idea of a Universal Basic Income Really Fly?

Local governments lack the tax base for meaningful income redistribution programs, and they risk losing residents to lower-tax jurisdictions. The economics suggest that it’s a job for higher levels of government.

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Call it grassroots socialism if you will, but scattered local support for a universal basic income is making headlines in various ways around the country. In New Mexico, experiments by the cities of Las Cruces and Santa Fe are cited as the foundations for a political push for a statewide minimum-income guarantee. A similar one-year pilot program in Stockton, Calif., with 125 participants, was completed with results touted as positive. California’s Marin County has embarked on a two-year universal basic income experiment for low-income mothers.

Notably, these experiments have mostly relied on philanthropic funding rather than redistributing local revenues. No one imagines that persuading taxpayers in even the bluest cities or states to pony up for a permanent guaranteed-income program would fall into the realm of the politically possible, but social-welfare advocates are hoping that multiple local initiatives will be supportive for efforts to broaden the reach of these programs and make them permanent nationally.

In 2020, Democratic presidential candidate Andrew Yang ran unsuccessfully on the idea of a national universal income backstop for all Americans. That idea never got traction, and today’s evenly divided U.S. Senate seems unlikely to surmount the predictable opposition of conservative politicians and voters. But that won’t stop efforts by progressive Democrats in both houses to promote narrower forms of income support, such as child-care tax credits and direct payments that would extend beyond those contained in the 2020 and 2021 pandemic relief packages and the pending budget reconciliation bill patterned after President Biden’s American Families Plan.

For inspiration, liberals look north to our neighbors in Canada, where annual “milk money” subsidies to lower-income households of up to $4,000 (USD) through the Canada Child Benefit program have endured their partisan political cycles for more than a half-century.

In America, the closest thing to a universal income subsidy is Alaska's statewide “dividend.” Since the early 1980s, the Alaska Permanent Fund, financed by mineral extraction royalties from the state’s petroleum reserves, has sent checks to most Alaska residents. Over the years, those payments have ranged between about $1,000 and $2,000, an amount set annually through a tortuous political process. This program is unique to Alaska because of its small population and large endowment fund, which avoids the messy political stigma of taxing one citizen to pay another. The Permanent Fund payments are deemed by many Alaskans to be fair compensation for the state’s high cost of living and the hardships of living through its long winters, regardless of one’s socioeconomic status.

Today's wider push for a universal basic income is a new twist on the public assistance that our states, counties and many municipalities have long provided to needy residents. For the most part this has taken the form of earmarked aid for shelter, food, health care and other in-kind services. Often the primary funding source has been federal dollars supplemented by state appropriations. Last year, a few dozen localities began reallocating money from public safety to community services, housing the homeless and getting at the root causes of criminal behavior. But these targeted social services programs are not to be confused with the concept of universal income, which begins with the idea that everybody should have a floor income level and would be free to spend it as desired.

Regardless of how one may feel about the concept of a government-guaranteed income, there are some time-worn lessons from the economics profession’s subfields of public finance and public choice. Public finance theory informs us that social welfare funding and income redistribution efforts are most likely to succeed at the higher levels of government, because local governments simply lack the tax base to fund meaningful income redistribution programs to large numbers of residents. The poorest communities are least able to help the poor, and many states and localities have regressive tax structures, compelling them to rob from poor Peter to pay poor Paul. In the academic world of public finance theory, the federal government would be the better venue for such initiatives, with funding from progressive income taxes, so that income redistribution is achieved by a transfer of financial resources from those most able to pay to those most in need.

The public choice school of economics goes one step further. Its advocates expect individuals to behave primarily out of their own self-interest, and they don’t place much faith in local or state governments as the venues to achieve economic justice. They openly expect state and local taxpayers to “vote with their feet” when folks feel over-taxed and resentful of income redistribution schemes. California and New York are now their living laboratories as high marginal tax rates on millionaires, the investor class and high-paid professionals drive wealthy residents to move to states such as Texas and Florida where there is no income tax. Conversely, the public choice academy aligns with the lunch bucket conservative view that cash payments reduce incentives to work and that generous social welfare programs attract freeloaders and deadbeats, thus magnifying the impetus for self-interested, productive residents to walk away. If cities begin to fund their own low-income-subsidy programs, the theory goes, disgruntled homeowners can move elsewhere without changing jobs and social networks, although whether that happens on any significant scale has really never been proven.

For political liberals, one of the unwanted outcomes of their initiatives is that state and local efforts to rebalance the distribution of income solely within their boundaries are likely to further polarize our national politics: Red jurisdictions will become redder and blue states could ultimately lose seats in Congress because of self-interest migration. Refugees from collectivism tend to lean hard to the right.

None of these arguments will stop political progressives from pushing their causes. But proponents of universal income and family welfare economics might best focus their attention and their energy foremost at the federal level, where some well-placed funding for pilot programs could remove the sting of taxing local residents to subsidize less-prosperous neighbors. While the budget reconciliation package is still taking shape in Congress, it would benefit governors and mayors to push for a tiny allocation, less than $1 billion in a multitrillion-dollar package, for enough funding to rigorously and objectively test the efficacy and drawbacks of income support programs in multiple and diverse locations. If we’re going to experiment at the state and local level, let’s do it systematically and not rhetorically for a change.

Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
Girard Miller is the finance columnist for Governing. He can be reached at millergirard@yahoo.com.
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