You may have noticed a lot of talk lately about something called, “universal basic income.” The increase in online chatter about universal basic income, or UBI, is likely connected to the government handing out stimulus money during the pandemic.
When that happened, a lot of people were hopeful that “free money” in the form of monthly checks from the government would become the norm. That’s when others started chiming in about the concept of UBI and advocating its benefits. Of course, the pandemic stimulus checks ended up being a short-term solution, and the government currently has no concrete plans to distribute more stimulus checks. But the notion of universal basic income has not dissipated from social awareness, so it’s worth understanding exactly what is UBI.
What is Universal Basic Income?
Universal basic income is defined as guaranteed income for every adult, provided by the government. In a standard UBI system, every adult would be automatically given a monetary amount of money on a recurring basis, typically every month. Presumably, the amount of money would be the same across the board. So a person earning $200 a week would get the same amount of UBI as a person earning $500 a week, and so on. Of course, variations in a UBI system are available. If a government wanted to try to equalize the payouts, they could create thresholds where a person who earns more at their job might receive less UBI than a person who earns minimum wage, for example.
Where Did the Concept of UBI Originate?
The concept of UBI is not new. Sir Thomas More, English 16th century humanist and statesman, talked about the concept in his tome, “Utopia.” Thomas Paine put forth the idea of UBI for younger people in his work, “Agrarian Justice.” He recommended a tax program where government revenues would provide a stream of income for “every person, rich or poor.” Martin Luther King wrote a book called “Where Do We Go From Here,” in which he proposed guaranteed income for all. Little known to all, President Richard Nixon attempted to enact UBI, which would have guaranteed, for example, that a family of four would receive $1,600 a year in “free money.” Not much now, but that amount would equate to about $10,000 per year in today’s money. As you can see, the concept of UBI is not new or foreign. Several of our own leaders and early “influencers'' advocated for UBI, centuries before the rest of the world thought of it.
Does UBI Exist Anywhere Currently?
Interestingly, another little known fact is that the state of Alaska has been distributing money to its residents since 1982. Due to the money coming in from oil, mining and gas reserves revenues, plus the lack of available employment opportunities in Alaska, residents now receive a check every September from what’s called the Alaska Permanent Fund.
While there are small pockets around the globe that offer temporary monetary compensation to residents or would-be residents, there is no country that currently offers UBI on a permanent basis. Mongolia and the Islamic Republic of Iran are the only countries that temporarily tried UBI, but they no longer have that system in place.
The Case For UBI
As mentioned, the inciting incident of the economic distress that families experienced as a result of the pandemic brought UBI to the forefront. COVID-19 left many people without jobs and without means to provide for themselves and/or their families. It’s estimated that over 20 million people lost jobs due to COVID. The pandemic is one case that has been raised in favor of implementing UBI.
A far more insidious case has also been made for UBI, and that is AI. AI, or artificial intelligence, is growing faster than most people realize. Behind the scenes, companies are building out their AI programs. AI started as innocuous automation. Who could be against automation when it made complex jobs more simple or alleviated the need for humans to conduct mundane tasks? But what started as convenience has become a full-fledged movement for humans to be replaced by AI. And it’s coming sooner than anyone might have expected.
According to multiple experts, 36 million people will lose their jobs to AI. By the year 2030, 375 million jobs worldwide are at risk of being lost. That’s only nine years away.
This is why many individuals and reputable organizations are raising their voices to advocate for UBI. With so many jobs lost to AI, it is reasoned that people will need supplemental income to replace lost earned income. It’s not speculation. At this point, it’s a fact that more and more people will find themselves replaced by AI in the workplace.
Will UBI Be Taxed?
There is currently no plan in place to implement UBI. However, the government is studying it and there are many representatives in D.C. who are for this new path to economic stability. So any answer to the question of whether UBI will be taxed would be purely hypothetical. If UBI is ever implemented in the U.S., there are no doubt many tax details that would need to be ironed out. For instance, would the child tax credit still exist? And how would the standard deduction be affected? No one really knows the answer; only that any UBI plan would need to be carefully planned and managed, and there would be multiple impacts on taxes from many fronts.
Theoretically, UBI is neither good nor bad. It’s just another possible way to ensure that families are able to support themselves in the wake of certain events, such as the pandemic and the rapid advancement of AI. It’s likely that if UBI is rolled out, there will be problems, adjustments and solutions. Things would be likely to happen in stages. The best thing you can do is to be aware of the possibility and to stay in contact with your CPA so you can be prepared insofar as your tax planning is concerned.