by Chris Hughes
To be clear, a hundred dollars a month is far from the guaranteed income that most idealists and philosophers imagine, but it is an income floor and the money comes like clockwork. The Economic Security Project, the group Natalie, Dorian, and I started, commissioned empirical research to get hard numbers on what people did with the money and how they felt about it. We also talked with ordinary Alaskans in public forums, private one-on-one conversations, and anonymous focus groups. I heard many stories about how people felt about the dividend, and at first I was disappointed that Alaskans weren’t saying that it was transformative and life-changing. They clearly cared about receiving the money—quantitative polling showed that more than 80 percent believed it was important to preserve the dividend and that the money was generally used well—but no one dressed the fund up in grand ideals. The phrase Alaskans did repeat was, “It helps me make ends meet.” The dividend check reliably helps poor and middle-class families alike put away an extra month’s worth of rent, pay down credit card debt, or buy holiday gifts. The words freedom and dignity didn’t come up once. The dividend check did a simple and important thing: it helped them pay the bills.
As our work expanded and we had more conversations across America, we found again and again that the way most people think about money, work, and the challenge of making ends meet has little in common with the vocabulary of philosophers arguing for a basic income. People from every income and educational level, with all kinds of political beliefs and backgrounds, struggled to make sense of why anyone would support something like a basic income. The idea of money provided from nowhere and with no strings attached seemed nonsensical. Money always comes from somewhere—work, a gift, a loan, Social Security, an inheritance. Philosophers might think about money on a theoretical plane as an object of empowerment, but money only makes sense in practice in the concrete context of where it comes from and how it is used. A dollar found on the street is different than a dollar loaned from a family member, and that dollar is still different than one earned through work. One working-class woman in Detroit put it plainly: “I just don’t understand where this money is coming from and why I would be getting it.” Talking about money as an abstraction is something that seems to come from a place of privilege.
Looking back on my own childhood, we never talked about the money we had as “freeing” or as a source of dignity. Of course the middle-class salaries my parents made provided us with stability and a measure of autonomy, but the lived experience was much more prosaic. Money matters involved long, tedious Sunday afternoons, watching my parents peck away at the calculator, with bills spread out across the dining room table. It was the ledger of the checkbook that my mom taught me how to balance and forced me to use for my own accounting when I was ten years old. It was the $200 my parents allowed themselves to pull out of the bank each week for groceries, gas, and the occasional meal out. It was the coupons my mom clipped and saved in a pouch in her purse for our Friday afternoon grocery store trips.
Coupons, checkbooks, ATMs, and calculators were our day-to-day experience of money, but perhaps the most welcome kind of money was the tax rebate check my parents occasionally got from Uncle Sam. One thing that everyone on the left and right loves is a rebate check in the mail from the government. I still remember the $600 I got in 2008 from George Bush’s attempt to stabilize the economy before the recession. The program was too little and too late to prevent the ensuing collapse, but the check was memorable. It arrived in a nondescript envelope but was a rainbow of colors and embossed with holograms, just like the ones my grandparents got from Social Security.
Similar checks come to many American households each year in the form of tax refunds, but few people know that a lot of the money in rebate checks is paid for by an anti-poverty program called the Earned Income Tax Credit, or the EITC. America almost established a guaranteed income fifty years ago, but created the EITC instead. It is a complicated-sounding benefit and an awkward acronym, but boring methods can sometimes accomplish big-picture ideals. The EITC is the framework we should use to make good on the promise of a guaranteed income for all working Americans.
8
Everybody Likes a Tax Credit
When I wasn’t working on Facebook in college, I majored in history and literature. I was the kid who loved to speculate about things like Napoleon’s thoughts after Waterloo or how James Baldwin felt when the publisher of Giovanni’s Room told him to “burn” the manuscript. History wasn’t just interesting to me: I came to understand that a better grasp of it could help us navigate the world we live in today. Lessons from the last American guaranteed income debate might inspire a new generation of activists and teach us how to most effectively wage the fight ahead. As Mark Twain allegedly said, “History doesn’t repeat itself, but it often rhymes.”
We got very close to creating an income floor in the United States once before. A little over 50 years ago, a Republican president proposed a guaranteed income, and the bill passed the House of Representatives. It failed in the Senate, but the framework for today’s guaranteed income—the Earned Income Tax Credit—emerged from the ashes.
The 1960s chapter of the guaranteed income story doesn’t start with the flower power of organized hippies, but with a set of conservative policymakers led by the Nobel Prize–winning economist Milton Friedman. Like many things in history, before him there was a woman who hatched the original idea who doesn’t always get her due. In the 1940s in Britain, Lady Juliet Rhys-Williams developed the idea of the “negative income tax,” which became the most popular design for how to create a guaranteed income for most of the twentieth century. She proposed a cash allowance delivered through the tax system. The more money a person makes, the higher the income tax they pay. So too, she argued, should a cash allowance increase the further below the poverty line a person falls. If the poverty line was set at £500, for example, and the negative tax rate was 50 percent, then a person who earned zero income would receive 50 percent of the poverty threshold, a guaranteed income of £250. If the person earned £200, then he would receive half of the difference between his wages and the poverty threshold, or £150, for a total income of £350. Once his wages passed the poverty line, he would begin paying taxes.
If you’re confused, you’re not alone. Most policymakers found the idea elegant in theory, but woefully difficult to understand. But for all its complexity, they loved that it would ensure that it paid to work. Recipients would always make more money from paid employment and benefits combined than they could from benefits alone.
The idea hopped the Atlantic, and American conservative economist Milton Friedman became a devoted advocate of it. Many conservatives of the time joined him in the belief that the negative income tax would be more efficient at helping people in poverty than the same amount of money invested in social services. “The advantages of this arrangement are clear,” Friedman wrote in his landmark book Capitalism and Freedom in 1962. “It is directed specifically at the problem of poverty, and it gives help in the form most useful to the individual, namely, cash. It is general and could be substituted for the host of special measures now in effect.” Friedman continued to support the idea for the rest of his life.
In the years after he wrote those words, the idea gained steam on the left as well. The focus of the civil rights movement in the late 1960s turned to economic justice, and the idea of a guaranteed income played a major role. In the final two years of his life, Martin Luther King Jr. traveled the country demanding that the government create programs to make up for decades of racial and economic injustice. King argued forcefully that all Americans should have a guaranteed income to provide them with economic stability. In 1967, he launched the Poor People’s Campaign, which included a call for a guaranteed income. He planned what would perhaps have been his largest march ever on Washington for April of 1968, the month he was shot and killed.
Three days before he died, King delivered the Sunday serm
on at the National Cathedral in Washington, D.C. He called for the United States to jettison its massive investment in war and to shift the country’s spending to a suite of social services to shore up the income security of all Americans. “There is nothing new about poverty,” he declared. “What is new is that we now have the techniques and the resources to get rid of poverty. The real question is whether we have the will.”
Unlike conservative economists who envisioned “cashing in” existing poverty programs for a guaranteed income, King believed that a guaranteed income pegged to median wages and GDP growth would work best alongside an expanded set of social services. The combination of the two could abolish poverty in America for good. He foresaw a black-white coalition of laborers who would come together to overcome inevitable opposition from the wealthy and powerful, and in the year before he was felled by an assassin’s bullet, he laid the groundwork for the fight.
Meanwhile, mainstream politicians and academics were studying the idea and contributing to a robust national policy debate about how it might work. In 1967, at a conference at Arden House, an estate just outside of New York City, economists and policymakers came together to discuss the relative merits of major social reform policies and left with a consensus to prioritize a guaranteed income over other similarly big ideas, like a universal child allowance. President Lyndon Johnson’s Office of Economic Opportunity decided to pilot the idea in a controlled test in New Jersey, which began in August 1968. Other sites subsequently opened in Iowa, North Carolina, Seattle, Denver, and Gary, Indiana. Over the course of the following decade, more than 10,000 American families received guaranteed incomes as participants in the studies.
It was a heady time in American politics when it was possible—even fashionable—to think big on both sides of the aisle. In the years leading up to 1968, we had sent men into space for the first time, made enormous civil rights gains, and created Medicare. Eugene McCarthy, a Democratic candidate for president, embraced the idea of a guaranteed income in the presidential race in 1968. At the same time, in the center and on the right, concern grew that the nation’s welfare rolls were expanding too rapidly and that the system badly needed simplification and reform. After Richard Nixon’s victory in that election, his administration shocked the left and right alike when it entrusted a bipartisan group of policymakers to develop a welfare reform plan that put a guaranteed income at its center. Nixon’s Family Assistance Plan proposed using a negative income tax to provide an income floor of $1,600 a year for a family of four, or around $11,000 in today’s dollars. The Social Security Administration was slated to distribute the funds just as it did pension checks. Following Rhys-Williams’s initial idea, Nixon’s version of a guaranteed income was designed to encourage work: it phased out gradually as the incomes of families receiving it increased.
In August 1969, Nixon gave a nationally televised address—his version of a Roosevelt fireside chat—to explain his vision for welfare reform, including the guaranteed income. “The wonder of the American character is that so many have the spark and the drive to fight their way up,” he said. “But for millions of others, the burdens of poverty in early life snuff out that spark.”
“What I am proposing,” he continued, “is that the federal government build a foundation under the income of every American family with dependent children that cannot care for itself—and wherever in America that family may live.” Even though response to the speech was overwhelmingly positive, little of it was grounded in enthusiasm for a guaranteed income. The support was almost exclusively focused on welfare reform, not the promise of providing cash assistance through the negative income tax.
The story of what happened next would have outsized consequences for generations to come. Though support for the guaranteed income plan itself was thin, it passed the House of Representatives after some debate, and with bipartisan support. Once it arrived in the Senate, however, the debate grew much more fraught. Republicans grew concerned about whether the work requirements would be stringent enough and whether the bill would deliver on its promise to reduce the size of government. Democrats in turn split over the size of the benefit—many non-Southern liberals wanted it to be two or three times larger—and how to ensure no family would end up worse off under the new bill. Much of the conversation was caught up in a debate about whether people would keep working if they had an income floor. The Johnson administration’s pilot programs to answer this question had begun only a few years before, and had yet to produce clear, conclusive evidence (as we will see, they later showed that people did in fact keep working). Lacking any clear way to resolve the competing interests, the bill failed in the finance committee in 1971.
According to the architect of the plan, future New York senator Daniel Patrick Moynihan, “The program was both too much and too little; too radical, too reactionary; too comprehensive, not comprehensive enough.” And perhaps most importantly, it was far too complex. Even after years of debate in the House and Senate, Moynihan believed that very few legislators—the people actually voting on the measure—had any idea how much one of their constituents would receive.
After the dust settled, Moynihan predicted that future proposals would use a “flat grant system” as close to the poverty level as possible instead of a negative income tax. George McGovern proposed this in 1972 in his unsuccessful bid for the presidency. A more modest, flat benefit, clearly and simply tied to work, would have made it much more likely for the original proposal to pass.
But the failure of the Family Assistance Plan was not absolute. In 1974, Nixon signed a bill creating a guaranteed income for the elderly and disabled that still exists today: Supplementary Security Income. Nearly 9 million disabled Americans and indigent seniors currently get a guaranteed income of $735 per month from the federal government. But an even more important policy emerged from the ashes of the guaranteed income debate—the EITC that passed Congress just a few years later.
I was initially skeptical that such a wonky acronym could channel the guaranteed income’s romantic values of freedom and dignity for all. The EITC sounds boring, technical, and incremental. In fact, its anodyne brand was key to its initial passage and later expansion. Ironically, the author of the program, Democratic senator Russell Long, had helped torpedo Nixon’s guaranteed income plan. Long was a deep populist who made a career fighting the concentration of power and wealth in the tradition of his father, Huey Long, the populist Louisiana governor who ran the state with near-dictatorial power until his assassination. Russell Long used less blustering tactics and focused on reshaping the tax code in his role as the chair of the Senate Finance Committee. He exercised enormous power for decades in Washington, and The Wall Street Journal once called him the “fourth branch of government.”
While Long agreed that a more active government was needed to help the poor, he took issue with the work requirements in Nixon’s original proposal. That plan required people to register and prove they were looking for a job. Long preferred to create a government boost to private sector wages, creating a natural incentive to work rather than a new bureaucracy to enforce work. In 1972, Long proposed that the government provide a cash supplement of 10 percent of the first $4,000 of the annual earned income of poor families, a wage match that recipients would get once a year. The measure failed, and he reintroduced similar bills in the next two years. In 1975, he slipped the idea into a much larger tax bill, and despite its sizable cost of about $8 billion in today’s dollars, President Gerald Ford signed it into law in March 1975.
Once an affordable framework was established and legislators had a sense of its effects, it became much easier to expand upon it. Every president since Ford—Democrat and Republican alike—has signed a bill to significantly increase the benefit. Legislators love this program. Most people don’t know it, but the EITC, and its cousin, the child tax credit, are the most powerful tools to combat poverty that we have today. These unglorified tax credits already
lift as many people out of poverty as food stamps, rent subsidies, and unemployment insurance combined. The EITC’s effectiveness and popularity make it the perfect framework to use to build a modern guaranteed income.
Currently the EITC provides $70 billion in cash with no strings attached to 26 million working families and individuals. Recipients get as little as $500 or as much as $6,000 a year as a part of their tax rebate checks from the Internal Revenue Service. The calculations to determine the amount a person receives are woefully complex and depend on multiple factors: if you work, how much you earn, how old you are, how many children you have, and what state you live in. Only the rare family whose income is very stable has a sense of what they will receive year to year. But for all its mathematical complexity, the mechanics of the EITC are very simple: a check arrives once a year, and the recipient can use it however he or she likes.
The EITC’s fan club is as broad and politically diverse as it is because we now actually know a lot about what happens when we provide people with cash. Dozens of studies document its positive effects. It lifts 10 million people out of poverty each year, transforming their lives:
Kids whose families receive the earned income or child tax credit are significantly more likely to stay in school longer, and they perform better on standardized tests. Economist Raj Chetty and his colleagues have found that for every $1,000 a family receives in tax credits, students’ test scores improve by 6 percent. Kids are more likely to finish high school and to enroll in college, and when they get there, they are more likely to stay there.
In families with incomes boosted by $250 per month, children under five go on to earn 17 percent more each year than kids from families with no boost.