by Chris Hughes
For every 10 percent increase in the EITC, infant mortality rates decrease significantly. The number of babies born with low birth weights, a sign of inadequate nutrition, also decreases meaningfully.
There is no evidence that cash benefits cause people to work less. In fact, some studies suggest that they work more. Women make more money in the years after getting a boost in their EITC than women in control groups who do not receive the boost.
The EITC seems to slightly reduce the rates of smoking and drinking, presumably because of decreased stress levels.
Evidence of the impact of the EITC is only one part of a large research base documenting the transformative impact of regular cash payments. The most robust data not from the EITC comes from the guaranteed income experiments that were begun during the frenzy of interest in the late 1960s and continued for over a decade afterward. (Ironically, Donald Rumsfeld, as director of the Office of Economic Opportunity under Nixon, oversaw these early pilots, along with his special assistant, future vice president Dick Cheney.)
Over 10,000 families participated in these programs in six states. Families received $17,000 to $49,000 per year in today’s dollars. Each location had a different pilot design, but all were focused on the question of whether people would stop working. They didn’t. In 2016, a set of researchers led by Ioana Marinescu at the University of Chicago conducted a literature review of all of the analyses of the pilots to date. They found no meaningful reduction in the number of hours people worked, except for teenagers who stayed in school longer, thus delaying their workforce participation, and new mothers who reduced their working hours, presumably to take care of newborns. Families ate more nutritious food. Their children’s school attendance rates went up, and grades improved. While the American studies didn’t track health outcomes, a similar experiment in Canada from the same era found a nearly 10 percent decrease in hospitalizations. Cash benefits made people healthier, helped them stay in school longer, and did not encourage them to leave the labor force, confirming what studies of the existing EITC also show to be true.
I hear all the time, particularly from wealthy people, skepticism about starting with even more modest benefit sizes than the guaranteed income pilots of the 1970s provided. “How much is an extra $100 or $200 a month really going to help anybody struggling to get by?” people ask. When I channeled their skepticism to ask that question of one woman in Ohio, she locked eyes with me and answered bluntly, “Anyone asking that question has never had to choose between buying groceries and making rent.” Another young student in Columbus framed it in mathematical terms, saying, “As a single person on my own, an extra $100 a month would provide me a good 20 or 30 additional meals. . . . That is something I would appreciate.”
Evidence from the small guaranteed income in Alaska also shows similar results. People work just as much there as they do in the lower 48 states, but their lives are a little more financially secure. Last fall, I sat in the recreation center of a community called Mountain View in Anchorage. Its welcome sign called it the “MOST DIVERSE NEIGHBORHOOD IN AMERICA”—an eyebrow-raising claim for a neighborhood in Alaska where two-thirds of the state is white. But its residents speak nearly 100 languages, almost as many as in New York City, and they hail from every corner of the globe. In a generally white, conservative state, Mountain View is a pocket of diversity, and the people there are proud of it.
A half-dozen Alaskans had come out on a sunny fall afternoon to discuss pocketbook issues and how the Permanent Fund dividend check they get each year affects their lives. Carnard Davis, who goes by Mr. C for short, is the leader of the local Boys and Girls Club, whose teenage participants were playing after-school basketball upstairs, rumbling the ceiling over our heads. Mr. C grew up in Atlanta. He had come to Alaska on vacation seven years before and never left. “Life up here is much simpler, and as soon as I got here, I felt like I could have a second chance,” he told me. “And the winter wasn’t too bad.”
For a single person living on a threadbare nonprofit salary like Mr. C’s, the $1,400 annual check is a reliable windfall. “When you have been paying your bills for so long and then you get that pink slip saying, ‘If you don’t pay your $875 in rent, we are going to put you out.’ . . . That’s stressful,” Mr. C said. “And then all of a sudden, the PFD [permanent fund dividend] comes around and helps lift that burden off of you.” For anyone who doubts the power of an annual check of just over a thousand dollars to transform lives for the better, the evidence from Alaska is clear: Alaskans love it, need it, and rely on it.
Most people use the income boost to pay down existing bills like Mr. C’s rent, or they save it for future emergencies or for school. A quarter say they spend it immediately. Many of Alaska’s native population rely on the annual cash influx to buy heating oil for the winter. When asked, Alaskans say that the dividend does not cause them or their neighbors to work any less. Thanks in part to the dividend, Alaska has one of the lowest poverty rates in the nation, even though a meaningful portion of the state’s population lives in geographically isolated areas accessible only by plane. In a ranking of states by their relative levels of income inequality, Alaska comes in dead last, 50 out of 50. It’s the most equal state in the nation.
Small amounts of regular cash have an outsized power because they mitigate the ups and downs of income cycles. They reduce the feeling of living on the brink, which research unsurprisingly shows causes immense amounts of stress and poor decision-making. Historian Rutger Bergman made the provocative argument in a TED Talk that people aren’t poor because they make bad decisions, but that they make bad decisions because they are poor. Why do “the poor borrow more, save less, smoke more, exercise less, drink more and eat less healthfully?” he asked. It’s not because they are dim or lazy, but because they live in a mentality of scarcity. “You could compare it to a new computer that’s running ten heavy programs at once,” he said. “It gets slower and slower, making errors. Eventually, it freezes—not because it’s a bad computer, but because it has too much to do at once. The poor have the same problem. They’re not making dumb decisions because they are dumb, but because they’re living in a context in which anyone would make dumb decisions.”
His argument is substantiated by a deep body of psychological research that documents the effects of financial instability on the minds not just of the poor, but of the middle class as well. Harvard economist Sendhil Mullainathan and Princeton psychologist Eldar Shafir found that scarcity makes us “less insightful, less forward-thinking, less controlled.” In a study they conducted in a suburban mall in New Jersey, they asked people what they would do if they had a one-time auto repair expense of $300. After thinking the question through and responding, the participants answered a set of questions from standard tests that measure general intelligence, similar to IQ tests.
The researchers then asked another group of people the same question, but added a zero to the sum, making it $3,000. Poor and well-off participants scored equally well on the intelligence test when asked what they would do if they had to deal with $300 of unexpected expenses. But the IQ level of the poorer respondents dropped by nearly 15 points when the amount increased to $3,000. Nothing had changed except the intensity of the financial stress the question elicited. “Clearly, this is not about inherent cognitive capacity,” they concluded. “Just like the processor that is slowed down by too many applications, the poor here appear worse because some of their bandwidth is being used elsewhere.” That hit in IQ points is roughly equivalent to the impact of going a full night without sleep. In other words, people who lack financial stability live each day as if they had just pulled an all-nighter, with all of the exhaustion and reduced mental and emotional capacity that come with it.
Decades of experiments and lived experience concretely show what philosophers and social movement leaders have historically believed: cash, even in small amounts, makes people smarter and enables them to live more
stable, fulfilling lives. Providing a small amount of recurring income encourages people to get a job, keep their kids in school, eat better, and be healthier, likely because they’re one step back from the brink and a little less stressed. We can amplify these benefits by creating a guaranteed income built on the framework of the EITC.
9
What We Owe One Another
We live in the richest country on Earth at its richest moment in history, even though it might not feel that way to most people. That’s because nearly half the wealth in our country sits in the mansions, private planes, and bank accounts of the ultra-wealthy. Not since the Gilded Age have we lived in an era when so much wealth has been controlled by so few. The reforms of the Progressive Era, the New Deal, and the Great Society ushered in a long, stable period of shared abundance. But in the late 1970s, that pivotal moment when we changed some of the fundamental structures of our economy, the wealth share of the richest families in the United States began to grow, and the trend has not abated. Today, the top one percent of Americans controls nearly 40 percent of the wealth in our country—one and a half times more wealth than the entire bottom 90 percent own.
The debunked “trickle-down economics” of the 1980s created the most unequal economy in over a century. We now know that prosperity in America does not flow from low taxes on the ultra-wealthy, but mostly from growth in consumer spending. When middle-class families make money, they spend money, fueling economic growth and improving the lives of everyone—the poor and the wealthy alike. Studies show that when a cash-strapped person gets an extra $100, they’re likely to spend it on rent, utilities, or groceries. By contrast, a wealthy person who gets the same $100 might spend a few dollars of it, but would inevitably put most of it in the bank.
A recent study by the Roosevelt Institute, a prestigious economic think tank, shows that if we provided Americans with a guaranteed income of $500 a month, financed through a combination of taxes on the wealthy and moderate deficit spending, the American economy would grow by an additional 7 percent over the next eight years. That would mean an additional point of GDP growth each year, a significant boost to an economy that has grown at about 2 percent annually over the last several years.
Some people understandably wonder if more money in the economy would just create more inflation, diminishing the effectiveness of the policy. Economists for the most part are not so concerned that a guaranteed income would increase inflation rates, given how stubbornly low they have been for years. In fact, many believe we could use a little more inflation to lighten the load on debt holders. Even for those who are concerned, as long as a guaranteed income is financed through progressive taxation rather than government debt, the overall money supply would remain constant, reducing the likelihood of significant inflation. International studies of cash transfer programs have shown little evidence of an increase in inflation levels.
While economists and policymakers increasingly agree on the need for some kind of cash boost to working people, they continue to debate how best to do it. In a report from October 2016, the International Monetary Fund (IMF) called a basic income a “forward-looking idea” and emphasized the stability it might provide in a changing world. “In an economic environment in which job insecurity is increasing (for example, because of job market disruptions associated with technological progress), expanding available insurance mechanisms may become an important policy objective,” the report said. “A [universal basic income] could provide a stable source of income to individuals and households and therefore limit the impact of income and employment shocks.”
But the IMF made clear that a guaranteed income would work best in developing countries with sparse safety nets and in developed countries with spotty support systems, like the United States. (The report recommended against a guaranteed income in developed economies with strong safety nets, like much of continental Europe.) In the IMF’s view, a guaranteed income works best when it is backed up and supported by other benefits that are targeted more narrowly to the poor and others in need.
Because of its historic popularity on the right, many people on both sides of the aisle hope that a guaranteed income could become an area of rare bipartisan agreement. But any real consensus between the left and right on the idea is thin at best. Libertarians see a guaranteed income as a substitute for Social Security, Medicare, Medicaid, and food stamps. They are looking to “cash in” these critical systems and replace them with a single flat payment to all Americans, rich and poor alike, of around $13,000 a year. That kind of approach would leave millions of Americans worse off than they are today.
Republican voters strongly support Social Security, Medicare, drug treatment programs, and disability benefits, even if many of the party’s leaders in Washington endeavor to cut them. We should not dismantle these programs and replace them with cash—the America we should strive for is one in which the sick have health care and the old and infirm collect retirement benefits. Many of our existing social welfare programs are not big enough, given the scope of our problems. Too few people have access to affordable childcare, paid leave, or reliable public transportation networks to get to and from a job. There are inefficiencies in some of these programs, no doubt, and we need to create a culture of honesty and transparency to highlight those failures and fix them. What we don’t need to do is sweep away what works.
Trading in benefits earmarked for the poor for a benefit like a guaranteed income, which is designed to provide financial stability to the middle class and the poor alike, would be regressive, a subtle way of taking money from those who need it the most and giving it to those who need it less. By contrast, the families that would gain the most from a guaranteed income built on top of existing programs would be those who make the least, which is just as it should be.
Some of us have begun the work of providing a guaranteed income to people who need it through private philanthropy. Three years ago, the city of Stockton, California, filed for bankruptcy after the last generation’s leaders had overextended the city’s finances. Now led by Michael Tubbs—a new, charismatic mayor and the youngest in the nation—the city of 300,000 people is providing a small group of its citizens with a guaranteed income. (The Economic Security Project has provided seed funding for the initiative.) Community members in Stockton are determining who is eligible, how much people receive, and how long the guaranteed income will last. The intent of the demonstration is to tell the stories of what everyday Americans do when they are given a hand up through cash.
It’s only a first step. In the long term, philanthropy can’t meet the scale of the challenge we face. If you took all of the money that billionaires have committed through the Giving Pledge (Bill Gates and Warren Buffett’s call to the wealthy to pledge to give away at least half of their wealth in their lifetimes), it would only fund a guaranteed income in America for a single year. Private philanthropy can be useful in the short term to spur experimentation and demonstrations of the idea, but to make the guaranteed income sustainable in the long term, public policy must change.
The good news is that we have more than enough money to pay for a guaranteed income to working families while strengthening our existing safety net. A boost of $500 per month to every adult living in a household that makes less than $50,000 would add an additional $290 billion a year to the federal budget, less than half of what we already spend on defense and significantly less than Social Security or Medicare. There are many ways to finance a benefit of this magnitude. Climate activists would put a price on carbon emissions and use those funds to help poor and middle-class people while saving our planet. Others believe we might rein in the finance industry with a small tax on financial transactions and distribute that revenue to working people struggling to make ends meet. The money from either or both of these taxes could fund a guaranteed income easily. These are both good ideas that deserve more attention, but I believe the solution should be more directly tied to th
e problem.
The simplest and best way forward is to ask the top earners in our country, people like me who have benefited massively from the new economic forces, to pay a small part of our fortune forward. A surtax on the one percent isn’t pitchforks coming for the rich or punishment for prosperity. We all benefit from a society that is more just and fair. Doctors, lawyers, and small-business owners across America all do well and may be seen as rich in their respective communities, but they are not the people who should pay. It’s people like me.
First, we should adjust our tax code so that the wealthy pay the same tax rates on their investment income as hard-working Americans do on their wages. Specifically, this means ending the special tax rate on capital gains and dividends for those who make more than $250,000, raising $80 billion per year. (This is known as the “Buffett rule,” after the billionaire investor Warren Buffett, who pays a lower percentage of his income in taxes than his assistant does.) Second, we should cap deductions at 28 percent for the wealthiest Americans and close tax loopholes, like the one that allows for the gains on inherited assets to be excluded from taxable income. If you inherit a mansion, you should pay the same tax as you would if that mansion had been cash. Closing these loopholes would raise $34 billion. And finally, we should raise the tax rates on income above $250,000 back to the historical average for much of the twentieth century—50 percent. A family making $300,000 a year would see their taxes go up only by a few thousand dollars, but a billionaire making $30 million would pay millions more each year. This change would raise $190 billion per year. These changes would pay for the entirety of the benefit without adding anything to the national debt. If economic growth accelerates as predicted, the long-term cost would be even less.
Asking the wealthy to pay their share would mean that the richest 5 million families in America would pay for a guaranteed income that would help more than 40 million families—about 90 million people—who are struggling to make ends meet.