by Chris Hughes
The bumper-sticker promise would be simple: if you work to make your country better, your country will take care of you. Every American who lives in a household that makes less than $50,000 and who works in the formal economy, does caregiving at home, or who is enrolled in school would receive a guaranteed income of $500 a month. The wealthy won’t get the benefit, and only the richest of the rich will pay for it.
The optimal way to structure a guaranteed income would be through an expansion and modernization of the Earned Income Tax Credit. A modern EITC would create a guaranteed income for working people and take advantage of what works in the program today, while meaningfully improving what doesn’t. The money is not taxed, because technically it is a tax credit, and importantly, it does not throw people off of other government programs by counting as income from work. But currently recipients receive checks only once a year based on the size of their family, the state they live in, and their previous year’s earnings. Many don’t even know what the EITC is, because it comes lumped in a tax rebate check. Specifically, a new guaranteed income built on the EITC framework would be designed around these values:
Supplemental. The guaranteed income would supplement income from other sources and, for the poor, other benefits. Current EITC benefits are too low to help people cope with unreliable work and the high cost of living. A benefit of $500 per month would raise the average recipient’s income by over a third. This would not be enough money for anyone to drop out of the workforce entirely, but it would be enough to make a meaningful difference in the lives of people struggling to make rent or pay for school.
Breadth. The poor have needed income support for generations, and rising costs and unreliable wages have created massive economic instability for the middle class as well. The guaranteed income would provide foundational support to both. In addition to helping more people, a broader recipient base would reduce the stigma that plagues anti-poverty programs while creating a political base for its long-term support.
Regularity. The guaranteed income would be provided monthly instead of annually to create a heartbeat of stability in the background, a reliable source of income no matter what may happen in a particular month. Over 90 percent of the participants in a pilot program that provided monthly payments of the existing annual EITC said afterward that they preferred them to lump sums.
Simplicity. Everyone who is eligible for the program would receive $500 per month by direct deposit or a debit card that regularly refills. Current EITC amounts are determined by complex formulas that make it confusing for recipients and policymakers alike, diminishing the sense of security that comes with a reliable and regular benefit and making it harder to defend the program from assaults. Targeted benefits specifically customized for each household make theoretical sense, but people want simple, predictable amounts of money they can rely on. (In order to allow for “phase out” rates, some families at the top of the income distribution, making near the $50,000 level or more, would see a customized benefit size lower than the $500.)
Visibility. Many, if not most, recipients of the EITC have little idea why they get the refund or how much it will be. They only have a vague idea of when it might arrive, depending on when they file their taxes. This lack of visibility makes it difficult for beneficiaries to recognize the benefit, talk about it, or defend it. The benefit is submerged in the tax code, which was politically necessary to get it started 40 years ago, but no longer serves its long-term interests. A flat amount transmitted by direct deposit into a family’s bank account on the first of the month would ensure that recipients know their government is working to help them make ends meet. This may mean a more fraught public debate to pass the measure, but it’s better to have a benefit that people can understand and defend over the long term than to hide it under the radar.
Modern definition of work. We need to expand the definition of “work” to ensure that those who are left out of formal employment but who still work—people who are meaningfully involved in childcare and eldercare or enrolled in a university—also receive the benefit. Put simply, if you made money last year, claimed a dependent on your tax return under 6 or over 70, or are enrolled in an accredited college, you would be eligible to benefit from a guaranteed income.
A significantly expanded and modernized EITC would not only help the 60 million adults receiving the money, but also the 29 million minors who live in these homes. No family would receive less money with the new benefit than they do today, and tens of millions would receive dramatically more money in a more regular and visible way.
The people who would benefit most from a guaranteed income are those who have historically been overlooked or excluded from economic development programs. Families in the lower tier of income distribution in our country are disproportionately made up of people of color. These families were also often systematically excluded from educational and financial support structures in the past. Many people of color have organized for the idea historically. As Anne Price, the president of the Insight Center, writes, “It’s abundantly clear that a basic income program has much greater potential than is captured in the mainstream conversations about UBI—it holds the promise of addressing, head on, some of our most deeply entrenched racial and economic inequities.” A guaranteed income targeted to households making less than $50,000 would boost the incomes of African American and Latino people in particular.
I’ve found that there are a number of objections to the idea of providing people with cash. The first often comes from people who have a generally charitable view of human nature, but who believe that education and skills are what matter most. Last year, during the cocktail hour before a dinner party, I spoke with a couple who were unconvinced that providing people with cash could be as important as or even more important than education. Eyebrows raised and clearly incredulous, they asked, “Don’t you think it was the education you got that made your life possible?” I had sought out and benefited from a world-class education, and it had indeed worked for me—so it surely must be the most important tool to help everyone else. “Give a man a fish,” goes the old proverb, “and you will feed him for a day. Teach him to fish, and you will feed him for a lifetime.”
The transition to a knowledge economy has only intensified this faith. If we’re creating fewer manual jobs that pay living wages, then the clear answer, it would seem, is to help people learn the skills and smarts for the high-skill, high-pay “jobs of the future.” We tell ourselves that if we provide everyone with the strong foundation of a good education and make college more accessible and affordable, then anyone who has a bit of initiative will be able to enjoy a secure economic future.
In reality, knowledge sector jobs are not growing as quickly as low-paid service sector jobs, which make up about 50 percent of the workforce. Decades of investments in education at the primary, secondary, and college level have created many beautiful buildings and libraries full of books, but as we have made those investments, the sticker price for education has skyrocketed and economic mobility has decreased.
What we know from social science is that a family’s financial stability can be as important as many educational programs to improve kids’ performance in school. An unexpected case in point is universal pre-kindergarten, a popular policy for many on the left. Studies show that the earlier kids get into school, the better their educational outcomes are in later grades. The mayor of New York, Bill DeBlasio, made universal pre-K his signature policy in the early months of his term, and many other progressive leaders champion it.
Providing universal access to pre-K is indeed critical, but if we want to create better outcomes for kids in the long term, it would be most powerful alongside a modernized EITC to provide children’s families with cash. A 2016 report from the centrist Brookings Institution compared the test scores of children whose families received cash support through the EITC to the test scores of kids who participated in universal pre-K. Its author
, Grover Whitehurst, used multiple studies to measure the impact of cash supports and pre-K programs over time. He found that “family support in the form of putting more money in the pockets of low-income parents produces substantially larger gains in children’s school achievement per dollar of expenditure than a year of preschool, participation in Head Start, or class size reduction in the early grades.” A dollar put in the hands of a low-income family is at least doubly effective, if not more than five times as effective, as a dollar invested in pre-kindergarten.
I’m not advocating for the end of pre-K; we should not be forced to choose between educational opportunities for all kids and financial security for their families. A parent of a young child should be able to enroll her kid in preschool and afford monthly rent, groceries, transportation, and health care. Education for kids is important, but it should be paired with financial stability so that parents and kids can take advantage of it.
Similarly, many people think about job training as a kind of education fix for unemployed adults. Last spring, I spoke with a factory owner in Ohio who repeated what I’ve heard all across the country. “There are plenty of jobs here,” he told me. “We just can’t find anyone qualified enough to take them.” Over two-thirds of manufacturing executives say they can’t find enough workers with adequate tech skills.
But there is little reason to believe that federal job training programs are able to solve this problem. The federal government has run dozens of these programs for years and achieved lackluster results. In 2016, the Bureau of Labor concluded that recent investments in adult job training programs had been an utter disappointment, with the majority of participants believing the training had little or nothing to do with their eventual ability to land jobs. In fact, the more intense the government job training, the less money the recipients later earned from a job. These conclusions mirrored another evaluation, from 2012, of the Labor Department’s largest job training program. It found that despite the fact that government spent $11,500 on each participant, barely a third were working in the field they had been trained in a few years later.
There is some reason to believe job training programs could improve in the future. But rather than the government orchestrating those programs, we should make it easier for people to enroll in local community colleges and vocational schools, which are more nimble and offer broader curricula than ever before. (Similarly, promising online vocational learning programs like Lynda.com and Udemy now make it possible for people to learn relevant skills for the gig economy cheaply and efficiently.)
The problem is that many people still do not have the money to be able to take advantage of the educational opportunities that would help them. You can teach a man to fish all day, but if he can’t afford to buy a rod, reel, and bait, what good will it do?
Last spring, in a bar in northeastern Ohio, I sat across from a community redevelopment expert named Lisa Ramsey who had grown up outside Youngstown. The city still hasn’t recovered from steel factory shutdowns in the late 1970s; in many ways, it exemplifies America’s Rust Belt. As we sipped our Diet Cokes, I asked her the classic, perhaps naïve, question: “Why don’t people out of work just go back to school?”
She pulled up an article on her phone and pushed it over to me. Just the week before, the local community college had announced that it was closing down—it was too expensive to keep operations going. The closest vocational school, Eastern Gateway Community College’s Youngstown campus, is a 30-minute drive away. Tuition fees are $8,000 a year, and while most students receive financial aid, estimates of the average annual out-of-pocket cost are still around $1,200. And that does not include the cost of childcare, gas, or foregone wages for the time spent in school. “In a community like this where no one has savings, how are you supposed to even get started?” she responded. “It’s a wonder people are able to get any education at all.” Recent calls to make community colleges free would help, but people still need to recoup the monies from lost wages, childcare, and transportation to be able to take advantage of the opportunity. We have invested hundreds of billions of dollars in schools, but we have overlooked the fact that if people can’t afford them, then even the best instruction won’t help improve economic outcomes.
After Lisa and I finished our drinks, we joined a group that was walking around the neighborhood to talk to people who might be on their front porches or coming home from work. Some of the homes we passed were dilapidated, but many were beautiful Victorians with manicured lawns, wind chimes, and cushioned furniture on their decks. Several houses had “FOR SALE” signs in front.
One large house that looked to be several thousand square feet had a price listed on the sign: $18,000. I thought it must have been a mistake, that a zero had been dropped inadvertently. Kirk Noden, the head of the hosting local nonprofit, told me it was unfortunately not a mistake. For years, houses in these neighborhoods had been selling for less than the sum of their parts. An hour later, as we walked back to our van, I asked the question I had been thinking but had been too sheepish to ask: “If there aren’t any jobs, why would anyone choose to stay here?” Kirk paused, seemingly gauging how blunt to be. “How are they supposed to leave? Where would they find the money?” The average move over state lines costs more than $5,000, an enormous sum to save if you are making the minimum wage and almost certainly hovering around the poverty line. If you can’t find someone to buy your house for $18,000, you can’t afford to pick up and move to the big city. Your only option would be to save enough money for the move, pack up, turn off the lights, and leave your house behind.
You might think that a job, even if it’s a minimum wage gig, would give people a springboard to an education or to move to a new city with more opportunities. But over the past two years, I have heard stories of Americans who are stuck even though they’re working. In 2015, USA Today reported the story of Cecil Euseary, a 52-year-old man who lives in Detroit and works at Burger King for 25 hours a week. His hourly wage of $8.15 earns him about $10,000 each year, nowhere near enough for him to afford an apartment of his own. He lives with his godmother and is trying to save for his own place.
Cecil is one of millions of able-bodied and diligent restaurant workers who, despite the fact that they are employed, live in poverty. Cecil’s job provides him with highly variable part-time hours and no benefits, and because he is single, he doesn’t meaningfully benefit from many of the government programs that target families. When we hear stories like Cecil’s, many people suggest we increase the minimum wage to something like $15 per hour to help him make ends meet. They’re right: a boost of that size would increase his annual pay to $19,000.
But that higher minimum wage should be paired with a guaranteed income. We need to share the cost of economic security between the businesses that employ people like Cecil and the ultra-wealthy who work for large, multinational companies. Increases in the minimum wage can put some pressure on businesses with thin margins. A guaranteed income takes from the people who can afford it and helps the people who need it. Combined with a higher minimum wage, the two would make a historic dent in poverty in the United States. With a higher minimum wage and an additional $500 per month from the guaranteed income, Cecil would join tens of millions of Americans crossing the poverty line.
Some people are skeptical that Cecil’s story is all that common. They believe that people often cannot be trusted, and specifically, that poor people will just waste the money a guaranteed income would provide. One white woman in a group conversation in Detroit put it plainly: “The people that have an entitlement mentality, which is a lot of people, and they know how to work that system, will love this,” she said, referring to the idea of a guaranteed income. “Who knows what they will spend it on? Booze, cigarettes, who knows what else?” She, like almost all of the other participants in the conversation that night, received some kind of government benefit like food stamps or the EITC; yet she still felt a paranoia about how an
unspecified “other” might waste the money. In comments that suggested a thinly veiled racism, she believed that “people like me” would use the money well and could be trusted, but she drew a hard line when it came to lazy folks “on the dole.” In other moments, these same white working-class voters shared a concern that the money would enable an opioid-addicted family member or neighbor, many of whom are also white, to buy more drugs.
But there is little evidence to suggest that cash transfers increase rates of substance abuse: tens of thousands of people who have received cash allowances and participated in studies consumed drugs and alcohol less after the transfer than before. In a World Bank review of 44 studies of drug and alcohol usage in cash transfer programs, their consumption went down in almost all of them. While it’s true that addicts might spend an extra $500 on drugs, the solution to their challenge isn’t to keep them in poverty—it is better substance abuse programs to help them battle their addictions.
A guaranteed income would also be a powerful antidote to homelessness. In fact, it could help prevent homelessness in the first place. A recent study examined what happens when you give a working poor person on the brink of homelessness a one-time $1,000 cash infusion. The recipients were 88 percent less likely to be homeless three months later, and 76 percent less likely after six months. “We found no evidence that this effect fades away,” the author of the report, James Sullivan from the University of Notre Dame, told Science magazine. A single period of homelessness costs taxpayers about $20,000 in homeless shelters, policing, health care, and other costs. A small fraction of that could help cushion the periods of income instability and help people stay off the streets, while lowering the financial burden on us all.