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Congress is about to pass a massive economic stimulus package that will, among other things, send cash to most American households. The so-called rebates amount to $1,200 per adult and $500 per child for eligible households. They phase out at higher incomes and generally are not available to non-citizens and others without Social Security numbers.
Recent presidential hopeful Andrew Yang sees these rebates as validation of his main campaign proposal—a universal basic income (UBI) that would provide each adult with $1,000 in monthly income with no strings attached. Yang saw this as the best response to accelerating technical change that was eliminating many jobs and holding down wages for others. The coronavirus is obviously a different challenge, but it is likely to cost millions of Americans their jobs, at least temporarily. The infusion of cash from the rebate program will help them to pay bills.
Yang argues that the “the main idea [of the stimulus rebate] is very, very much identical to universal basic income…” But the rebate is different from a UBI for several reasons. The rebate is a one-off, not an ongoing monthly, payment. It is not universal. It also is unfunded, while Yang would have offset the cost of his permanent UBI with a value-added tax. The current payments Congress is about to approve are only the latest installment in a long history of ad hoc economic relief for recessions.
Treasury sent people checks in the last two recession—up to $300 in 2001 and $600 in 2008. In each case, the program was a one-time rebate targeted to those most in need (and most likely to spend the cash). Stimulus rebates could thus be called targeted temporary emergency income (TTEI). TTEI and UBI payments are both in cash, but that’s pretty much where the resemblance ends.
Economists have long argued that cash is the most valuable form of assistance, assuming people will make decisions in their own best interest. It’s easier for the government to write checks than pay directly for housing, food, or utilities. And households can use the cash to meet their most urgent needs. That’s why providing cash makes sense both for UBI and TTEI.
But there also are good reasons to target assistance during recessions. First, lower-income people are more likely to spend a cash infusion (rather than save it) than those with higher incomes. Although boosting spending is less urgent while much of the nation’s productive capacity is shut down for health reasons, the economy will recover faster if spending rebounds quickly when people can get back to work. Second, targeting the assistance limits the cost of the rebates or allows recipients to get larger payments for the same aggregate budgetary outlay.
Although the stimulus payments are much different from a UBI, such a plan could help make the response to future recessions faster and more effective. A big challenge with sending stimulus checks is finding all eligible recipients. Some have moved or changed bank accounts since they filed their last tax return, and many do not file income tax returns. Once a mechanism is in place to make regular cash transfers to individuals, the amount could easily be temporarily increased to infuse cash into the economy during an emergency.
So, Mr. Yang, a UBI is not a stimulus rebate. But having a UBI in place could help with our response to the next big economic shock.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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