Does free money make people lazy? Why the case for a universal basic income is getting stronger.

Thursday, February 22, 2018
Payoff by Mic

Even if there are ways to give people cash while accounting for the adverse effects, there is still the challenge that these proposals are expensive. A relatively modest universal basic income of around $10,000 annually in the United States would cost around $3 trillion per year, according to estimates from the left-leaning Center on Budget and Policy Priorities.

Yet somewhat counterintuitively, focusing government programs on wealth (an individual’s total net worth, including assets like homes and cars) rather than on income (the amount of money an individual brings in each year) might be far cheaper — at least according to economists William Darity of Duke University and Darrick Hamilton of the New School.

In a recent presentation before the American Economic Association, the pair argued that so-called “baby bonds” — essentially trust funds, but for everyone — could be paid for by reforming existing programs aimed at encouraging asset accumulation, like the mortgage interest tax deduction.

“Wealth is more paramount to determining outcomes than income,” Hamilton said in a phone interview. “Wealth begets more wealth. A huge source of wealth inequality is that some individuals are able to purchase the appreciation of an asset that will passively rise over their lifetime.”

So how would that program work exactly? Hamilton explained that a baby bonds program would basically endow each child born in the country with a trust fund that would be disbursed based on parental income. Children of richer families would receive relatively small grants of around $500 while children in lower-income families would receive far more.

The average middle-class child, Hamilton estimates, would receive around $20,000. The bonds wouldn't exactly be unrestricted, they’d have to be spent on “capital appreciating” activities, like acquiring an education, buying a home or starting a business. He said the total cost of the program would likely be between $80 and $90 billion annually.

“It’s not expensive,” he said. “What we spend in asset enhancement, for example different ways we tax capital and labor, the different ways we tax dividends at death, and the mortgage interest deduction, that amounts to about $500 billion. So in that context, baby bonds would be much cheaper.”

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