What would a universal basic income look like in Maine?
Earlier this year the legislature passed LD 1324, a bill that creates an 11-person committee to study the feasibility of implementing basic income security policy in Maine. The committee, which held its first meeting last Friday, is tasked with examining and making recommendations on Maine’s ability to provide direct cash payments, and other forms of assistance, to help make Maine families and individuals more economically secure.
Some examples include universal basic income (UBI) programs, tax credits and rebates and targeted direct cash payment programs. This article focuses solely on what the implementation of a UBI would look like in Maine. According to LD 1324, the committee is required to submit a report with findings and recommendations no later than November 4, 2020.
UBI programs provide direct payments to all individuals in a specified population regardless of how much they earn for income. The idea of instituting a UBI program is becoming popular among some circles in American politics. Democratic presidential hopeful Andrew Yang has made the “Freedom Dividend” a major facet of his campaign.
Under Yang’s plan, every US citizen over the age of 18 would receive a guaranteed monthly payment of $1,000 regardless of earned income. While the Freedom Dividend is one of the more well-known plans, programs that provide a “basic income” can vary by direct payment amount, funding mechanism and targeted recipients.
Last year, University of Maine professor Michael Howard (a member of the committee) attempted to make the case for a UBI program in the United States. One of the major sticking points for UBI proponents is the projected volume of jobs likely to soon be displaced through automation. Proponents argue that a UBI would prevent displaced workers from going into poverty and lift up those already in poverty.
Howard argues a universal income would fight precarity by separating income from labor. Further, he says a UBI would provide income to those who perform work that isn’t monetarily rewarded, such as taking care of family members, chores and volunteering.
Howard’s piece cites figures from a 2017 analysis, conducted by economist Karl Widerquist, concerning the cost of a UBI program nationwide. According to that analysis, a UBI program that provides $12,000 per adult and $6,000 per child annually would cost approximately $3.415 trillion. As a point of reference, total federal spending was $4.45 trillion in 2019.
Widerquist and Howard mitigate the gross cost by factoring in a 50 percent marginal tax rate on all earned income, suggesting it would only cost $539 billion with these revenues included.
In other words, lawmakers would need to substantially increase taxes, including taxes on low-income individuals, to pay for a universal basic income program of that size. While Widequist’s article suggests a 50 percent marginal tax rate, Yang’s campaign website points to a 10 percent value-added tax (VAT) as a funding mechanism for his proposal. Since Maine’s primary sources of revenue are generated by income and sales taxes, those are the sources lawmakers would likely look to for additional revenue to fund a state-level UBI program.
When the same gross cost calculation is performed for Maine using data from the US Census Bureau’s 2013-2017 American Community Survey 5-year estimates, the total cost of a UBI program in Maine comes out to $14.42 billion. If the state decided to distribute direct payments to just adults at $1,000 per month, the gross cost would be $12.88 billion. For reference, Maine’s 2020-2021 biennial budget spends about $8 billion. Put simply, Maine cannot currently afford UBI, and a program that mirrors Yang’s proposal would be more expensive than what the state currently spends on anti-poverty programs.
LD 1324 also directs the committee to “investigate the effectiveness of existing safety net programs, such as tax credits, child care and food supplement programs, and compare those programs to any recommended direct cash payment programs.”
Depending on the size of the direct payments, and contingent upon the elimination of all other anti-poverty programs, a Maine-based UBI could be better than our current system, which has failed to eliminate poverty. Although, it is difficult to imagine lawmakers in Augusta would use current programs as a bargaining chip for UBI, and for it to be worth the trade-off, the price tag would have to be smaller than what we currently spend trying to alleviate poverty.
Supplanting existing anti-poverty programs with a UBI means losing federal assistance for those expenditures — a nonstarter for many lawmakers
— making state taxpayers primarily responsible for its cost.
In addition to the hefty cost estimate and potential new taxes, there are other potential problems with a UBI program. Between 1968 and 1980, the federal government experimented with a negative income tax, a program that guarantees a minimum income and phases out when earnings increase. Research found that for every $1,000 in additional benefits, earned income reduced by $660, decreasing the net benefit to individuals. The study also found that desired work hours decreased among both men and women.
Proponents of UBI point to Alaska’s Permanent Fund Dividend as the exemplar of success when discussing the idea of direct cash payments. However, this program gives just $1,606 annually to Alaskans in 2019. According to the Fund’s Annual Report, it cost more than $1 billion to provide an annual payment of $1,600 to 639,247 eligible individuals in 2018.
While lower than the national average, Alaska’s poverty rate has hovered between 9 and 11 percent for the last decade. In addition, Alaska funds the Permanent Fund Dividend with a portion of the royalties collected from oil and mineral development. According to the Alaska Department of Revenue, individuals are eligible in 2019 as long as they can answer “yes” to these requirements:
- I was a resident of Alaska during all of calendar year 2018;
- On the date I apply for the 2019 Permanent Fund Dividend, I have the intent to remain an Alaska resident indefinitely;
- I have not claimed residency in any other state or country or obtained a benefit as a result of a claim of residency in another state or country at any time since December 31, 2017;
- I was not:
- Sentenced as a result of a felony conviction during 2018;
- Incarcerated at any time during 2018 as the result of a felony conviction; or
- Incarcerated at any time during 2018 as the result of a misdemeanor conviction in Alaska if convicted of a prior felony or two or more prior misdemeanors since January 1, 1997
- If absent from Alaska for more than 180 days, I was absent on an allowable absence; and
- I was physically present in Alaska for at least 72 consecutive hours at some time during 2017 or 2018.
Another major difference in Alaska’s Permanent Fund Dividend is that the benefit it provides is relatively small compared to the proposals being tossed around on the national stage. It becomes much more enticing to reduce working hours if an individual can receive $12,000 annually as opposed to $1,600. Nonetheless, adopting this criteria would reduce overall cost estimates in Maine.
Yet Maine remains the oldest state in the nation with a median age of 44.9 years. Implementing a universal basic income would likely exacerbate Maine’s workforce shortage by reducing individuals’ reliance on work to receive income. The state is slated to lose six percent of its workforce by 2026 as baby boomers age over 65 years. If the state provides a minimum income to people on the verge of retirement, individuals may retire at a faster pace.
Able-bodied adults may also reduce their work hours, depending on the size of the UBI subsidy. In other words, the effects of a UBI program could actually worsen Maine’s current and projected workforce shortage.
Even if a UBI program supplanted other anti-poverty program spending, the political climate in Augusta does not appear conducive to facilitating this trade-off, and doing so would still pose serious risk to state taxpayers.