$11,000 for Every Household: Could Guaranteed Income Work for America?

Between 1974 and 1979, the Canadian government tested a program called Mincome in Dauphin, Manitoba, a town of fewer than 10,000 residents. Under Mincome, a family with no sources of income would receive 60% of the low-income cut-off -- a type of poverty line that Canada uses. Every dollar in income earned reduced the benefit by $0.50. It didn't matter why you didn't have an income -- whether you were elderly, disabled, or simply unemployed. You only needed to earn below a certain amount.

What were the results of the economic experiment? Did people stop working? Did prices surge?

And should we think about running such an experiment in the U.S. today?

Occupy Wall Street protesters, Oakland 2011. Source: Flickr user Brian Sims.

The outcomes of a guaranteed annual income
The Dauphin trial ended due to incredible inflation pushing the project over budget (inflation soared past 11% in the U.S. in 1979), as well as a change in government. With no funding to analyze the data, the results were boxed up and archived until Evelyn Forget, with the University of Manitoba, unearthed the records to publish a paper in 2011. She discovered that about a third of Dauphin families qualified for a part of the Mincome at any given time, and because benefits were reduced for every extra dollar earned, many payments were not large.

Her other findings include:

  • Students were more likely to advance in school.
    "Dauphin students in grade 11 seemed more likely to continue to grade 12 than their rural or urban counterparts during the experiment while, both before and after the experiment, they were less likely than their urban counterparts and not significantly different from their rural counterparts to complete high school."
  • Hospital visits decreased by 8.5%.
    "By 1978, Dauphin residents had a significantly lower rate of hospitalization than the controls, but this began to narrow so that, by 1985, the significant difference in hospitalization separation rates between Dauphin subjects and the comparators disappears entirely." Specifically, accidents, injuries, and mental-health-related hospitalization decreased.
  • Two groups of people worked fewer hours.
    Adolescents and new mothers were the only groups to spend less time working, meaning they could spend more time in school or raising a new child. Forget attributes this to the well-designed incentive for more work, given benefits only decline by $0.50 for each extra dollar.

Would such a program work in the U.S.?
Given the increase in automated work, the prospect of having too few jobs for a thriving workforce is weighing on minds around the world. In Switzerland, a petition guaranteeing about $33,000 per year drew enough support to earn a public referendum, with early polls indicating 45% of voters in support. A book about income inequality, Thomas Piketty's Capital, became a best-seller despite the dry and depressing topic.

Source: U.S. Census.

Given the renewed interest in guaranteed income and its seeming benefits, what about the U.S.?

In the U.S., guaranteed income has a high hurdle that's rooted in the values of the American Dream. According to Pew Research in 2012, only 59% of Americans believe "it's the government's responsibility to take care of people who can't take care of themselves," down from 69% in 2007. Additionally, the political parties that would be in charge of crafting such policy are further apart than ever. The gap between Republicans and Democrats on that same belief statement grew from 21 points in 2007 to 35 points in 2012. It would take a large shift in culture to accommodate a basic income.

Though, as former Secretary of Labor Robert Reich says:

We've got to seriously think about how we widen the circle of prosperity, how we get shared prosperity. Otherwise, who's going to be the customer? And a minimal guarantee with regard to income, it seems to me as almost inevitable in terms the direction that the structural changes of our economy are taking us in.

If Reich is correct that one day we will have a guaranteed income, how much would it cost? Are claims that it would be a net savings for the government true?

The basic income tally
If implemented in the same way as Dauphin's Mincome, the program would actually be quite affordable, yet would most likely fail to cover basic needs.

According to the Census, 50 million Americans live in "supplemental poverty," which adjusts traditional poverty-line measures with government benefits, cost of living based on city, and health care. Given an average household size of 2.6 people and a payout of 60% of the poverty threshold -- currently between about $16,000 and $20,000 for two- and three-person households -- the average household in poverty would receive almost $11,000 in basic income. With 20 million households in poverty, the total bill would be a little over $200 billion.

Right now, federal spending on low-income programs totals around $750 billion. State and local governments spend nearly $300 billion to support those with low income, according to the Cato Institute. This means if the government scrapped the current support programs in favor of a Dauphin-style Mincome, it would save over $800 billion. However, such a savings raises a red flag -- and that's because $11,000 is not nearly enough for the average American household to get by.

To support two adults, the Living Wage Calculator at MIT puts the necessary annual income at $41,000 for those living in Washington, D.C. Adding a child brings that necessary income to about $49,000. A basic income of $11,000 is far short of either.

What if we raised the annual basic income or tweaked it in other ways? Here are a few other calculated scenarios.

Ends short of meeting
There could be great social benefits to finding ways to fund programs like Mincome. But it will likely take decades for an agreeable solution to arise, as well as ideas on how to cut expenses or raise revenue to cover such a program that would be able to cover basic needs.

Until a basic income arrives, here's a little-known tax "loophole" 
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Read/Post Comments (20) | Recommend This Article (33)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 13, 2014, at 8:41 PM, gregk wrote:

    Your premise is wrong, namely that conservatives would oppose this because it would cost extra money. In fact, getting rid of the complicated welfare system that we have right now and replacing it with a negative income tax or mincome would be welcomed by many conservatives and libertarians. We have currently higher social spending per capita than any other country on earth, in part because our system is so inefficient and rife with systemic corruption, rent seeking, and fraud.

    The people obstructing it are likely going to be progressives and Democrats, because it would eliminate a large number of public servants and non-profits that are currently profiting handsomely from our inefficient system.

  • Report this Comment On July 13, 2014, at 9:39 PM, godenich wrote:

    A GDP::DEBT Indexed NIT Liquidity Complement may work if phased in over time as welfare programs are legislated out. The GDP::DEBT indexing may be a popular financial incentive to increase the NIT by increasing GDP and reducing National Debt and create incentive for politicians to be prudent and thrifty to receive votes :)

    -

    One may want to seed it initially with leasing public land to the private sector for access to natural resources. That would get it off the ground and stimulate everyday consumption for everyday businesses.

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    Starting from the skewed welfare benefits already in place, translate them to cash and then gradually phase out means-testing as funding permits over time.

    -

    Social liberals may see the same minimal or greater benefits that exist today for the poor and more if GDP increases and national debt is reduced.

    -

    Economic liberals may see government shrink, debt shrink and maybe even taxes, too. It depends on GDP increases and reductions in national debt.

    -

    It doesn't do much for War Hawks, Central Banks and TBTF businesses, but It may become more politically popular than Social Security with taxpaying consumers and everyday businesses.

  • Report this Comment On July 13, 2014, at 9:52 PM, kilroy50 wrote:

    So just WHO is going to pay for this $11,000 per household?

    What are they going to do about taxes on it, put recipients into a 50% tax bracket since it would be unearned income?

    Trust me, if our government is involved, it will become a Draconian mess, worthy of Machiavelli.

    We all have seen what the greedy politicians have done to the Social Security "trust" fund. We are seeing what they are doing to the health-care in the U.S.A.

    We are seeing them get ready to force veterans from the highly superior VA medical system into the graft-ridden, big-pharma-driven civilian medical people.

    Of course, the libs will love it. A thing like that would mean even bigger government than their wildest wet-dreams could manufacture.

  • Report this Comment On July 13, 2014, at 10:04 PM, ggm281 wrote:

    Not interested. Canada (unlike the US) is VERY firm about immigration. They don't look at their taxpayers as the world's largest compulsory charitable givers. So when ANYONE with no skills, no education for any place in the world is granted a visa waiver as long as they just cross the Rio Grande successfully, very quickly every family with college degrees will by paying a minimum income to at least two adults in 3 separate households.

    You cannot have open borders and a vigorous social welfare state no matter how that welfare is delivered!!!

  • Report this Comment On July 13, 2014, at 10:24 PM, paythepiper wrote:

    How about looking at this ridiculously liberal hogwash from the other side of the coin. If inflation went up 11% seems the working class got forcefully knocked down.

    Maybe the student ratio changed because of the oppression placed upon the working class. Maybe hospital visits were cut short because the poor had cash to go buy there drugs. Maybe those remaining home were more of a necessity for the lower paid dependents. And the biggest if is if it was so grand why the piss did it run out of money, because there were not enough working class to pay for it maybe.

  • Report this Comment On July 13, 2014, at 10:27 PM, Carrot1530 wrote:

    This would be riddled with fraud. Take a married couple, they get $11K. But if they divorce they get $22K as they are now separate households with one renting a room from the other.

    If the government scrapped the current support programs in favor of a Dauphin-style $11K Mincome, it would save over $800 billion in current aid to the needed.

    Unless you're saying the current programs have $800B in fraud, waste and overhead how can this possible be good for the needed?

    On the other hand it would solve our national debt and borrowing problem.

  • Report this Comment On July 13, 2014, at 10:32 PM, EricMJohnson wrote:

    Not once did the article contemplate WHERE DOES THIS MONEY COME FROM?

    Yeah, the simplistic answer is "government". But where does government get the money from?

    If the Motley Fool are economic and financial people, it isn't very reassuring that the writer doesn't address this.

    MONEY DOESN'T GROW ON TREES. Ever hear that one? If government simply created the money out of thin air (like the Federal Reserve does, but I digress), then prices will rise, essentially taking the money from everyone in the form of a hidden tax. In our advanced civilization, it amazes me there are still so many people whose understanding of economics is at the level of a 5 year old, who think government can simply provide everything to everybody, and some of those people write financial articles.

  • Report this Comment On July 13, 2014, at 10:59 PM, Azbill wrote:

    What idiot came up with this Idea? The government has no money, it takes money from taxpayers. Who do these clowns think is going to pay for this. One of the post said the GOP would never agree to giving out government money. They have dumbed down the public so much that they have no understanding where all the "gubment mony" comes from. We are over taxed as is. we have a large segment of our population that seem to think it is a free ride and they vote for the pandering idiots that are selling our people into government servitude.

  • Report this Comment On July 14, 2014, at 12:01 AM, roger142 wrote:

    Yea, or we could stop offering corporations financial incentives to take their manufacturing jobs to other countries as NAFTA subsidized. Or we could lower the corporate tax rate from 35% to 22% and see if pharmaceutical companies decide to come back to America, and stop charging us 500 to 10,000% more for prescription drugs.

  • Report this Comment On July 14, 2014, at 5:30 AM, ernaldo wrote:

    The Golden Goose seems to be on life support....

  • Report this Comment On July 14, 2014, at 7:17 AM, jimmyboyblu wrote:

    Why do us fools keep doing the same thing over again expecting different results?

  • Report this Comment On July 14, 2014, at 9:24 AM, emailnodata wrote:

    Marx Utopia had us all working a very limited amount per week while having the means, time, and interest to read and learn and relax.

    America's Dystopic version of Marx has us all working a few hours a week and living in abject poverty.

    There is no doubt: machines and software WILL take our jobs....but how do we handle it as a society?

  • Report this Comment On July 14, 2014, at 9:29 AM, emailnodata wrote:

    I get a chuckle from the ranting comments about "taxes" and "the gubmint" and so on.....

    By 2045, not even doctors or lawyers will be safe from extinction. There will be 2 winners: the large capital providers, and those tending the technology.

    Everyone else? You'd better hope there's a shift in wealth distribution, because from a work standpoint you will not be needed. Truck drivers, accountants, store clerks, even musicians and artists will all be replaced, on a mass scale, by technology. It's possible even first-line teachers will be as well.

    This is no joke. This is what we're pushing for every single day, as we look to maximize monetary profits as our ONLY goal.

  • Report this Comment On July 14, 2014, at 9:43 AM, TMFJCar wrote:

    <<MONEY DOESN'T GROW ON TREES. Ever hear that one? If government simply created the money out of thin air (like the Federal Reserve does, but I digress), then prices will rise, essentially taking the money from everyone in the form of a hidden tax.>>

    Actually, inflation has been quite tame since the Fed started QE.

    <<By 2045, not even doctors or lawyers will be safe from extinction. There will be 2 winners: the large capital providers, and those tending the technology.>>

    I agree with the author here, and think this is a bigger issue for the working class. It seems silly that the argument for raising wages hinges on "mass automation because workers are too expensive" when they fail to realize that most businesses will automate because it will always be cheaper to do so, even at minimum wages.

  • Report this Comment On July 14, 2014, at 12:38 PM, TXObjectivist75 wrote:

    Could Motley Fool please go back to writing articles intended to increase it's reader's wealth, rather than more ideas to take it from them and redistribute it?

  • Report this Comment On July 14, 2014, at 12:58 PM, JackMc wrote:

    It's hard to really say or know at this point as to weather or not this would work in America since it's never been done or tried. I've been out of work for 5 plus years now though and sure could use the help myself. One thing I do know though is that the government will give the prison system in our state somewhere around $40,000 per inmate / per year to incarcerate someone and I also know that I could survive on somewhere around $30,000. Based on this known fact, I think it would be good to grant people some free income to live out "non-criminal" lives. I know that's what I want for myself at least.

  • Report this Comment On July 14, 2014, at 2:14 PM, RHO1953 wrote:

    We are in serious straits, automation is killing jobs almost as fast as our government. Between taxes, mandates, and automation, we will see the point in the next ten years in which over half of us won't have jobs. That is a catastrophe, and I don't know what the hell we are going to do to solve it.

  • Report this Comment On July 15, 2014, at 11:56 AM, Mathman6577 wrote:

    The government should stay out of the private sector.

    Anything Reich says should be immediately questioned. All of his socialist policies have failed.

    Did the stimulus program work? No. Does Social Security work? No (it will need to propped up within the next 15-20 years). Did the bailout of GM work? No (the company needs to recall millions of cars and pay out billions in claims). Did the program which allowed more people to afford houses work? No (it helped lead to recession and mass unemployment).

    Why don't we just lower taxes? Cut the marginal tax rate. Cut the corporate tax rate.

    Enough of this socialism stuff. It just doesn't work.

  • Report this Comment On July 15, 2014, at 2:16 PM, Zinj wrote:

    I'm curious and widely receptive to debating ideas from the far left to the far right. But when I do so, I try to differentiate between "deserves" and "shoulds" on the one hand and "functions" on the other hand.

    As hard as it is to come to an agreement on how our systems would be most effective, it's much harder to come to agreement on something as fuzzy as "deserve".

    As a very, very basic observation, people tend to ascribe VALUE to things that they pay for and tend to DISCOUNT the value inherent in things they receive, separated from any direct connection to either their labor or their capital.

    To this end, I generally think that WHATEVER public assistance/safety net you want (expansive, minimal, somewhere in-between), the simple act of asking a recipient to physically contribute a nominal sum (even $1) in return for benefits causes a direct link in the mind of that person. Theater? Perhaps, but the exchange makes it real.

    For those about to jump on me for saying how horrible it is to ask the least fortunate to contribute to their own assistance, functionally you can increase their benefits by that very same $1 so that they end up in the same net place. I just think the transaction helps the human mind to assign value to the assistance.

    It's less effective when the transactor is a non-person entity like a partnership or corporation but out of principle I'd still require that even "free" concessions on federal land (for instance) always entail a nominal payment. For some reason it's easier to argue whether a $1 concession is appropriately priced than a out and out GRANT. Human brains are odd, mine as much as anyone's.

  • Report this Comment On July 15, 2014, at 4:06 PM, gebhartda wrote:

    This reminds me of how a government once told a society that was 80% peasants, most of which had no cows or one cow, that people with no cows or one cow were poor and that people with two cows were rich. They then said that these rich people had obviously done something to put the poor people down and they needed to take the cows from the rich people and redistribute them. After a period of violence, the society then went to a long period of famine and economic downtown.

    Anyone who believes this would work is a fool (small "F") and understands nothing of history or human nature. Look at the Keynesian experiment we have been on for 80 years: we keep putting our children into deeper and deeper debt to provide security. Look at the 50-year war on poverty we have been on: we already give the average person on public assistance $9500/year and it hasn't helped. We have fooled retirees for the last 70 years that we will take care of the them if they send the government money for their entire working lives: now they are getting a negative return on the money they sent because the government spent it on other "good" things.

    Now for a personal note. Has anyone watched a family member's life wasted on welfare based on poor choices and government promises? Has anyone seen a family member's life wasted because their parents gave them everything? Has anyone fought for and helped a friend get away from government assistance because it was sucking the life out of them? Has anyone spent their life serving this country in and around the government and seen the enormous waste and inefficiency? I have and the idea expressed in this article is hideous and unconstitutional. I am ashamed it is on a website I revere.

    Thanks for letting vent. (BTW: The answer to the question you may be asking is the Soviet Union from 1929-1933. Please Google "Kulak")

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