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How Would Universal Income Impact Taxes?

In the upcoming 2020 election, a debate topic is going to be the concept of universal income. If you’re new to the idea, there’s a myriad of different variations, but the core concept is the government would provide basic income for everyone to cover your finances (or most of your monthly finances). A reason it’s going to be a hot topic is due to the number of jobs that are going to be replaced or lost due to technology. Sometimes, the specific amount of people (as well as who would have access to it) will vary on what each individual gets from their check. Were this concept to become a reality, there are several pros and cons to consider.

Pros of Universal Income

  1. Workers happy with their job but unhappy with their pay, may stay at their jobs longer since their pay is supplemented.
  2. Anyone can return to school or stay home with a child or loved one. With a supplemented income, sick relatives, stay-at-home parents, and ambitious scholars can pursue their goals with less stress.
  3. There will be no inhibiting poverty trap. Homelessness, longstanding unemployment or sudden job loss would decrease.
  4. There’d be a more accessible form of financial support without the fear of debtors or credit.

Cons of Universal Income

  1. Inflation is a larger risk with basic income.
  2. Prices could increase as well as the standard of living and it would be difficult to undo the effects.
  3. This form of income may discourage some people from seeking any kind of employment.

Universal income has had its own share of history. A form of the program was implemented in different states. Former President Johnson began a test for negative income tax in New Jersey, where he discovered that welfare recipients would have more to pay than they would with standard income tax. Another program tested in Seattle, WA and Denver led to families breaking up among other familial damages. The tax credit is one way to make employees work more, but it starts to phase out as it reaches its maximum level.

Currently, there have been different ways to work with universal basic income all around. For example, Alaska has its own program known as the Alaska Permanent Fund, which pays every worker up to $1,200 a year from their own oil revenues; 75 percent of these residents keep it safe for any future needs. Hawaii began its own basic income bill back in 2017, where they declared that everyone in the state has the right to use basic financial security with guaranteed income. Oakland, California has only 100 families living exclusively in the city earn an amount made between $1,000 to $2,000 a month for using the seed accelerator Y Combinator. Another city in California, Stockton, has a pilot program that began in fall 2018, and every month, 100 families could earn $500, ensuring that they’re not put in desperate times by giving up what they own. A similar program is being conceived in Chicago, Illinois, although it is made for 1,000 families instead of 100 (due to the larger population of Chicago).

There is a lot that can be said about the way universal basic income would work. Questions such as what each program would do and who qualifies. Although an appealing idea, today the focus is still use skills that need a human touch and save or invest your earned income.

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.