Will Universal Basic Income Fix California’s Poverty Crisis?
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Will Universal Basic Income Fix California’s Poverty Crisis?

From the tech-hub of Silicon Valley to the pristine beaches of San Diego, California is a cultural and economic icon. 

But all is not well in the Golden State. California has the highest poverty rate in the country, with 18.1% of Californians living at or below the federal poverty line. However, the federal census does not account for how California’s notoriously high cost of living affects families whose income exceeds the federal poverty limit. The Public Policy Institute of California reported that this “near-poverty” demographic accounts for an additional 18.5% of the state’s population. “Overall, therefore, more than 35% of Californians, perhaps 15 million human beings, are living in severe economic distress . . . .”

In sum, Californians are suffering. As the crisis persists, legislators are increasingly willing to take political risks to alleviate their constituents’ pain. One idea—once considered too radical for debate—has gained popularity in Sacramento: Universal Basic Income [UBI]. California’s AB2712, introduced in February of this year, seeks to make UBI official state policy.

UBI is a social welfare program in which the government sends cash directly to recipients. Unlike food stamps, which may only be used for pre-approved purchases, there are no restrictions on how UBI money may be spent. AB2712 would establish California Universal Basic Income or “CalUBI.”  If passed, the law would provide unconditional cash payments of $1,000 per month to eligible Californians.

The goal of CalUBI is purely humanitarian. By providing a stable source of income to all Californians, lawmakers hope to reduce crime, improve physical and mental health, and eliminate food and housing insecurity. All of this comes with only one behavioral condition: Recipients must not commit any crime that results in imprisonment. Incarcerated Californians will forfeit CalUBI income during confinement. But notably, CalUBI payments would be restored upon release. The expectation of course is that resuming UBI payments will reduce recidivism by helping ex-inmates achieve early financial stability.

While UBI promises significant social benefits, its feasibility is far from certain. Harvard economics professor and former Obama administration advisor, Jason Furman, remarked, “Cash is very flexible and lets people make the choices that are best for them . . . But as a large-scale permanent program, it would be very difficult to finance.”

CalUBI would not be the first UBI program in the United States. Alaska has paid annual oil and mineral royalties to its citizens since 1982 and, more recently, the City of Stockton launched a monthly UBI experiment in 2018. But unlike the small pilot programs in Alaska and Stockton, CalUBI would be a gargantuan undertaking. While no official estimates currently exist, the program could cost as much as $200-300 billion annually.

The problem: California’s entire projected budget for FY2020-2021 is only $137 billion. 

Despite the economic hurdles, AB2712 anticipates two ways to make CalUBI affordable: (1) by establishing a three-year state residency requirement, and (2) raising taxes. These solutions, however, tend to create more problems than they solve.

First, AB2712 hopes to cut the cost of CalUBI by requiring residents to live in California for a minimum of three years before they qualify for payments. The obvious goal is to prevent an influx of new residents from overwhelming CalUBI resources. But the restriction clearly violates the U.S. Supreme Court’s ruling in Saenz v. Roe, 526 U.S. 489 (1999)

In that case, the Court considered whether a one-year residency requirement for welfare benefits was constitutional. The state argued that the requirement was necessary to preserve the fiscal integrity of the welfare system. Writing for the majority, Justice Stevens declared that the Privileges and Immunities Clause of Article IV of the U.S. Constitution guaranteed the right of citizens to travel freely among the states. The Court held that state laws which discriminate against newly-arrived welfare recipients violate the fundamental right to travel within the United States. Thus, a three-year residency requirement for CalUBI is blatantly unconstitutional. And—in a classic example of history repeating itself—the state at issue in Saenz v. Roe . . . was California.

In addition to the residency requirement, the drafters of AB2712 introduced a 10% Value Added Tax (VAT) on certain goods. Proponents of the tax insist that it is the best way to fund UBI without drawing down existing benefits.

But ironically, higher taxes may actually decrease state revenue. California has already established itself as a high-tax, high-regulation economy. Some commentators have gone so far as to dub California as the worst state in the U.S. for businesses. There is a double-edged sword at play here. True, corporations that do business in California ought to support its social programs, but there is a limit to how high taxes can be raised before net revenues start to decline. A 10% VAT, on top of California’s already highest-in-the-country taxes, may push out key revenue generators whose business would otherwise help fund UBI. 

There is another downside to the proposed 10% VAT. Public policy expert, Professor Martin Gilens, explained that value-added taxes are “regressive.” This means that the burden of paying the 10% VAT would fall disproportionately on low-income people. Thus, the goal of CalUBI—reducing poverty—would be directly undermined by the tax that was intended to fund it. This would result in a cost-of-living death spiral; one where the ever-rising cost of living in California would wipe out any gains offered by CalUBI.

California, therefore, ought to the heed the warning Roman Emperor Tiberius once gave to his provincial tax-collectors; “A good shepherd shears his sheep, he doesn’t flay them.”

So if limiting the pool of eligible applicants is unconstitutional, and raising taxes is unwise, then what options are left? For this part, I would urge lawmakers to think in terms of net benefits delivered to Californians. By gradually reducing the burden on some welfare programs, CalUBI can free up more cash to pay directly to recipients. The state seems keen on this idea already, though the execution requires some editing. AB2712 aims to limit the gross benefits each person receives by disqualifying those who are already enrolled in certain programs: “Individuals relying on social welfare programs like Medi-Cal, County Medical Services Program, CalFresh, CalWORKs or Unemployment Insurance cannot qualify for basic income, according to the bill.”

This creates an unwanted and puzzling outcome. Obviously, Californians who require state-sponsored food, healthcare, and unemployment assistance are the most vulnerable. But by disqualifying this demographic, the state would award UBI benefits only to Californians who may not need it. Thus, the restriction cancels out the intended effect of CalUBI by disqualifying the poorest residents. 

Fortunately, California can avoid such an inequitable result. This can be done in three steps:

First, CalUBI should have an affirmative opt-in requirement. The opt-in will hopefully discourage the state’s high-income residents from accepting payments. Additionally, the opt-in should ask recipients to choose between receiving no-strings cash or receiving certain, non-medically related benefits. For many, the no-strings cash would be a net gain even if they chose to give up existing aid, such as food coupons from CalFresh. To be perfectly clear, this “opt-in, opt-out” procedure is not an elimination of benefits by any means. Instead, it is a retooling of the welfare system so people can get immediate, flexible assistance and—overtime—receive more of it.

Second, the state should gradually phase out the benefits which CalUBI naturally replaces. More recipients opting for direct cash means not only less demand for money from other programs but also less need for administrative control of those programs. Thus, the less California spends managing benefits, the more cash will be available to be paid as a benefit. California can then reinvest the savings back into CalUBI. 

Third, the state should start small. Instead of initiating CalUBI distributions at $1,000 per month, it would be wise to start with a more modest sum such as $500 per month. As the kinks of implementing CalUBI are worked out, and savings by phasing out other programs are realized, the monthly payment can be sustainably increased.

Whatever means are chosen to implement AB2712, the humanitarian goal must remain clear. CalUBI represents a bold, concerted effort to end California’s poverty crisis once and for all. With stakes as high as this, lawmakers should not shy away from the challenges involved in funding CalUBI. In the words of former Democratic presidential candidate, Andrew Yang, “Universal basic income . . .  only requires us to have the vision, empathy, and courage to adopt it for the American people . . .”

 

Ryan Stygar is a former firefighter and recent law school graduate. In addition to legal work, he also writes fun and educational novels for young readers. Ryan graduated Magna Cum Laude from California Western School of Law in San Diego, California.

 

Suggested Citation: Ryan Stygar, Will Universal Basic Income Fix California’s Poverty Crisis?, JURIST – Professional Commentary, November 13th,2020, https://www.jurist.org/commentary/2020/11/ryan-stygar-california-income/.


This article was prepared for publication by Vishwajeet Deshmukh, a JURIST staff editor. Please direct any questions or comments to him at commentary@jurist.org.


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