Income Guarantee Benefits and Financing: Poverty and Distributional Impacts

The concept of a guaranteed income has resurged in public discourse in the United States as a potential anti-poverty policy. A common argument against such a policy is that the cost is too large and the benefits are not targeted. It has been about 50 years since the negative income tax (NIT) experiments tested the idea of an income floor to support vulnerable families, and in just the last few years there have been Congressional proposals for a universal child credit, an NIT-type tax credit, as well as a presidential candidate running on a universal basic income (UBI). The common characteristic of these proposals is to guarantee a given level of income for eligible individuals or families. In this brief, we explore the feasibility of financing a guaranteed income and the potential poverty impacts. In general we find that income guarantee plans can work to reduce poverty at reasonable costs, such as through a fundamental federal income tax reform and carbon tax-and-dividend plan. However, poverty impacts depend on who is eligible and how the benefit is financed. A carbon dividend could reduce poverty and improve the environment, though considering children in the benefit design is crucial for economically vulnerable families.