David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: back to basics.

As artificial intelligence spreads to all areas of the economy, concerns are rising that it will cause significant challenges through displacement of workers and long-term unemployment. To counteract this, some figures within the AI industry are suggesting policymakers consider implementing a universal basic income (UBI).

So how would UBI work and what mechanisms would be used to implement it? Here to talk more about this is Tax Notes contributing editor Carrie Brandon Elliot. Carrie, welcome back to the podcast.

Carrie Brandon Elliot: Thank you. It's good to be here.

David D. Stewart: So why don't we start off with some basic definitions. What is universal basic income?

Carrie Brandon Elliot: It's generally understood to be a cash payment to every individual, not means-tested, it doesn't adjust based on geography or household size. And it's basically intended to provide a base level of anti-poverty layer so that people can afford their basic needs.

David D. Stewart: OK. So this is income that could support a person if they're not working?

Carrie Brandon Elliot: Yes, yes. It doesn't depend on whether the person has a job, it doesn't stop if the person gets a job. And once again, it's universal, it's cash, it's not goods or services in-kind, and it doesn't depend on a means test.

David D. Stewart: So how would one of these generally function? How does this sort of thing work?

Carrie Brandon Elliot: Generally, a government agency issues the payments, kind of like what we saw during the pandemic. That was a form of universal basic income, even though it was means-tested. So you have one government agency that issues the payments and you have another one that funds it. Like the IRS would fund it, the Social Security Administration in the U.S. would issue the payments.

David D. Stewart: So let's bring this to the subject of the podcast. Where does tax come into these discussions of universal basic income?

Carrie Brandon Elliot: Well, when you have a discussion about universal basic income, you automatically need to talk about how you're going to want to fund it. And so the different ways to fund it definitely often come back to some form of tax. For example, there was a University of Chicago Law Review article that talked about funding it with carbon taxes. A combination of scaling back current cash benefits or close to cash benefits, and then a surtax that was just a flat tax that would fill in the funding gap after you reduce some cash or cash-close benefits. And you maybe fund some of it with a carbon tax. What's left over is all of individual and corporate revenue divided by the shortfall that was left. And that wound up being just over 9 percent, a 9 percent surtax.

So if you're going to try to do universal basic income and if you're going to estimate what it's going to cost, you have to come up with a revenue raiser, and tax is the most obvious answer.

David D. Stewart: So why talk about universal basic income now? I understand that there's some concerns I guess that AI might displace workers. Is that why this is coming up?

Carrie Brandon Elliot: I think that's definitely part of why it's coming up. I think the discussion of artificial intelligence replacing human workers is part of it. And then you couple that with what we experienced during the pandemic, and I think that it opened a window to have the discussion because we had a precedent for a universal basic income. Even though, once again, that was means-tested. That plus AI naturally leads to a conversation about universal basic income.

And what helps it along is that you've got a lot of marquis-level personalities, like Elon Musk, or like Mark Zuckerberg, or like Sam Altman, that have introduced universal basic income as part of their conversation, I guess.

David D. Stewart: What sort of things are they saying about it?

Carrie Brandon Elliot: Well, Sam Altman, for example, used about $14 million of his own money to run a universal basic income experiment, and he concluded that he was underwhelmed. So he isn't as supportive as he was before his experiment. Elon Musk has talked about universal basic income as a way to handle the changing labor market that could be caused by AI. You've got no shortage of just comments and quips and mentions of it that make it into the conversation via their speeches or their media interviews. And so I think that the real fear that AI will take over a lot of jobs has led to a naturally occurring discussion about universal basic income as at least one way of addressing that problem.

David D. Stewart: So what does this look like in a world with universal basic income? So everyone's getting a payment. What is the incentive to keep working?

Carrie Brandon Elliot: Well, that's actually a really good question. I'm sure it probably affects different people in different ways. Some of these universal basic income experiments have shown that people were not less willing to work. That said, I don't know that that can apply across the board. I think it's naïve to say it won't create a disincentive to work. However, there is evidence that it doesn't when you do these experiments in other countries, or some in the U.S., some of the more local experiments.

David D. Stewart: So let's talk about the U.S. in particular. What do we think we're going to see as far as activity on UBI?

Carrie Brandon Elliot: Well, there's a really beautiful website, I think it's run by Stanford University, and they have a global map that shows literally hundreds of universal basic income experiments. Some of which are complete and some of which are still pending, I think it's current as of January 2025. And there are several of those experiments that are occurring in the U.S.

One of the more recent ones that's been the subject of media attention was an experiment that they conducted in Atlanta where the recipients got about $20,400 of payments in about a two-year period. And while the recipients had very good things to say about it, the long-run effect appeared to be negligible, which is one of the more common criticisms of UBI. Once you stop the payments, people are going back to working two and three jobs even though they'll tell you they're in better shape than they were before they started to receive the payments.

David D. Stewart: OK. It doesn't have a long-term effect once you end it?

Carrie Brandon Elliot: Yes. It did create a leg up, and it was means-tested, but there was some really good things that happened to the people that got that money that might not have happened if they hadn't.

David D. Stewart: But we're talking here about maybe a proposal where it would just go on forever, or are we talking about more limited purposes?

Carrie Brandon Elliot: I think you could look at it either way. Universal basic income in its purest form suggests that it goes on forever.

David D. Stewart: I understand there's some activity on the Hill related to this. Can you tell us what's going on there?

Carrie Brandon Elliot: There is a bill pending to establish a pilot program to provide a guaranteed monthly income introduced in October of 2025. All of its 11 sponsors were Democrats, and it was sent to the Ways and Means Committee where it resides today. Basically, the idea was to select eligible individuals, which is anyone between the age of 18 to 65, and provide them with a monthly amount that was pegged towards what it would cost to rent a two-bedroom home in their zip code. And then the idea is to study it, study the effects, create a report, and see what the outcome of that was.

And so like I said, it's sitting in the House of Representatives, and it hasn't moved forward, but it was interesting that it was proposed. And a lot of the recitals, the findings of fact that led to the proposal mentioned the pandemic and how the payments during the pandemic created positive outcomes.

David D. Stewart: From a financial perspective, there's going to need to be money raised to pay for this. How big an expense would this be, let's say if there was a universal basic income in the U.S.?

Carrie Brandon Elliot: Well, the Chicago Law Review article I mentioned a couple of minutes ago did an experiment where they tried to calculate the cost, and what they proposed was $6,000 per person, per year, $500 a month. And they used data from 2017 and 2018, and the population that would be eligible for the money they estimated to be about 314 million people. And if you were going to give 314 million people $6,000 a year, that total cost would be about $1.8 trillion. And this is compared with the $2.2 trillion cost of the CARES Act and the $1.9 trillion of the American Rescue Plan Act, which were two of the pandemic-related payments.

David D. Stewart: So what have we seen from universal basic income experiments in other countries?

Carrie Brandon Elliot: Well, the most famous one, the one that you see appearing in media on this topic, was in Finland. And they gave unemployed people payments of about €620 a month as part of a trial in 2017 and 2018 without means testing, and the payments continued even if the recipient got a job. An analysis of the trial by McKinsey & Company confirmed that people actually increased their work. They also reported that people had improvements in well-being, mental health, physical health, employment, trust. People who received UBI reported a boost to their mental health. And the money quote is that, "A relatively small positive intervention seemed to have generated multiple mutually reinforcing positive effects." So that was what the McKinsey report concluded.

David D. Stewart: So we're seeing some positives from this.

Carrie Brandon Elliot: Yes, yes.

David D. Stewart: What are the negatives?

Carrie Brandon Elliot: Well, one that we mentioned before is it doesn't seem like they have very good long-run effects. The other negatives I've seen is governments that have tried these things have decided that it's a better investment to means test benefits, and it's also a better investment to, in some cases, give goods and services in-kind. And universal basic income really isn't all that popular. Switzerland had a referendum on it not terribly long ago, and it was soundly defeated, 77 to 23.

David D. Stewart: I guess with all this in mind, and we have a pilot proposal on the Hill that doesn't seem to be going much of anywhere, what are the real possibilities for this to happen in a place like the U.S.?

Carrie Brandon Elliot: I don't have a whole lot of confidence. I don't think — well, I think that people tend to think it would cost too much and weaken the economy. It would discourage low earners from working. I think there's some arguments that it would undermine social cohesion. It would remove people from the community. And in a place like the United States, people feel like the social safety net we have already is good enough. We don't have the kind of level of poverty or unemployment that would make universal basic income the best way to invest our resources. And once again, it doesn't poll well.

David D. Stewart: Now, do you think that that answer changes some time in the future if AI does start displacing workers?

Carrie Brandon Elliot: It could, yeah. I think there's a chance that it could. Nobody wants to be left behind. No one wants to be part of that permanent underclass. And so I think the more people start to feel like their own situation is precarious, the more they're going to be open to universal basic income.

A really interesting observation was that, while universal basic income polled poorly, a federal job guarantee actually polled really well. So that would be an interesting conversation to have.

David D. Stewart: And assuming that the U.S. were to go down this road and attempt a universal basic income, what is the most likely funding mechanism that the U.S. would pursue for something like this?

Carrie Brandon Elliot: My own opinion is it would be like a payroll tax, kind of like Social Security taxes. It would be like a surtax. A couple of the ideas that you saw in the Chicago Law Review article were eliminating the step-up in basis at death. Eliminating some of the deductions, like the home mortgage deduction. Different ways to phase out or eliminate tax expenditures, which would decrease the surtax that would be necessary to cover the gap. But I would think it'd have to be administrable, so it couldn't be too precise. And it would have to be something that was very widely based. Another way to offset the cost, as we briefly discussed before, would be to consolidate current cash and near-cash transfer programs.

David D. Stewart: Well, Carrie, there's a lot to think about in this whole area, and it's interesting to see these pilot programs and their successes and failures. Thank you so much for bringing them to us.

Carrie Brandon Elliot: Oh, it's been great to be here. Thank you. It is a very fascinating subject, and I think that it's going to become more and more relevant.

David D. Stewart: That's it for this week. You can follow me online at @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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