This is exactly the issue of decreasing marginal utility of money. If your income is $0, then the utility you get from an extra $1 is huge, because it keeps you

This is exactly the issue of decreasing marginal utility of money. If your income is $0, then the utility you get from an extra $1 is huge, because it keeps you from starving. If you have a $10k / year basic income, then the utility you get from that next dollar is much smaller. But this effect on work is likely to be much smaller than the effect from the high effective tax rates that you get from mean-tested welfare, especially at typical first-world standards of living. I wouldn't say that discouraging work is totally irrelevant either. The reason that first-world standards of living are high is that lots of people are performing (often unpleasant) tasks for complete strangers, in exchange for similar favors from other strangers (i.e., working for money). Decreasing the number of people willing to do that is (all else equal) a bad thing.