INTRODCUTION
Over the decades economists have suggested many forms of minimum income, most recently the Basic Income Guarantee or BIG which is an unconditional regular payment from the government to everyone. The objective of this paper is demonstrate the financial feasibility of a specific $12,000 per year per person U.S. federal government program financed entirely by cutting only existing federal welfare associated programs and changing the federal personal income tax to a flat rate of 16.2% but allowing no deductions. This program would not add to nor reduce the federal deficit. Other potential avenues for federal deficit reduction such as defense, Medicare, Medicaid, foreign aid, wealth taxes or gas taxes have not been preempted.
FEDERAL INCOME SUPPLEMENT
The Federal Income Supplement (FIS) program would take the form of an unconditional taxable government payment of $12,000 each year to every adult US citizen. The cost would be approximately $2.6 trillion per year for the 218 million recipients. Half would come from eliminating multiple forms federal welfare and reduction of other federal programs. The other half would come from a 16.2% flat rate personal income tax with no deductions. For the sake of greater income equality, Progressives would give up sacred social programs such as Social Security and welfare. Libertarians would buy into income redistribution for the sake of major reductions in the size of government. It would not increase the federal deficit.
A convenient truth is that not everyone needs to work. Full employment is not necessary for the production of sufficient goods and services for everyone. Not everyone needs to work fulltime, but everyone needs money to buy these goods and services
This Federal Income Supplement (FIS) is a straightforward uncomplicated solution with little government intrusion and little opportunity for fraud, abuse or bureaucracy. It is similar in concept to the current Alaska Permanent Fund annual dividend and a proposed Basic Income Guarantee (BIG).
The following direct savings and increased income tax revenues would finance the entire cost:
1. Elimination of all Federal welfare programs
2. Elimination of Social Security
3. Elimination of Federal unemployment benefits
4. Elimination of Minimum Wage laws
5. Elimination of Farm Subsidies
6. Elimination of Federal subsidies for student loans
7. Elimination of Federal retirement breaks for employers and employees
8. Elimination of Federal financial benefits for married couples
9. Elimination of Federal tax exemptions for “non-profits”
10. A flat 16.2% Federal income tax rate and elimination of all deductions
The benefits would be:
1. Elimination of poverty
2. Elimination of unemployment
3. Maintenance of a viable economy with only partial employment producing enough goods and services for everyone
4. Decoupling of old age income from employment
5. All citizens would pay federal income tax, becoming stakeholders with greater interest
6. Elimination of the bulk of retirement tax breaks going to the wealthiest
7. Security for people of any age or any circumstance who are not employed
8. Elimination of the minimum wage would make the US labor more flexible and competitive in the global market
9. Drastic simplification of the tax code
It is different from welfare or unemployment as it is paid out to everyone. There is no stigma. It is not lost by working. It is different than a negative income tax because it is issued as a separate payment similar to how Alaska pays oil dividends to each resident. It can be characterized as a birthright, a common share of America that pays a dividend, or as an inheritance, or as a trust fund.
Financial Summary (in billions)
| Tax revenue from supplemental payments themselves | $ 352 |
| Increased revenue from a 16.4% flat tax rate and elimination of deductions | 1136 |
| Eliminations of Social Security | 755 |
| Reduction of Discretionary Programs (Education, HUD, etc.) | 200 |
| Reduction of Mandatory Programs (Commerce, Agriculture, etc.) | 165 |
| TOTAL (revenue increases + spending cuts) | $2,608 |
Please note that all these program reductions are at the Federal level and do not necessarily affect any welfare programs at the state or local level. Also, these program reductions for FIS only affect welfare related programs. This FIS program does not reduce or increase the federal deficit. Other federal programs such as Defense, Medicare, Medicaid, and Foreign Aid are not affected. Cost reductions in these Federal programs are still available for reducing the federal deficit.
CALCULATIONS
| Tax Revenue from federal supplements themselves | ||||
| Adult Citizens in US | ||||
| Total US Resident Population 2009 Less |
307,000,000 | (1) | ||
| US Resident under 5 2009 | 21,000,000 | (1) | ||
| US Resident 6-9 2009 | 21,000,000 | (1) | ||
| US Resident 10-14 2009 | 20,000,000 | (1) | ||
| US Resident 15-19 2009 | 22,000,000 | (1) | ||
| Foreign Born under 5 | 263,000 | (2) | ||
| Foreign Born 5-14 | 1,600,000 | (2) | ||
| Foreign Born 15-24 | 3,730,000 | (2) | ||
| Total | 218,000,000 | US Adult Citizens | ||
| Federal Income Supplement | 12,000 | $/year per adult | ||
| Total Federal Income Supplement payments | 2.62 trillion | $/year | ||
| Tax rate | 16.2% | |||
| Flat rate no deductions | ||||
| Income, cap gains & interest same rate | ||||
| Tax Revenue from tax on FIS payments | 424,000,000,000 | $/year | ||
| Current Tax on Social Security Benefits | ||||
| Total SS payments | 720,000,000,000 | $/year (3) | ||
| Income tax rate paid, marginal | 10% | Estimate | ||
| Current tax revenue from Tax on SS benefits to be | 72,000,000,000 | $/year | ||
| subtracted to avoid double counting tax revenue | ||||
| Net Tax Revenue increase from tax on FIS payments | 352,000,000,000 | $/year | ||
| Additional Tax Revenue from a flat income tax rate and no deductions | ||
| Personal Income (PI) 2008 | 12,547,000,000,000 (4) | |
| Capital gains in 2010, not included in (PI) | 504,000,000,000 (5) | |
| Social Security/Medicare contributions not included in (PI) | 1,004,000,000,000 (4) | |
| Total taxable personal income under FIS | 14,055,000,000,000 | |
| Flat tax rate with no deductions | 16.2% | |
| Tax Revenue from flat tax rate and no deductions | 2,277,000,000,000 | |
| Obama 2012 proposed budget personal income tax revenue | 1,141,000,000,000 (3) | |
| Net increase | $1,136,000,000,000 | |
Replace Social Security with FIS
| Eliminate Social Security Retirement | 762,000,000,000 (3) | Eliminate Social Security Admin | 7,000,000,000 (6) |
Reductions in Discretionary Spending from Obama 2012 Proposed Budget (1)
| Reductions in Dept. of Agriculture | 10,000,000,000 | |
| Eliminate Dept. of Education Discretionary | 74,000,000,000 | |
| Eliminate SBA | 2,000,000,000 | |
| Reduce Health Discretionary | 60,000,000,000 | |
| Eliminate HUD | 49,000,000,000 | |
| Reduce Dept. of Labor Discretionary | 5,000,000,000 | |
| Total Discretionary Reductions | $200,000,000,000 |
Reductions in Mandatory Spending from Obama 2012 Proposed Budget (1)
| Agriculture | 116,000,000,000 | |
| Commerce | 2,000,000,000 | |
| Social Security Admin | 47,000,000,000 | |
| Total Mandatory Reductions | $165,000,000,000 |
CONCLUSION
The numbers can work. Real incomes would be increased by more than 50% for individuals now receiving maximum welfare benefits, those making minimum wage and students with federal loan support. Middle-income individuals would realize a modest net income increase that would decline to zero for those making about $125,000 per year. Individuals now making over $125,000 would realize a lower net income.
Notes:
1 Resident Population by Sex and Age 198-2009, US Census Bureau
2 Table 42 Foreign Born Population 2009, US Census Bureau
3 Table S-4 Obama Proposed Budge 2009, Office of Management and Budget
4 Table 2.1, Personal Income and Its Disposition Bureau of Economic Analysis
5 Table 4.3 Actual and Projected Capital Gains Realizations and Tax Receipts, Congressional Budget Office.
6 Social Security Administration, Pg. 165, Obama Proposed Budget 2009, Office of Management and Budget.
‘A convenient truth is that not everyone needs to work’. I would like that participation in income creation as well as wellbeing should be accessible for everyone…Some budget to maintain an equal access to payed work and a complementary income for unactive periods, based on merits of the past seems me indicated, Dependance for pensions from financial sector is proven costly and extremely insecure…I would prefer to lower a little the net fis, increase a little bit income tax..
Dear Vandenberghe,
The idea was to provide the means for a person to find his own way. He might start a business, do charity work, help his family, study, write a book, travel, be an athlete, make scientific inquiry, or find a job and make more money.
‘a complementary income based’ on merits’ is in fact a way to create more financial independance, partly based on acquired future solidarity rights in the belgian system. To do what you suggest is much more accessible
1/if you can fall back on a job later, <equal chance
2/if you have a slightly better income (after a period of declared work)
3/if the right on solidarity
distribution can be translated in guaranteed, (cooperatif), available capital…to start a business. the retirment distribution rights, based on a virtual or real individual capitalisation of 10% og groos labor cost, is growing to 4 times gross income…2 times after 20 years of activity…
in Franch some propose a flat tax of 30%… in Belgium it would be rather 40%..But in all cases practically everyboddy has a reasonable basic income..unfortunally not available for business, but perfectly possible for your other suggestions.