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US: Step by step implementation of basic income

The following is a step by step instruction for implementing a basic income in the United States.

Step 1: The government introduces a basic income of $40 per month for all citizens. 300 million of the 325 million inhabitants are US citizens.

The required funds are $40 x 12 x 300 million citizens = $144,000 million, $144 billion.

This is financed by a levy of 10 cents per kwh of electricity consumed by households, which is 1,440 billion kwh per year. So the levy amounts to 1,440 billion kwh x $ 0.1 = $144 billion.

Since all people who get the basic income consume electricity, in a way, they pay this basic income to themselves. However, big users of electricity will contribute more than those who consume less. Think about it. Electricity allows you to have a smartphone, a PC, a fridge, and even drive long distances with an electric car at a ridiculous cost. The current price of electricity is much lower than its value.

Step 2: We increase the basic income with another $60 per month for everybody to reach $100 in total. The required funds are $60 x 12 x 300 million citizens = $216,000 million or $ 216 billion.

Financing

Most “productive” jobs are now done by machines which have replaced many of the workers in our factories. Stop dreaming of deriving social security contributions and income taxes from new jobs: 80 % of the GDP of the US are services, many of which have added value too low to contribute taxes. We should get taxes from the machines/robots which replaced the workers. However taxing robots would make them move to other countries where there are no taxes on robots. Therefore, we should not tax the robots themselves, but the products made by machines/robots, like cars, bikes, shoes, phones, PC’s, games, toys, furniture, carpets, fridges, and so on. That way, it doesn’t matter if the robots are in the US or China. Consumers will pay more for those products, but on the other hand they also will get an additional (basic) income to pay for such products. Those who spend more than others will contribute relatively more taxes. That is the beauty of taxes on consumption: you decide yourself how much taxes you pay, depending on how much you purchase. In the US, current sales of products which are typically and mainly produced by machines/robots are approximately $1440 billion. We introduce a “social” sales tax of 15% (on top of exiting sales taxes) on those products which will generate the required $216 billion.

You could argue, what is the point to give a total of $100 per month basic income to all citizens, if, on average, they spend it in increased prices of electricity and some goods? The point is that people who buy a lot contribute much more than the ones with a low income. Thus, it comes down to a (more or less voluntary) redistribution of purchasing power.

Step 3: The government will pay an extra basic income of $100 per month for all citizens of working age, 18 to 70, paid by employers. This will cost $100 x 12 months x 185 million citizens in this age group = $222 billion.

We finance it by a levy of 10 cents ($ 0.1) per kwh on non-household electricity consumption. So essentially, the electricity consumed by enterprises or other entities which typically employ workers.  This comes down to $ .1 x 2,380 billion kwh = $238 billion paid by the employers since they pay the levy of 10 cents per kwh of electricity consumed by them (including residential, industry and transportation).

At the same time, the employers compensate this extra tax by reducing the wages of their employees with the same amount. For a worker who previously was paid $1700 net per month, his new wage bill will read: basic income grant $100 paid via the government (thanks to an extra tax paid by enterprises) + $1,600 net salary = total income $1,700.  So, the total net income of the workers remains the same, the total cost for employers remains the same too. Electricity gets more expensive, wage cost less expensive.

Step 4: We increase the basic income with $200 per month for all citizens of working age, 18 to 70, paid for by employers, while at the same time the employers can reduce the wage bill with the same amount (as in step 3).

The cost is $200 x 12 months x 185 million citizens in this age group = $444 billion.

This is financed by a levy of 3 cents per kwh on gas and coal sold to industry, transportation, commercial and residential.  This does not apply to such fuels sold to generate electricity, otherwise electricity would be taxed twice. Given the energy consumption of fuel, gas and coal for these sectors, this generates $ .03 x 16,617 billion kwh = $498 billion. The margin between $498 billion and $444 billion will be necessary because consumption will decrease given the increase in cost. CO2 emissions will improve, by the way. For fuel, the additional tax amounts to +/-  $1.05 per gallon. Think about it.  With one gallon of gasoline you can drive 40 miles. Imagine you need to walk or ride a horse or use a bike in bad weather. The cost of fuel, including for air travel, is indeed ridiculously low.

Step 5: We increase the basic income with $1,000 per month for all citizens over age 70.

The required funds are $1000 x 12 months x 28 million people = $336,000 million, $ 336 billion.

This is financed by a decrease of military spending of the same amount over a period of 10 years, 30 billion per year, such that, in the end, for each military dollar spent we also give one dollar to the elderly.

Indeed, is it ethically acceptable to spend money on defence and not spend the same amount to support our elderly people? A fair deal is that for each dollar spent on military matters, another dollar should be distributed to them. Of course we cannot decrease military spending in one go. Therefore, this step counts as 10 sub-steps in which we decrease military spending by $36 billion per year over 10 years, moving the yearly military spending from $672 billion to $336 billion, which is still five times more than the current Russian military spending. Because military veterans will get basic income like other citizens, it will become a part of their compensation. The expense to the military budget would be reduced with the same amount.

Step 6: We increase the basic income with $200 per month for the age groups 0 until 17 and $400 for over 64. This relates to 70 million citizens of under 18 and 46 million over 64.

The required funds are $200 x 12 months x 70 million + 400 x 12 months x 46 million = $389,000 million, $389 billion.

The basic income per age category per month in total then becomes:

0 to 17: $300 (steps 1, 2 and 6)

18 to 64: $ 400 (steps 1, 2, 3 and 4)

65 to 70: $ 800 (steps 1, 2, 3, 4 and 6)

70 and older: $ 1500 (steps 1, 2, 5 and 6)

This step is financed by using most of the budgets for welfare since the basic income system gives a higher purchasing power to them. In 2016, welfare spending was $430 billion. Only an average of 25% of the funds went to cash assistance. The problem with the means tested welfare system is that the administration necessary to do the testing takes up a huge part of the budget. Wyoming currently gives the highest benefit to TANF families (a single parent with two children): $657 per month. Worst case, it compares with $300 x 2 +$ 400 = $1000 from the proposed basic income scheme above. The basic income system advantageously replaces the welfare system in any of the 79 existing systems. The food stamp system for example emerged in 1939, when the cost of food was still very high in household budgets, especially for poor households with many children. Food is now very cheap compared to then.

Step 7   When looking at further opportunities to fund basic income, we should look at inefficient parts of the US economy.

By far, the most inefficient part is health care. Not only because medical doctors have a nice income, generally speaking, but because the US health consumer not only pays for the health care itself,he pays also for the insurance people as well as lawyers and other legal people involved in disputes. No wonder the cost of health care per inhabitant in the US is twice as high in comparison to European countries. In France for example, there are no legal and insurance parasites draining the standard health care system, which is directly organised by the state. And even that system is not efficient, because there is a lot of overconsumption in France. The current cost of health care in the US is $3,300 billion including the $ 1,520 billion paid for by government.

Education is an outdated economic sector. The recent IT and internet revolution did not induce many institutions to review their business model. The “productivity” of the learning process would be less than 10% if measured by standards used in industry. Currently, until age 16, schools serve two purposes: education and babysitting. Lots of things in education should be re-engineered. If education were to be invented today, would we build schools? Would we have classes of pupils all the same age yet with different knowledge and skills? What about virtual classes, at least part-time?  The cost of education funded by the US tax payer is $960 billion.

The US has the highest cost per student world-wide, after Luxembourg. Just recently, in an address in May 2017 at Harvard, Mark Zuckerberg, the founder of Facebook, said we should introduce basic income. He also said that the time has come to introduce lifelong personal education, which we can refer to as “coaching”. Now think about it. Health depends a lot on education, not the least our mental health.   While health care should evolve from curative to preventive care, there is a huge synergy between education and the future of health care, to the extent that they should be regarded as one and the same venture. Therefore, the government should move the budgets for health care and education to private “care organisations” or “coaching organisations”, which should offer lifelong health care and education to their “members” while government pays the member fees.  We can do that by using the current government budgets for health care ($1,520 billion), education ($960 billion) and pensions ($1,380 billion). Mind that the basic income for > 70 will be $1,500 which is higher than the current OASDI benefits) and therefore replaces OASDI to a very large extent.   Possible residual differences in income need to be covered by the coaching organisation. The budget of $3,860 billion dollar amounts to $1,070 per citizen per month. When comparing with costs of education and health care in well managed countries, this looks like a good business opportunity for enterprises which want to become active in the social economy.  Obviously, the cash obtained by these coaching companies from the government may differ depending on some characteristics of the members, like age.  Citizens who want to change from a coaching service provider should face some penalty since continuity is important to provide a good service.

A possibility to launch such a system would be for the government to organise a tender offer followed by the granting of licences to big system companies willing to apply. There are several such companies well positioned to tap this new market. Think of IBM, Microsoft, Oracle, GE, Intel, Google or Facebook. They could design new health care/education products and bring those services to the market while using subcontractors, which they would manage. A special US problem has to be dealt with to make that possible. Legal proceedings and the “insurance” logic are not part of such a model. Those who want to keep the ability to sue teachers and nurses in court should continue to use the current private health care/education system.

Conclusion: Basic income can become the core of the social security system in the US. This is just an example of how it could be done. The guiding principles in this proposal are:

-Basic income is linked to citizenship combined with residency in these calculations. Other options imply other numbers.

– Money is not falling out of the sky. The sources of funds to finance each step are identified and realistic.

–  Information sources for energy: https://www.eia.gov/energyexplained and https://en.wikipedia.org/wiki/Energy_in_the_United_States

– A step by step approach may lead to the recognition of the viability of a significant number of steps.

– A basic income is a “social dividend”.  Just as the shareholders of enterprises get a dividend because they own shares, all citizens derive a right to get a social dividend because their parents and grandparents have put a society in place which is able to produce a large surplus of food and goods, such that we can pay a dividend from this surplus to all citizens.

– The basic income replaces, to a very large extent, the current social security and other benefits. For those who have a job, and the companies employing significant numbers of workers, the net effect of the introduction of a basic income system should be, more or less, neutral. When employees get a basic income from the state which replaces a part of their salary, the cost to the employer will be lower with the same amount (at the moment of the transition). However, the employers will be faced with an increase in other costs due to new taxes which will be levied to pay for the basic income.

– The basic income is distributed electronically, for example via an automatically charged debit card. It could actually be a smart phone if properly protected. Government can organize a bid process for organisations willing to distribute the money one way or another. It is highly likely technology businesses or communication operators would apply to distribute the basic income. However, it could be banks as well, or big retailers. It is likely that the cost of the distribution of the basic income to the government would be around zero. It could even turn out to be a small revenue for the government, when interest rates move up again.

– After a while the basic income should be disconnected from a precise mechanism of funding.

– The basic income should evolve with the cost of living. It would make sense however, to use it as a tool to influence the economic cycle – increase the basic income to increase demand; wait to increase it if the economy gets overheated.

 

About Roland Duchatelet

Roland Duchatelet has written 10 articles.

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2 comments

  • This noble idea seems to partially focus on consumption. The problem is that as the number of workers are displaced by automation, they will need financial support immediately. As this sector of our population grows exponentially, the immediate impact will result in less consumption. Less consumption means less business with more layoffs and increased automation. And so goes the country.
    The focus should be on excessive profits. Automation is creating windfall profits at the cost of the displaced worker. We should be taxing production based on these windfall profits. Then we have a closed flow of increased production, taxes go to the UBI which increases consumption which is good for business.
    This will be a more straight forward solution and can be implemented much sooner.
    Our implementation strategy must be guided by the need to avoid a national revolution, then all bets are off.

    Thanks for your hard work on this,

    Arthur M. Skolnik FAIA

  • Shawn Foster

    My proposal is for all 50 states to start a permanent fund and direct a portion of revenue until the fund is sufficient. On the federal level, the u.s. Treasury would fund an IRA for everyone as a supplement to social security. It could serve as collateral for a mortgage, or be withdrawn by those in need. Neither of these programs replace existing services of benefits. I don’t think the BIG needs to be very large to create permanent wealth and generate robust economic conditions. If there were state, national, and global trust funds I think each generation would take it as a challenge to double the fund principle. $5 a day lifts everyone around the globe out of poverty. The resistance will be from people who can only meet their wants with domination and exploitation. Keeping the BIG disappointingly modest is fine. When I hear people toss around numbers above a few thousand a year, it becomes less realistic. It is supposed to assist us do greater things, not be a lifetime free ride.
    On the private side, some tech giants can start giving out cryptocurrency any time they want.

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