OPINION: FEDERAL INCOME SUPPLEMENT: FINANCIAL INDEPENDENCE FOR ALL

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.

Pro-BI book becomes best-seller in Germany

1000 Euro for everyone. Freedom. Equality. Basic Income is the title of a new book (€1.000 für Jeden: Freiheit. Gleichheit. Grundeinkommen in the original) by Götz W. Werner and Adrienne Goehler, published in August 2010. According to the Amazon.de website it is currently in place No. 1,563 of all books being sold, but in the category ‘Social Justice’ it is No. 1. It is clearly of considerable significance to find so much interest in a Citizen’s Income in a European country.

An interesting review of this book appears in the January Review of Books in Sp!ked. The first half of the review is factual and informative and is reproduced below (with permission from Sp!ked. You can read the original dated Friday 28 January 2011 at www.spiked-online.com/index.php/site/reviewofbooks_article/10136/ )

The idea that the state should give everyone a basic income has seized the imagination of Germany’s middle class and politicians.

by Johannes Richardt (head of PR and communications at Novo Argumente publishing house)

At the moment, more than €1 trillion flows into the more or less state-controlled German welfare complex every year. Representing one third of German GDP, this vast amount of money covers every social benefit, from child allowance to health insurance. If the economic stats were not striking enough, of the 80 million people living in Germany only 40 per cent earn a wage. So a large proportion of the population is dependent either partially or wholly upon the state.

But the German welfare state does not just provide a financial safety net. It also seeks to regulate the behaviour of benefits claimants through various forms of lifestyle intervention, such as dictating how much claimants should be allowed to spend on cigarettes. In this regard, the so-called Hartz IV legislation, passed in 2005 by the then ruling Green-Social Democrat coalition, is important. Named after its originator, Peter Hartz – then a social democratic trade unionist and manager of part state-owned Volkswagen before being imprisoned for embezzlement in 2007 – Hartz IV effectively revised the status of the unemployed. They were no longer citizens in need of assistance while out of work: they were deemed welfare dependent. They were no longer people fallen on hard times, but fully capable of getting back into work: they were psychologically dependent upon welfare and incapable of getting back into work.

Hartz IV not only produced a new form of state dependency; it also sought to prepare these damaged citizens for work. To this end, a new sector of senseless and unproductive labour for about 1.5 million of the unemployed benefits claimants was created (thus removing them from unemployment statistics). Under the pretext of empowering the unemployed by psychologically preparing them for the labour market, these benefits claimants are forced into absurd and degrading activities run by highly subsidised companies with Orwellian-sounding names like Neue Arbeit [New Work]. One example of this absurd work-for-work’s-sake philosophy is the Toys Company. In more than 60 factories around Germany, the formerly unemployed people work for an extra €1 per hour on top of their out-of-work benefits, recycling second-hand toys for poor children. One task is to check the completeness of second-hand puzzles. ‘The record for completing the 5000-piece puzzle is just 10 days’, explained Toys Company’s manager, ‘although unfortunately we found out that three pieces were missing’. Götz Werner and Adrienne Goehler refer to this example in their new book 1000 € für Jeden. Freiheit. Gleichheit. Grundeinkommen. (€1000 Each. Liberty. Equality. Basic Income.) They argue for a new model of state welfare distribution which would replace the bureaucratic, behaviour-management regime of Hartz IV with one based on a simple premise: the state would pay everyone a basic income.

At first sight their central idea of a basic income for everybody seems quite charming: Every citizen gets €1,000 from the state every month from cradle to grave. As Werner, the billionaire founder of a drugstore chain, and Goehler, president of the Hamburg Art Academy, note, €1000 represents more than just a living wage. They argue that it also enables people to participate in the cultural life of society.

Because this would be an amount that every person would be legally entitled to, there would be no more degrading means tests and interventions in the lives of benefits claimants. The welfare bureaucracy as Germans know it would be redundant: the unemployed would be freed from doing compulsory labour promoted by the state, and the rest of society would be freed from the imperative of wage labour provided by the market. Income would be separated from work. As one would not need to sell one’s labour in order to guarantee an income, the authors argue, people could choose their line of work, for whom they want to work and for how long. This would lead to a new society in which self-realisation, creativity and compassion replace the existential fears created by the current rat race.

The German political class is partially sympathetic to the idea of a basic income. Hence, with the exception of the Social Democratic Party (plus trade unions), all parties represented in parliament have been discussing various models of basic income at some point in the past few years. For instance, in its party programme, the liberal Free Democratic Party calls for a Bürgergeld (Citizen’s Income), an amount paid out whenever necessary but low enough to maintain the incentive to work. Elsewhere, the Greens call for a Bedarfsorientiere Grundsicherung (needs-based basic provision), and even within the conservative Christian Democrat Party there is support for a Solidiarisches Bürgergeld (solidarity citizen’s income).

… Support for the idea [also] comes from the German middle class. Campaign groups with names like ‘Freedom Instead of Full Employment’ and ‘Federal Agency of Income’ have emerged, advertising their ideas on various websites, in films and at events and demonstrations. It is important to note that support for a basic income does not come from unemployed and poorly educated low-wage employees. It comes from privileged and educated young professionals with middle-class backgrounds who, working in poorly-paid, insecure positions in the media and cultural sector, hope for an unconditional basic income to make their lives that little bit more secure. This is no struggle for abundance for all. For these metropolitan types, a basic income promises security, opportunities for self-realisation and psychological well-being.

It is to the fears and prejudices of this post-material milieu that the book €1000 Each speaks. In this way, the book exemplifies the rampant social pessimism so prominent in contemporary Western societies. The authors describe the insecure working conditions of the ‘creative class’, surviving on short-term contracts and project work, as the future for a society that has given up on the goal of well-paid and meaningful work for everyone. According to the authors, only a minority of people will earn their money in secure, long-term work. The rest of us will be left to the fate currently endured by the creative class, the ‘vanguard of precarious conditions’.

Referring to American sociologist Jeremy Rifkin’s 1995 book The End of Work, Werner and Goehler argue that the advance of globalisation, automation and rationalisation has led to a post-industrial society in which production can no longer serve as the basis of societal wealth. Economic growth, they assert, ‘is a dead duck’. Instead, Werner and Goehler urge us to focus on creativity as ‘the only remaining, sustainably exploitable resource of the twenty-first century’. This is why they argue for a basic income. Because to tap into this resource of creativity, while avoiding the social unrest that will come with the shortage of constant, paid work, requires everyone to be accorded a level of material security.

This is where the first half of the review ends. The second half of the review is highly critical of the whole idea of a Citizen’s Income: ‘Basic income, low aspiration: The idea that the state should give everyone a basic income has seized the imagination of Germany’s middle class and politicians. Their enthusiasm is testament only to the poverty of their ambition’ is the full title of the review. In the next issue of the Citizen’s Income Newsletter these anti-CI views will be reproduced and critically examined.

GERMANY: Basic Income Movement Gains Strength

The basic income movement has gained strength in Germany recently. It is even gaining popularity among members of the right-of-center Christian Democrat Party. According to City Journal, Dieter Althaus, the former premier of the German state of Thuringia, leads a growing block of Christian Democrats who believe that basic income is the only way that Germany can meet its constitutional duty to provide material dignity for all cities without distorting the labor market. They also argue that basic income would save the state money and simplify its bureaucracy.

See: “German free marketeers turn to an innovative idea” by Cameron Abadi, City Journal, Spring 2010, vol. 20, no. 2: https://www.city-journal.org/2010/20_2_snd-basic-income.html