by Ian Orton | Jun 9, 2011 | News
To support its campaign on the global extension of social security, in 2008 the International Labour Organisation (ILO) undertook a study of 126 research reports on tax-financed social transfer programmes (STs) operating worldwide. 62 programmes from 30 developing countries were analysed. These STs reach between 300 and 350 million beneficiaries – children, working adults, and elderly people – and represent a considerable proportion of the world’s poor. The results are available through the ILO’s online Matrix on the effects of social transfers (2009). 3 STs have emerged as a core component of poverty reduction strategies supported by international organisations such as the World Bank and a number of UN institutions. Thus their impact merits considerable interest.
This article outlines the current knowledge on the effects of STs in a way relevant to those interested in Citizen’s Income (CI). STs are not unlike CIs. They are non-contributory and tax-financed, and a considerable number of STs are unconditional and universal (across certain groups). The ILO study shows positive impacts of STs on a range of areas of human existence. The study therefore enables us to predict the kinds of effects that a CI could deliver in low and middle income countries.
The findings of the ILO matrix on social transfers
The ILO’s matrix was developed to support decision-making within ministries of planning and finance, mainly in developing countries. By ordering the unintended and intended effects of tax-financed STs in developing countries in relation to human development goals and the anti-poverty agenda, the matrix helps to inform national policy makers about the outcomes that could be realistically expected from STs and to guide investment in social security systems. Likewise, all those interested in CI might utilise the findings of the matrix to guide their arguments on the CI proposal.
Results
The table below gives an overview of the impacts of the STs. In the columns, the impact of STs in the specific sub-dimensions are documented. Programmes had a generally positive effect, 4 evidenced by the significantly higher scores in the ‘clear positive effect’ column for all but five of the sub-dimensions. Those sub-dimensions where the overall positive impact cannot be discerned are in grey text.
The conclusion of this article is that a majority of the social transfers studied clearly generate a range of positive effects in terms of enhancing human development, supporting the full utilisation of productive capacity, enhancing and stabilising consumption, and facilitating social cohesion and inclusion.
TABLE: Summary of the ILO matrix: Effect of social transfers
| Impact dimension and sub-dimensions |
Number of programmes |
Total |
| with a clear positive effect |
with a clear negative effect |
with no evidence of effect |
where effect is unclear |
| 1. Enhancing human development |
|
|
|
|
|
Adult preventative health
Child labour
Child preventative health
Drop out rates
Educational attainment
Maternal preventative health
Reduction in the worst forms of child labour
School attendance
School enrolment |
1
6
7
4
9
3
1
12
13 |
–
–
–
–
–
–
–
–
– |
–
2
–
–
–
–
–
–
– |
1
2
–
1
1
–
–
–
– |
2
10
7
5
10
3
1
12
13 |
| 2. Supporting the full utilisation of productive capacity |
|
|
|
|
|
Employability
Employment creation
Reduction of informality
Participation in the labour market
Productive activities |
1
4
–
5
15 |
–
–
1
2
– |
1
1
–
–
– |
2
2
–
2
– |
4
7
1
9
15 |
| 3. Enhancing and stabilising consumption |
|
|
|
|
|
Food expenditure
Income inequality
Income level and stimulation of consumption
Income stability and consumption smoothing
Long-term effects on income and consumption
Nutritional level
Satiation |
4
4
20
5
5
10
3 |
–
–
–
–
–
–
– |
–
2
1
–
1
2
– |
–
–
3
–
–
–
– |
4
6
24
5
6
12
3 |
| 4. Facilitating social cohesion and inclusion |
|
|
|
|
|
Empowerment
Intra-household relations
Social capital and solidarity |
14
4
4 |
–
–
3 |
1
–
– |
2
1
– |
17
5
7 |
This study shows that STs exhibit positive impacts on poverty, health and nutrition, the social status of recipients (notably women), economic activity and entrepreneurial small scale investments (notably in agriculture), and have avoided significant adverse effects on labour market participation of the poor populations which they serve. The studies also show that many families used part of the cash transfer to invest in small-scale agricultural activities, including the purchase of livestock. However, in the areas of adult preventative health, reduction in the worst forms of child labour, employability, reduction of labour market informality, and social capital and solidarity, the effect of STs is less obvious, either because there is no actual effect or because of limited research on the subject.
In light of these results, we can deduce that a CI could deliver similar effects in some instances. Consequently, the results can be used to support some aspects of the CI proposal. However, before the repercussions for a CI are discussed in detail, we need to explore a number of important caveats and knowledge gaps.
Methodological caveats and knowledge gaps
- The programme evaluations covered by this study do not represent an exhaustive list. Rather, the study covers those programmes that were easily accessible online and were Anglophone and to a lesser extent in Portuguese.
- There are problems in finding original sources online. In light of this, the study cannot be considered to be comprehensive, though the studies used are probably representative and give a good overview.
- The findings in the table are the result of a subjective chain of interpretation open to human error.
- The matrix suffers from knowledge gaps. For example, little is known about the effects of STs on non-beneficiaries, and little is known about the macroeconomic impact of STs on economic growth and about how this affects general redistributive mechanisms (formal and informal).
- The evaluations privilege quantitative measures over qualitative ones. This is a concern because the qualitative effects of STs (i.e. social bonds, capabilities, and human empowerment) may have a lot more to say about people’s well-being than quantitative measures.
The analysis presented here can therefore only be considered as indicative of the effects of STs.
To what extent does the ILO study support the Citizen’s Income proposal?
Thus far this article has cautiously suggested that the findings in the ILO matrix study augur well for CI, by indicating that it too can be expected to deliver a number of similarly positive effects. However, the message perhaps ought to be a little more mixed and nuanced, because the table better supports unconditional and universal transfers for children and the elderly (a CI for the young and the old) than for working age adults. A significant number of the STs that focus on active population groups are conditional and targeted (based on behaviour and income/wealth) and therefore one might suppose that their effects will be related to their conditional and targeted mechanisms.
Conclusion 1: Effects of social transfers for children and elderly support the case for a Citizen’s Income:
The findings on the effects of STs on children and pensions suggest that a CI could have similarly positive effects. It is possible to make this conclusion because a significant number of the STs for these two vulnerable groups were unconditional or universal across these groups and are therefore similar to a CI. The social pensions evaluated were not based on previous activity or earnings and are therefore essentially a Citizen’s Pension. Similarly, the South African Child Support Grant, which is unconditional, has encouraged human capital formation of the young and their future earnings (Agüero et al, 2007, p. 19). We could expect a CI to do the same for children. The results of social pensions and a number of other unconditional transfers support the expectation that a CI could generate similarly positive social and micro-economic effects.
Conclusion 2: Effects of social transfers for the active population deliver a mixed message for a Citizen’s Income
Apart from the pilot CI in Namibia, there are no studies on the impact of a CI on active population groups, simply because, with the exception of the Alaskan Permanent Fund, there is no fully-fledged CI that actually covers active population groups. 5 Secondly, the STs analysed in the ILO study differ from a CI because they are conditional. 6 It is therefore difficult to maintain with any certainty that the effect of a CI would be the same as for conditional and targeted STs.
Having said that, the findings of the Namibian pilot scheme do permit us an insight into how the active population group might react. For instance, according to the evaluation of this pilot, productive capacity of the active population group rose and economic activity rose, especially among women. In addition, own account work saw the largest increase, and particularly the tending of vegetable plots and the building of latrines, both of which increased the community’s health. The pilot scheme also seemed to stimulate more micro-economic activity, with new shops opening. These findings are important as they provide evidence that a CI does not act as a disincentive in the labour market (see Basic Income Grant Coalition, 2009; Torry, 2009). This is of great significance, as the argument that a CI would act as a disincentive to productive activity tends to be one of the biggest concerns of policy makers and governments with regard to STs for the active population. Having said this, one must also be cautious about using the Namibian pilot scheme as absolutely conclusive evidence on the potential effect of a CI on the active population because of obvious limitations in terms of replicating an actual fully-fledged society-wide CI.
The key impediment to using the table to support CI revolves around whether it is the conditional nature of many of the STs that is pivotal in producing the positive results they have delivered. Does conditionality make the difference? If conditionality is not the overriding factor, then perhaps we can conclude that the unconditional and universal nature of a CI could deliver results similar to those documented in the ILO matrix. There is not space here to discuss this debate in full, but suffice to say that the precise role played by conditionality in delivering positive outcomes is not clear. As the author of this article and the ILO have argued elsewhere, it is problematic to argue that conditionality is pivotal in producing the outcomes generated by STs (see ILO, 2010a).
A similarly ambivalent conclusion on the role of conditionality is made by Gabel and Kamerman, who state that researchers have not been able to attribute with absolute certainty the causality between effect and the conditional mechanism, because of the difficulty in disentangling the effects of the policy from other elements (e.g., the state of the labour market) (2008, p.18). One suspects that the motivation for conditionality is to satisfy the ‘paternalist twitch’ of governments and policy makers (Standing, 2002: 208) and public thirst for satisfying the social ethic of reciprocity. There is therefore plenty of scope for arguing that a CI could deliver similar outcomes in the absence of conditionalities.
Closing remarks
It is not clear that conditionality is crucial in achieving certain human development goals or for producing the positive effects that have been identified in the ILO matrix, so the study can be used to support a CI, provided caveats and limitations accompany any such argument.
What the findings of the matrix definitely support are those conditional programmes which many see as precursors to a society-wide CI. For example: in Brazil, Senator Eduardo Suplicy, a key proponent of CI, has argued that the Bolsa Familia ST is a first step towards a CI (2006). This is because the behavioural demands synonymous with the receipt of cash from conditional STs are easier to sell to the public and political class than is a CI. The greater political acceptability synonymous with conditional 7 STs could help to cultivate a political and public culture more receptive to STs and, therefore, to a CI at a later stage.
Just as significant as the results of the matrix study are those of the pilot CI in Namibia which has demonstrated positive results similar to those documented in the ILO matrix table across an entire community, including the active population. Particularly significant are the positive effects on labour market participation and productive capacity. The linking of the matrix and the findings of the Namibian case study can bridge the ‘unknown’ empirical dimension in the ILO study; given that hitherto no society-wide CI has really existed. Combining the results of the table and the Namibian case study justifies the expectation that a CI could produce similar effects to STs for the active population.
However, the current preference amongst governments and major international institutions (e.g. the World Bank) seems to be shifting toward conditionality, and this poses some concerns for those proposing universal and unconditional cash transfers. The political prospects of a CI would be better if the trend were against conditionality.
In conclusion: The ILO matrix confirms what many have suspected, that STs have a number of positive micro-economic and social effects. The matrix also offers proponents of CI reasons to feel optimistic that it too could produce similarly positive results.
Disclaimer: The author conducted the original research for this project as a consultant for the International Labour Organization. However, the responsibility for opinions expressed in this paper rests solely with the author and dissemination does not constitute an endorsement by the International Labour Organization of the opinions expressed in it.
Notes
1. This paper was originally submitted at the 13th International Congress of the Basic Income Earth Network in Sao Paulo, Brazil, June 2010. I would like to thank Armando Barrientos, Florence Bonnet, Philippe Marcadent, Nadine Ndeberi and Luis Soares for their assistance, and the ILO’s Social Security Department for financing the original research that features in this paper.
2. The author currently works as the Financial Crisis Monitor for the International Social Security Association.
3. The author of this paper was a member of a team that carried out the research that constituted the content of the ILO matrix. The ILO matrix project was supervised by Philippe Marcadent. The data contained in the matrix is discussed more analytically in the new ILO book: Extending social security for all: a guide through challenges and options (2010a) and in an ILO working paper entitled: Effects of non-contributory social transfers in developing countries: A compendium (2010b).
4. For a more detailed description of the methodology employed to calculate the scoring system that features in the table please see: Orton, I. 2010. Reason to be cheerful: How ILO analysis of social transfers worldwide augurs well for a basic income. www.bien2010brasil.com
5. And this differs from the standard proposed version of a CI in that it is an annual dividend, therefore one wonders how far it can replicate the income smoothing nature of those STs that are paid monthly.
6. A similar discussion for the way many STs are targeted could also be made, but there is not space here.
7. The reason for this acceptability is that conditionality conforms to the social norm of ‘reciprocity’ whereby in social contract type relationship the recipient adjusts his or her behaviour in a way acceptable to the rest of society.
Bibliography
Agüero, J.; Carter, M.; Woolard, I. 2007. The impact of unconditional cash transfers on nutrition: The South African Child Support Grant. International Poverty Centre, Working Paper No 39.
www.sarpn.org.za/documents/d0002780/Unconditional_CT_SA_IPC_39_Sept2007.pdf
Basic Income Grant Coalition. 2009. Basic income grant pilot project assessment report, April 2009. www.bignam.org/Publications/BIG_Assessment_report_08b.pdf
Gabel, S. & Kamerman, B. 2008. Do conditional cash transfers work? The experience of the U.S. and developing countries. Presented at RC19 Stockholm 2008, The Future of Social Citizenship: Politics, Institutions and Outcomes. www2.sofi.su.se/RC19/pdfpapers/Gatenio-Gabel_Kamerman_RC19_2008.pdf
ILO. 2009. Matrix on the effects of social transfers. www.socialsecurityextension.org/gimi/gess/ShowWiki.do?wid=59
ILO. 2010a. Extending social security to all: A guide through challenges and options. Geneva: ILO.
ILO. 2010b. Effects of non-contributory social transfers in developing countries: A compendium. Geneva: ILO.
Orton, I. 2010. Reasons to be cheerful: How ILO analysis of social transfers worldwide augurs well for a basic income. www.bien2010brasil.com
Standing, G. 2002. Beyond the new paternalism: Basic security as equality. London and New York, Verso.
Torry, M., 2009. ‘Can unconditional cash transfers work? They can’, Citizen’s Income Newsletter, 2009/1, pp.1-3
www.citizensincome.org/resources/newsletter%20issue%202%202009.shtml#Namibia
by Guest Contributor | Jun 6, 2011 | Opinion
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.
by Michael Howard | May 30, 2011 | Opinion
It might be an exaggeration to say that former Alaksa Governor Jay Hammond, the person responsible more than any other for the Permanent Fund Dividend, was a republican thinker in the tradition of Rousseau or Jefferson. I certainly don’t know enough about his history to make this claim. But his reflections on the Alaska Permanent Fund (APF) and the Permanent Fund Dividend (PFD) do echo some important themes from that nearly abandoned republican tradition, and may partly explain why Hammond was often at odds with others in the Republican Party over the dividend, taxes, and economic development. The success of the Fund and Dividend may suggest a model for leaders in any party who want to promote republican ideals of citizen participation, equality, personal independence, and government that serves the common good rather than special interests.
At a workshop in which I participated in Anchorage on the PFD in April 2011, the Alaskans who had for decades studied the Fund and Dividend, and participated in their creation, all agreed that distributive justice played no part in the debate, and thought that had the Dividend been framed as a way to reduce inequality or end poverty, it never would have passed. The primary case for the Dividend was that it would create popular support for the Fund, and thus prevent the legislature from wasting money. Nevertheless, it is clear that distributive justice informed Hammond’s thinking about the Dividend, and partly explains why he favored dividends over competing policy proposals.
This is most obvious in the proposal, which passed despite Hammond’s opposition, to abolish the income tax and fund Alaska’s government with oil revenue. Hammond would have preferred the continuation of income taxes while paying larger dividends from larger investments of oil revenue in the Fund. One reason is that by repealing the income tax, “you’ll cut the one string connecting the citizen’s pocketbook to the government purse, and see state spending soar….[By [e]liminating the income tax…[n]ot only will we reduce our means, we’ll cut the one prime restraint on government spending” (265). Paying taxes makes us vigilant about what is being done with our tax dollars. It helps to keep us engaged as citizens. If we stop paying attention, we also get robbed.
This is clear in the second reason Hammond gave for continuing income taxes, that has to do with distributive justice: Eliminating, capping, or reducing the possible dividends paid out to citizens, in order to abolish income taxes, has a regressive effect on income distribution. “The most regrettable aspect of income tax repeal is that it exerts pressure to invade the Permanent Fund to replace the money lost by income tax repeal [pressure that will grow as oil revenue declines—MH]. This, of course, will shift the burden for state spending entirely from those who can best afford to pay taxes—including the non-residents who make up about a quarter of our workforce—to the shoulders of each and every Alaskan, regardless of income. None would feel the burden more than the low and middle income groups” (266). In contrast, funding government from income taxes and permitting a higher dividend would give a bigger proportionate boost to the incomes of low and middle income groups.
Hammond points out that the abolition of income taxes in effect created hidden taxes. Proposals to cap dividends in order to allow more APF money to be used for government spending “equates with imposing a head tax on every Alaskan and only Alaskans—regardless of income…. it never makes more sense to cap dividends than to simply ratchet up taxes to raise the same amount. In effect, capping dividends taxes only—and all—Alaskans. Increasing most taxes spreads the burden to those best able to pay—and also includes transient workers who currently remove so much wealth from our state ” (320–22).
The dividend, according to Hammond’s estimate, “is but one half of the earnings derived from investments of roughly only one-tenth of their oil wealth.” If all the wealth were distributed in dividends, each Alaskan would receive an additional $6,000 per person per year (in 1993). By funding government with this oil revenue instead of from taxes, Alaskans are in effect paying a regressive head tax, falling heaviest on those who can least afford to relinquish this wealth. But because it is not taken out of their paychecks, the tax remains hidden. A large dividend would contribute to personal independence. Hammond speculates that “were every Alaskan annually granted his full per capita share of the wealth we could eliminate or vastly curtail all welfare programs, unemployment insurance and subsidies” (319).
The supporters of income tax abolition, he notes, are first of all the wealthy who stand to benefit from lower taxes more than they would gain from larger equal per capita dividends. Secondly, a legislature flush with money that no one is watching becomes a tool of special interests. Hammond says to proponents of income tax repeal,” “though you seem perfectly willing to cut down on the little guy’s ‘living’ by slicing social programs like welfare, you seem unconcerned about boosting ‘living’ for select interests through subsidies such as lower than market rate loans and other ‘hidden dividends’ not based on need. Some might call that ‘corporate welfare’” (265).
Thus we find another classic republican theme, promotion of the general good over particular interests, alongside Hammond’s concerns for personal independence, progressive taxation, and more engaged citizens. All of these ends are well served by a large dividend and funding of government through income taxes.
There are some blind spots in his thinking. While he recognizes the legitimacy of government spending on the basis of need or “constitutional obligation”, he seems not very sensitive to the case to be made for government spending for public goods. There are some goods we all benefit from that the market will not deliver efficiently, no matter how much income we have. And his outlook is narrowly nationalistic, aiming for what is good for all Alaskans (not even all Americans), as is evident in the above quotations referring to non-Alaskans. (In his original dividend proposal, found unconstitutional by the Supreme Court, Hammond wanted those who had lived in Alaska longer to receive larger dividends.) Why, one might ask, should Alaskans enjoy a large dividend because of Alaska’s oil, while Vermonters, say, with fewer resources, could only give themselves a much smaller dividend? Shouldn’t the unearned natural wealth of the United States be shared equally by all Americans? Or, to go a step further, shouldn’t the natural resources of the earth be shared equally by all of its inhabitants, not just those fortunate to be born on top of rich deposits of oil or other wealth? This of course is not a blind spot peculiar to Hammond or political thinkers in the republican tradition, and getting beyond it in practical politics will require the strengthening of institutions and an ethos of solidarity at the federal and global levels. As these emerge, the global community may have something to learn from the example of the Permanent Fund Dividend, including the thinking of its strongest advocate.
All references are to Jay Hammond, Tales of a Bush Rat Governor (Fairbanks/Seattle: Epicenter Press, 1994).
