Income Guarantee and Tax Incentives

Despite being an anarchist I follow politics relatively closely and I often think about what I would do if I were dictator of the country. One of the things I would put forth is replacing our current welfare system with a Basic Income Guarantee (BIG). The BIG is essentially a check that every adult in the country receives regardless of income. It is a social safety net that helps ensure everyone has food, shelter, etc. Basically, it takes care of the lowest rung of Maslow’s Hierarchy of Needs. This would also provide stability for new families raising children, people going back to school to get new skills if their industry collapses (expect to see a lot of this in the near future), women with children could escape abusive relationships, and families would have the ability to move to a place where there is a work instead of being trapped in small towns with no opportunities. Money is a better way to provide support than food stamps.

Now, I realize something like this isn’t a current reality in the US because of politics and social views, but I think it would be a great substitution to our current system. It would eliminate the bureaucratic bloat that comes from needing a massive group of people to determine who gets welfare and in what form because it could be a simple computer program that sends checks or direct deposits money into every bank account.  It would eliminate some of the perverse incentives that keep people on welfare because getting a job would not result in losing benefits.

One of the main complaints about a BIG is that it would cost a lot of money and you would be giving money to people who really don’t need it (the wealthy). I think there is a way around this problem by using some tax incentives. After all, incentives rule the world. Here is a rough way that I think it could work. A quick note, the numbers I’m using are rough and rounded to make the math easy. This is just to make a point, not to present a specific policy prescription… I’ll leave that to the professional economists, I’m just a weird guy in the woods with just enough economics training to be dangerous.

So, some quick numbers…

  • Number of Americans over age 18 or over: $235,000,000 (rounded up from the 2010 Census)
  • Proposed BIG*: $1,000 per month
  • Total Money needed from the program monthly (without tax incentive): $235,000,000,000
  • Total Money needed annually: $2.82 trillion

Where are we going to get that money?

  • First, cutting Medicare and Medicad will save about $750,000,000
  • Social security could take some transitioning out, I wouldn’t want people’s benefits to decrease but the BIG is a much better deal in the long run for everyone. First, it is guaranteed throughout your life so it is a form of social security, second it is funds that you can invest throughout your life to provide an additional retirement account. Anyway, for simplicity sake I say leave social security alone for now.
  • Okay, so that really doesn’t take a big bite out of what we need. We are down to about $2.1 Trillion. So, the tax incentives…

I think what we need is a way to encourage people to not accept the money after a certain income level. Tax incentives seem to be a good way to do that. Every month individuals can decide whether they want to accept the whole BIG, part of the BIG, or no BIG at all (the default position is to accept the whole thing). If they choose not to accept the BIG they receive a 125% tax credit on their tax obligation that year. So, if I am having a productive month and I decide not to accept my $1,000 I will get a tax credit of $1,250 for that year.

How would this look in real life? To take a simple example of a single person household. This is clearly a super simple example and doesn’t take into account the crazy fucked up system we have, but I think it makes the point. As a single person I made $45,000 this year, that means my tax bracket is 25%. So, I owe $11,250. Knowing that my salary each month was going to be about the same I decided to only accept $250 per month of my BIG. The $750 per month that I returned ($9,000) for the year becomes a $11,250 tax credit. It turns out that making over $60,000 per year makes it worth it to just return the money. Also, I think the tax credit should be applicable to any taxes, not just income tax, this will incentivize the wealthy who don’t have a traditional “income” to return the money.

Clearly, the federal government will see some tax income loss by incentivizing this way. But I think that loss will be less than the money saved by eliminating bureaucracy on the federal level, and by eliminating the problems that come from poverty on the local level. This will also incentivize people to work more and train to get skills for higher paying jobs. There are certainly a lot of kinks to work out but I think tax incentive issue could solve some of the problems.




* I recognize that $1,000 isn’t enough to cover some medical conditions or to raise a family alone, but the question is whether this is going to be more of a help than the status quo. Also, because the BIG comes in the form of cash it will be easy for family and friends to provide support for those in need. If I don’t need my BIG (or part of it), I simply give it to my sister who is raising two kids and needs the assistance. Again, these numbers are for making the argument and could be shifted if necessary.

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