(A real UBI system that works!)
A continuation from my prior article.
Where does this all go wrong?
The UBI starts with a faulty premise contained within it’s own name. Focusing on “income” is a problem. People don’t need income, they need WEALTH. With that wealth, they have the means to provide for their own income. Implementing a UBI is attacking the problem backwards. You take people that are treading water and throwing popcorn at them. It keeps them fed, but it doesn’t put their feet on solid ground.
Up front, I want to note here there there are some UBI proposals that are similar to my idea here. They aren’t exactly the same but they tend to run in the same general realm. I haven’t seen any that link these ideas directly to individuals as I do and most would start paying out to all immediately (which I see as a mistake). But I haven’t seen any of them lay out the exact process for implementing a UBI.
So how do we provide people (everyone!) with wealth? The short answer is we don’t. Not immediately anyway. But we could work towards that with a Reverse Social Security system.
What would a Reverse Social Security system look like and how would it work?
Well, to begin with, if you are alive right now, you probably won’t get any immediate benefit from it — but you would start paying for it. You would get some benefit from it and that should increase over time. (I’ve added another chapter on how you might end up in this even if you are currently alive.)
Under our current systems, you’re born, eventually you reach working age, find a job and start paying taxes — unemployment taxes, income taxes, social security taxes, Medicare taxes, etc… If you become unemployed at some point you may be eligible to collect unemployment payments. If you live long enough to retire you become eligible to collect some level of social security retirement and at age 65, you can enroll in Medicare. So you pay, pay, pay and hope you hang around long enough to collect.
What if we did that backwards?
There are 94,086,000 children in the US right now. For our purposes, let’s just assume they are all citizens and that this number fluctuates but not by huge amounts from year to year. That’s roughly 5.2 million children born every year. (NOTE: The 5.2 million/year number is high. The Federal government estimates that 3.94 million new US citizens are born each year. That’s Ok, I’ll adjust numbers at some point in the future. In the mean time, that just means that my cost estimates are higher then than would actually be needed if implemented.)
What if our government setup an actual unique account in each child’s name and deposited $5,800/year into that account until the child’s 18th birthday. The government fund manager(s) could invest that money in the capital markets* much as State pension plans do with their pension funds. If they could earn a 4% return, my plan should work. (and I checked the MA State Retirement Fund. They averaged a 5.6% return between 2007–2016 and that even includes the losses suffered during the 2008/2009 recession. So 4% should be do-able. For those that think 4% is pie-in-sky, I’ll also mention that for the years 1996 to 2006, that same pension fund returned a 10-year average of 10.24%. NY State has a 5.69% 10-year rate of return and CA manages to get a 7.1% 20-year rate of return.)
These sorts of funds aren’t unique to my proposal. Other people discussing the UBI refer them as “social welfare funds”. The idea is the same but most of the others don’t assign the fund to individuals. They lump it all as one large account and pay individuals from it. This is really a minor distinction based on semantics but I tend to think people feel a sense of “ownership” if they can log in and see an account statement in their name with a balance assigned to it.
*Ideally, those capital markets would be the very same markets that are creating AI, building robots, renewable energy systems, etc… This should be the Marxist’s wet dream. Instead of simply taxing the means of production, the proletariat would OWN the means of production!
If that were done, every single child would have a bank account worth at least $148,743 on their 18th birthday.
BUT… the account owner wouldn’t be able to touch it. Not the principle anyway. That principle would be locked after the last deposit is made on their 18th birthday. They would be prevented from ever withdrawing below that level. Any future principle deposits made by the account holder themselves would also be locked. Locking the base deposits prevents people from doing something foolish (like emptying that account on their 19th birthday) and undermining the entire intent of a UBI.
They could however, withdraw any interest earned on that account after that 18th birthday. If they continue to earn at 4% that would give them a base income of $5,950/year. If they don’t touch it that would just accumulate and their future annual earnings would increase. This is below the often used $12,000/year but we’ll get to that.
If it were up to me I’d also allow adults in this system to place future income into this account instead of using the current 401k or IRA systems. This would allow people to increase their base wealth and draw larger amounts of income from it down the road.
Unlike our existing Social Security system, these accounts would also be inheritable. If someone dies, their account balance transfers to their eligible heirs. If a spouse dies, it transfers to the other spouse. If the person has no spouse but has children, it goes into their child’s account(s).
Initially, I’d set a “deposit cap” for the base account value at $300,000*. Once you reach that amount you wouldn’t be able to deposit into that account any longer. The deposit cap would only apply to the original government “base deposits” of $5,800/year and any funds that are inherited. Interest accrued on the account would not apply to the deposit cap. The $300,000 would be set to some Federal inflation level so it would increase (or decrease) each year with inflation. If there was a period of deflation and the account exceeded the allowable amount it would just sit. There wouldn’t be any penalty for that.
(*Why a $300,000 cap? Because if you earn 4%/year interest on a $300,000 account you get $12,000 in interest income and that seems to be the magic number everyone is currently using as a target.)
So let’s run through a scenario here: (Yes, this will be somewhat idealized!)
John Doe is born in 2020. He starts collecting $5,800/year at that point.
Jane Smith is also born in 2020. She also starts collecting $5,800/year.
John and Jane both reach age 18 in 2038. They both have a minimum of $148,743 I their accounts. Of that amount, $104,400 is applied to their deposit cap. The rest is from interest.
John gets a job paying $30,000/year and contributes 5% of that ($1,500) to his account each year. He makes no withdrawls.
Jane attends college and withdraws $5,950/year for four years to help pay her tuition. Upon graduation she takes a job paying $60,000 and ceases withdrawing funds from her account but makes no additional contributions towards it either.
In 2045 John (age 25) and Jane (age 25) meet and get married. At this point John’s account balance is $207,583. Jane’s account balance is $167,316.
Life continues on and in 2047 Jane gives birth to Bill. Bill’s account is opened and he starts collecting $5,800/year. Jane then gives birth to Mary in 2049, Mary’s account is opened and the $5,800 contributions begin.
In 2053 John dies in a terrible rototiller accident while preparing his spring garden beds for planting turnips.
On the date of John’s death the account balances are:
John (aged 53): $297,913 ($104,400 in base deposits + $22,500 in annual deposits + $171,013 in interest)
Jane (age 53): $228,983 ($104,400 in base deposits + $124,583 in interest)
Bill (age 6) : $38,471 (All from base deposits)
Mary: (age 4): $24,629 (All from base deposits)
I would include inheritances as applying toward the deposit cap so upon his death, John’s account rolls over into Jane’s account up to the point where her account deposit balance max’s out at $300,000. So $193,513 rolls over to Jane. The remaining $104,400 is split between Bill and Mary’s accounts ($52,220 each).
The day after John’s death the remaining account balances are now:
Jane: $104,400 in base deposits + $193,513 inheritance + $124,583 interest = $424,583 total
Bill: $34,800 in base deposits + $52,220 inheritance + $3,651 in interest = $90,671 total
Mary: $23,200 in base deposits + $52,220 inheritance + $3,429 in interest = $78,849 total
If someone dies with no eligible heirs (i.e. a single person with no children), their account forfeits to the government central account and is paid out divided up among all other account holders. This should increase that 4% annual return slightly.
Jane would be prohibited from inheriting contributions to her account at this point but it will continue to accumulate interest on it’s balance.
When Bill turned 18 in 2065 his account balance was $232,317 ($156,620 deposits + $75,697 interest) which could provide him with $9,292/year in income to use for college, to live off of or to continue to build on.
Mary would turn 18 in 2067 and her account balance would be $242,634 ($156,620 deposits + $86,014 interest) providing her with $9,705/year.
Fast forward to 2083 (30 years later). Jane (who never re-married or had any more children) is aged 63 and decides to retire. Her account balance is now $1,377,091 (thank you compounding interest!). If she withdraws the 4% interest earned on that account each year as retirement income she has $53,483/year in income in retirement.
For purposes here, let’s say that Jane dies at age 80 in the year 2105. If she had been withdrawing her full $53,483 in interest every year since she retired, her balance would still be $1,377,091.
Even if Bill and Mary had chosen to never work and taken the maximum interest out of their accounts every year since turning 18, their respective account balances in 2105 would still be $232,317 and $242,634. Each would inherit from their mother to bring them both up to the $300,000 deposit cap. The remaining $902,140 from Jane’s account would default back to the government central fund to pay for the overall program.
(This could also be modified to expand “eligible heirs” to include grandchildren at some point so that the grandparent’s balance could be applied to their accounts after the childrens accounts reach the deposit cap.)
You’ll note that everyone in this scenario now has some level of income — income that is generated from their wealth.
