(How are you going to pay for that?)
A continuation from my prior article
Several other people have pegged their concept’s cost in the multi-trillon dollars per year (forever!) category. That’s insane. What if we could do all of this for $42 billion/year for 18 years? That’s $756 billion spread over 18 years.
That’s it. It can be done for $42 billion/year because my proposal, unlike most others, doesn’t start paying out funds immediately and payments would be lower when they do start. That was the thinking behind our current Social Security system. Some people paid, some people collected. As long as there were a lot more people paying than you had collecting everything was good. But you can’t pay out to everyone and pay them more than they are paying in at the same time. And you can’t generate that sort of revenue on some imaginary taxes that you can’t get public support for.
Make no mistake, that’s still a sizable amount of money but $42 billion is about $135/year for every man, woman and child in the US paid for 18 years. That $3.5 trillion is over $10,900/year per person forever.
That’s still a lot of money!
Yes, it is.
If we actually allocated $42 billion/year out of our federal budget my proposal would be paid for in 18 years. At that point every child turning age 18 would be able to start withdrawing money if they chose to. The fund would also be generating enough revenue on it’s own so we could also up the number of people enrolled each your. We would have enough funds to not only enroll 5.2 million new children every year, but at year 18 we could enroll 5.2 million of the poorest people in the country for a total of 10.4 million people/year. And if we did that for 10 more years, we’d be able to up that number to 15.7 million people/year for the following 5 years. And then we bump up to enrolling 20.9 million people/year.
All in all, if this program ran for 32 years, every single US citizen would be enrolled and that assumes that our population would increase to 402 million people (which is ~75 million more people than we have now!).
So for a total investment of $756 billion spread out over the course of 18 years, EVERY U.S. citizen would have some level of Reverse Social Security. In doing this, there would be ZERO cuts to the existing welfare assistance programs. If someone is disabled, they could collect their RSS and SSDI at the same time. If they become unemployed, they’d have RSS plus unemployment. There is no need for any massive changes in how we tax people or what we apply taxes to. In essence, things would operate pretty much exactly as they do right now. All of the ideas about forced social conformance and other coercive “incentives” aren’t necessary.
How would we pay for it? Well, this one we just have to suck up for the sake of our future. We could implement any of other other tax proposals that UBI advocates have mentioned. We could implement a .5% flat tax on all incomes. We could do any of a number of things. *I* prefer a singular tax that is very clear. I think it provides an easy to understand system as well as transparency.
I’ve seen other suggestions of 14 or 15 very small taxes coming from different things. That seems to obfuscate how we’re paying for this and also means that all of those have to be watched to make sure some minor change in some other law doesn’t create a negative impact on the funding stream. I prefer a simple, progressive “minimum RSS tax” (in Bold below) where people under a certain level would pay nothing and your rate would increase as we went up the income scale. Everyone is familiar with income tax rates and it’s all kept in one place.
For 2016, there Federal Income Tax brackets were set at 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.
I’d adjust them with a “+RSS tax” to look like:
10% +0%, 15%+1%, 25%+2%, 28%+3%, 33%+4%, 35%+7%, 39.6%+9%
That would pay for the RSS. This tax would have to be in place for 18 years and then it would go away. And these added percentages are probably a bit high. (I need to do more math on that yet.)
(*** Doing to research and some math, I think there is a better solution than raising marginal tax rates on earned income. So let’s start with the fact that for 2019, the median US household income was $68,703. That means exactly half of households earned more than that and exactly half earned less. That makes it an easy break point between the “haves” and “have nots”.
After running the numbers, we could raise more than enough in tax revenue to cover the cost of my idea by simply raising the long term capital gains rates (both individual and corporate) to by 3 percentage points (from 15% to 18%) on long term capital gain income in excess of $68,703. Most households would feel no impact from that. By setting it at the median you automatically take the bottom 50% of households out of the picture. In most years you’d need a minimum of just under $1 million in investments just to earn that much in return. And you’d only pay the increased tax if you actually cash out the gains on your investments. Your earned income (salary, wages, tips, etc..) wouldn’t be included in any calculations. So even if you have a job where you earn $100,000K AND have a pension that pays you $45K AND you have $68K in investment income, you still wouldn’t pay any increased taxes. The 3% increase in long term capital gains rates for those with more than $68K in investment income should generate between $50 and $55 billion/year. The 18% rate would still be significantly lower than the short term capital gain tax rate.***)
Drawbacks: The first drawback to this proposal is that there would be no immediate visible returns. The first “benefits” wouldn’t be paid out until 18 years after implementation. Some people (Po’ folk!) in that first phase also wouldn’t be able to add to their account during their lifetime so we would maintain some of our current welfare systems. Those other welfare systems would cost less and less each year as the system continues — perhaps by offsetting them with the amounts available to be drawn from the RSS system.
Advantages: Unlike most UBI proposals, this system would become self-sustaining at exactly 18 years post-implementation. Once the 2nd and 3rd generations under this system start inheriting accounts from their parents they would be able to max their accounts out and almost everyone would start adulthood with minimum net worth of $300,000 (which would generate $12,000/year from interest at a 4% rate.) Some will be able to begin this sooner than that depending upon how much their parents are able to contribute to their accounts during their adult lives. Along the way, funding for all other welfare systems could be reduced and it could possibly allow for reductions in the general tax rates. The $300,000 cap (as adjusted for inflation) could also be raised to allow for greater annual interest returns if desired — possibly enough to even replace our existing Social Security system (Although I personally wouldn’t advocate that at this point in time.) and Federal, State, municipal as well as private pension programs. It may also be possible to allow someone born prior to the start date of this sort of system to “buy-in” to it. For example, if you have $300,000 in your IRAs/401k, you could transfer it to this system and start drawing off $12,000/year for the rest of your life. People could also deposit smaller amounts which would then be added to when their enrollment date came up.
The phasing in and initial delay would also allow the system to get up and running without flooding the economy with mass of cash. If everyone were handed $12,000 tomorrow, they’d start spending it and inflation would follow in short order. My proposal may lead to some level of inflation but the cash wouldn’t start hitting the economy for 18 years so we’d have time to plan for it and the amounts of cash available for individuals and the number of people it would be available to would be lower than other plans would provide.
But here is where the the difference between a UBI and an RSS plays out. That $42 billion/year we’d all be paying in additional taxes would get deposited into these government controlled accounts in each of our children’s (or grandchildren’s) names. Those accounts, just like the current State retirement funds, would become HUGE investment accounts and isolated from the paws of our fiends (I mean friends!) in Congress. They wouldn’t be able to borrow from it like they’ve done with our current Social Security system. These would be investments that WE collectively control. Your children would be shareholders in this investment fund. They would have a direct say in how it’s funds were invested and who the fund managers are. To put this in perspective, the largest privately run equity firm in the world in 2016 was the Blackstone Group. They manage just over $60 billion in private equity. My proposal would create a new fund that would be almost double that size within 3 years. From there on out it would leave every private equity firm in the dust. By year 10 or 11 it would exceed the total value of ALL private equity firms combined. At the 32-year point, my plan’s RSS Fund would have assets in excess of $2.33 trillion. This may actually create some problems just due to shear size but that could be handled in a number of ways that wouldn’t impact the overall strategy.
Imagine a multi-billion investment in solar power technology followed by a multi-billion investment in wind energy the following year. We could afford to HIRE people (and/or robots) to install solar and wind systems all over the country and eliminate the need for fossil fuels. (And the cost of those fuels would drop as we slowed our use of them so things like gasoline and home heating oil would go down during that process.) This could be used to create the “Guaranteed Job” that other advocates also want to see. We’d all be paying higher taxes for 18 years but that could be offset somewhat by eliminating our electric/gas/heating oil bills and the reduced price of gasoline for our cars, the reduced cost of shipping things by truck, etc…
The fund would have enough assets to make a one-time purchase of 118 million Farmbots that would enable 118 million households to grow some of their own food. That’s not to bad considering the Census Bureau says that are only 117 million households in the U.S.. There are a lot of positive things that WE could direct the fund to invest in.
“We the people” could own the companies that build all of these things. (Either outright or as majority investors.). Profits earned by these companies would pay right back into our own Reverse Social Security system increasing that fund’s total value instead of into the bank accounts of that evil .1%. The proletariat would own the means of production! But not by seizing it from the evil “rich” people in some dystopian revolution. We’d simply buy it right out from underneath them. And all of this could be done with no need for hundreds of thousands of new rules regulating our behaviors. The massive scale of this fund could also have a significant stabilizing effect on the economy by both tempering bubbles and easing recessions. It would be a known, steady stream of investment funds feeding the economy as well as a guaranteed income stream that individuals would be spending on goods and services. It is both trickle-down and bottom-up economics in one.
So even though many of us that are currently alive wouldn’t collect this RSS if implemented as I’ve outlined (sorry, but it would take 32 years to fully implement. People are going to continue dying at the same rates they have been. Some of us (like me!) aren’t going to make it that long.) we would benefit from it because, if we invest those funds wisely, we should be able to cut our own cost of living while growing wealth for our descendants. If we’re lucky, maybe our kids will throw us a few bucks.
Footnote: As originally stated, I’m not an economist. I assume there would be inflation of some sort each year in the future. I have no way of predicting how much that inflation rate would be. The dollar numbers I used are all based on 2017 dollars. Because I presume there would be inflation, I purposely stayed with a 4% return rate on the investment fund even though every year for the last 20 years shows returns well above 4%. Hopefully the higher rate of return would compensate for inflation. If someone has the ability to make those sorts of projections I’d be interested in hearing what you come up with!
