How Universal Social Security Would Pay For Itself And Fix Basically Everything

(The author is the founder of Hexproof, twitter dm @WeAreHexproof)

Where do we go from here, community or chaos? Do we share the unbelievable fruits of our collective technological progress with every human being, in a way that guarantees a basic level of human decency and comfort, trusting that each life has the potential to change the world for the better and touch a single hand in a way that lifts us all? Or, do we succumb to the ageless deceit that life is a perpetual struggle for scarce resources, constantly under threat from outsiders who would steal everything for themselves if they could, leaving only the strong and the smart to survive, and justifying whatever means necessary to protect existing wealth and power?

A universal basic income, unconditional basic income, social security payment, citizen’s dividend, land trust distribution, whatever you want to call it, is an idea that has been around for multiple generations now, under serious intellectual consideration by those at the highest level of intersection between public economic policy and social justice. The need for what I refer to here as Universal Social Security has never been more pressing in our nation’s (and truly, our world’s) timeline of history.

The good news is that Universal Social Security is such a fundamental solution to the structural problems with the United States’ brand of capitalism, which has incidentally been exported to the rest of the world as the dominant economic framework for international trade and collaboration.

Understanding the United States’ Current Brand of Capitalism

The primary reason that the US brand of capitalism has dominated the globe for the last 75 years is because it is very good at amassing power and wealth and concentrating it in the hands of individual people, thereby allowing the most capable people in the world to amass truly unimaginable amounts of power and wealth, trusting that along the way they would be using their power and wealth in a way that would benefit everyone else at least sufficiently enough that they agree to abide by the system peacefully, most of the time.

And, the rules of the game are basically set up in a way that existing power and money is self-reinforcing (what a surprise, given that the rules were and are written by people who already have a lot of power and money), so the US brand of capitalism allows individual people to compete as hard as they can to try to amass incredible individual power and wealth, which attracts a certain type of person to the game, and historically has been the ONLY game in town for someone like Jeff Bezos, who seeks to compete (and who wins…) at the highest level.

Also, the system is really easy for people to understand. Everyone can make contracts with each other and get money if they provide goods and services to other people. If you do that, and get money, then you and you alone get to decide what happens next with that money. Or so the story goes…

And, most of our laws, rules, and regulations in the United States that relate to any type of commerce or money reinforce individual autonomy and control with respect to the allocation of your own dollars. Strong individual private property rights are the backbone of our entire society, and the incontrovertible underlying assumption of the rules we have already designed and agreed upon.

So, any new system that some intellectual like me proposes should probably not attempt to infringe on individual property rights with respect to money. And that issue, that roadblock, is the reason that public policy proposals designed to provide support for individuals, families, children, citizens, humans in need of help and who are NOT being afforded a basic level of comfort and dignity by the existing system, have been stalled in charged political debate for the last 50 years or more.

More bluntly, the problem to overcome is that too many people who have wealth and power incorrectly believe that every time a government program “spends money” to support poor people, the way that the government “pays” for that program is by taking taxes from THEM (the “successful, hardworking people who actually do something productive and earn money”) and then giving their hard-earned dollars to OTHERS, the “poor” people who don’t “deserve” help because their current situation is the natural result (perhaps even “God’s will”) of their choices. What would really “help” is if those people started to take ownership over their lives (perhaps by accepting “God” into their lives) and started taking action to build themselves up from where they are today, step by step, to get to where they want to be, because everyone has their own problems, and only by truly accepting individual responsibility for your own life and ownership of your own problems will you finally start picking yourself up and living your life in accordance with true purpose and honesty. Or something like that?

It sounds great, and in some sense it’s completely true, but just a portion of the full picture. Individual responsibility is crucial, freedom from government overreach is crucial, and strong private property rights for everything including dollars are crucial.

Accordingly, the freedom from the government deciding to take the dollars you “own” and redistribute your money to whatever group of poor people it determines are most deserving based on today’s lobbying efforts and political/cultural fads is also crucial.

Here is the missing link that gets it done: Universal Social Security pays for itself. End of story. But feel free to keep reading for more detail :)

Universal Social Security Pays For Itself

Universal Social Security is not even related at all to “taking from the rich and giving to the poor.” Like not even close. Universal Social Security is basically the same thing as “rich people implementing rules that allow them to invest free money with zero downside risk by using government guarantees and capital advances as a backstop, and then investing lots of money in a way that is mathematically proven to generate a positive return on the money that they invest.”

Incidentally, this is something that rich people are already very good at doing in order to make even more money without truly risking any of their current money, and if you don’t understand how they do it, then it is highly unlikely that you are rich. But back to the topic at hand…

Imagine that I am elected president, install my best friends as head of the federal reserve, social security administration, and internal revenue service, and announce by presidential decree (in cooperation with the Fed, SSA, and IRS) that for the duration of my 4-year term, which will be my one and only term because I refuse to engage in reelection campaigning, the United States Federal Government will provide direct monthly cash payments of $2,000 each month to every single Citizen of the United States for the next 48 months.

(To be completely clear, I am willing to do that, so please feel free to get me elected president if you want me to do that.)

Here is exactly how I envision that it would all work, including a really simple mathematical proof that it pays for itself:

• Every citizen gets $2,000 per month cash.
• The money is distributed by the Federal Reserve, via direct Fed “Citizen” accounts that function as a permanent individual bank account that can receive deposits, send/receive funds, etc.
• US Citizens can open a “Citizen” bank account with the Fed in their name from the day of their birth and start receiving payments. All monthly $2,000 payments remain held in trust and bearing interest at the prevailing rate for 10-year US savings bonds until the citizen reaches age 18, at which point they are allowed to start drawing down up to 20% of their accumulated account value per year without additional taxation.
• Each “Universal Social Security” payment is taxable to the individual recipient as ordinary income (classified as dividend income generated by deposit accounts held at a bank), with estimated taxes withheld, and entering each individual account as “post-tax” dollars.
• That’s basically it, I guess…

Looking at Concrete Numbers and Examples for Universal Social Security

Here is how the policy that I outlined above would work, as a financial accounting matter, using rough estimates of the real world numbers:

• Distribute monthly checks of $2,000 to every US Citizen. Total cost: estimated $600 Billion per month, or $7.2 Trillion per year.
• Assume 20% of the money is distributed into custodial accounts for minors, and effectively used to purchase savings bonds for the US government. That is just the baseline result, which as you can see is “cash cost neutral” from the perspective of the US Federal Government, and there is ample room for additional improvement over time.
• Assume the other 80% of the money goes to adults, the vast majority of whom need money to purchase basic goods and services like housing, food, childcare, and transportation, or to pay down existing student debt and credit card debt. For these people, even if they have a little left over, any “extra” money usually gets spent within a few months or years on small luxuries like vacations, a better house, a nicer car, jewelry, restaurants, etc. In other words, for this group of people, all of the money that comes in eventually goes back out.
• For sake of argument, let’s estimate that these “Spenders” constitute not all of the 80% of citizens who are adults, but say that the “Spender” label fits everyone except the top 10% of income earners, so 8% of the total citizenry. Let’s call that last 8% the “Hoarders.”
• To recap: 300 million citizens get $2,000 cash every month (pre-tax, and then taxes are withheld). 60 million of those people are minors under age 18, so the money is used to buy government savings bonds for those minors, which is cash neutral for the government. 24 million of those people are adult “hoarders” who already have enough money that they just save or invest their $2,000 monthly government income, and don’t “spend” it on goods and services, ever. The remaining 216 million people are basically the working class of America, and they spend 100% of what they earn, including their $2,000 monthly government income.
• So, what happens next? (rinse and repeat)
• Where does the “money” go? (see above)
• Where does the “cash” come from? (see above)
• Who “pays” for that?? (no one, in essence)

The Virtuous Cycle of Universal Social Security

Following our numbers above, each year, the government would “spend” $7.2 Trillion by distributing $2,000 payments each month to each US Citizen.

• 20% of that money ($1.44 Trillion) goes right back to the government by “purchasing” savings bonds or treasuries or government backed mortgages, etc., as tax-free investments.
• 8% of that money ($576 Billion) gets distributed to the “Hoarders.” About 35% gets withheld as taxes and taken off the top ($201.6B), and the other 65% gets invested (which supports retail equity markets) or saved (which boosts every bank’s balance sheet, and allows them to underwrite more loans), which is the other $374.4 Billion. Notice that the net effect of providing Universal Social Security to the “Hoarders” is that the government prints $576 billion, immediately takes $201.6 billion as tax revenue to the IRS, and effectively adds $374.4 billion to the balance sheet of large financial institutions and intermediaries. To me, that looks a lot like a niche monetary policy proposal that absolutely no one should be concerned about, because all it does it print about $375b and make that available to banks who already have federal reserve accounts.
• Finally, the workers… more accurately, the “Spenders” receive the bulk of the money, 72% of the total amount, a whopping $5.184 Trillion, every year… To me, THAT looks like something to be concerned about. But as the Daniel Tiger song goes, when it comes to something that looks scary, “See what it is, you might feel better!”
• Remember… the workers spend everything they earn. On average, they earn the median US income of approximately $1,000 per week, according to BLS statistics. So, that means they earn roughly $50k per year before their monthly guaranteed income of $2,000 arrives, which means their additional marginal income from the month USS payment will be taxed at roughly 22% based on the 2021 IRS rate table.
• So, of the $5.184 Trillion, about 22% gets taken off the top ($1.140 Trillion). The other $4.044 Trillion gets “spent”… which means it becomes marginal income for corporations, which according to recent figures gets taxed at an effective average tax rate (“EATR”) of 24.6%. To the extent that it is not taxable income to the corporation, net of expenses and deductible investments, then it is “spent” by the corporation on salaries (taxed at 22%… see where we are going here?), or as capital investments, which presumably are profiable, or as debt service, which becomes income for yet another corporation, taxed at an EATR of 24.6% (as the kids once said, do you feel me yet?)…
• I am tired, hungry, and behind schedule, so I will wrap with this:

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