Andrew Yang met with a mixture of awe, skepticism and sometimes downright derision when he proposed his plan for Universal Basic Income. Why we should listen to this visionary man and take heed as we move into the second fifth of the Twenty-first Century.
In 2018, long before his 2020 presidential run, attorney and entrepreneur Andrew Yang wrote a book: "The War on Normal People" (Amazon - $14.99 ) where he painted a grim picture. Technology, automation, artificial intelligence, and globalization were going to leave millions unemployed (and more importantly unemployable). His main solution: Universal Basic Income.
Universal Basic Income has been around for a very long time. Most American conservatives would probably blanch at the thought that is was none other than Richard Nixon who came closest to enacting it in 1969, and only stopped short on pursuing the initiative at the very last moment. This is unfortunate. Because although Universal Basic Income has long been the domain of a Utopian left, the unfolding realities of economics, markets, and math show that it is in fact, one of the few arrows left in capitalism's quiver, to avoid the full subjugation of people to a welfare state.
Let me explain: In 2019 (the year we will be using for this piece) Social Security paid an average disbursement of $1,503 to 45,000,000 recipients; a gross expenditure of just over $1,000,000,000,000 (one trillion dollars) or 23% of the federal budget. Weighing in at 25% of the federal budget, Medicare and Medicaid spent $1,100,000,000,000 (one point one trillion dollars) in allotments. Federal "Safety Net" Programs accounted for another 8% [($361,000,000,000) (three-hundred and sixty-one billion dollars)]. All toll, entitlement programs as reported by the Center on Budget and Policy Priorities tallied up to $2,461,000,000,000 (almost two point five trillion dollars) or 56% of the federal budget. Defense spending (for those who are interested) totaled 16% of the federal budget, and defense spending is the only federal spending constitutionally mandated.
Considering that the U.S. population in 2019 is estimated at 328,200,000 souls, that is $7,498.48 per person per year; or if you prefer, $624.87 per person per month.
That is a lot of money in social spending, but alas, that is only the direct costs of disbursement. What about the indirect costs? Social Security, and Medicare/Medicaid employ just over 61,000 people (61,181) with an average salary of $60,000 per year, according to the Social Security Administration's Annual Statistical Supplement, 2019. That is an additional $3,670,860,000.00 (three billion six-hundred and eighty-six million dollars). That makes the annual per person contribution $7,509.66 per person per year or $625.81 per person per month. Eliminating the infrastructure of these entitlement programs in favor of a direct allotment of $625.00 per month to every American citizen shifts at least $3.6 billion from pure government expense to potential capital investment, and that is just the start.
Since the New Deal of the 1930s, the federal government has grown exponentially. In 2019 the federal payroll (the money the American people pay their federal civil servants) was $291,000,000,000 (two-hundred and ninety-one billion dollars); $886.65 per person per year or if you prefer, $72.89 per person per month. Now, it is doubtful that the federal government can eliminate its entire payroll, since there are legitimate civil service positions that must be maintained (like for example, the foreign service). However, reducing federal payroll by just 50% moves $145,500,000,000 (one hundred and forty-five billion five-hundred million dollars) or $443.33 per person per year (or $36.94 per person, per month) from pure expense to potential capital investment.
I keep describing this wealth transfer as potential "capital investment" and many would say, "why not just cut the spending and the taxes will follow?" But the reality is far more difficult. Many presidents have tried to "shrink the federal government" with little or no success. Truman, Eisenhower, Reagan and Clinton all took stabs at it, and the result is always the same. How do you get the private economy to absorb 2.1 million displaced federal workers, and in the interim, not bankrupt the entire consumer based economy? It is not an easy task, and one further exacerbated in our current era by the nature of work and business.
At one time recruiting, hiring, training and retaining employees was a major operation in business, and was well-encouraged by the governments at all levels. And rightly so. 86% of federal tax revenue comes from income and payroll taxes. Without employment there is no income tax and without employment there is also no consumer confidence (or money for that matter) to drive a market economy. Demand plummets, suppliers go bankrupt, more workers are displaced, demand decreases further... And so on...
The cost and irregularity of employees is another tangible factor. As wages and cost of employees rose through the post World War II period, manufacturers turned overseas to cheaper labor markets with disastrous results. The nation literally unmoored itself from its economic foundation; a drift that continues to this very day with varying degrees of angst depending on where you are geographically within the republic.
That said, businesses are no longer interested (or particularly vested) in employees. Machines and software are poised to absorb an even greater percentage of labor, and the savvy taxpayer should demand no less from their government at all levels. It is hard to justify having a paid human being file your license plate renewal when you can negotiate, prepare and execute a multi-million dollar contract with little or no human interaction. Curiously, the tax code only reinforces this notion, which is particularly bizarre considering how much tax revenue comes from payroll taxes. CFOs everywhere will have to weigh which is better: investing in robots and artificial intelligence (AI) and depreciating that investment over a period of years, or continue to hire and train people that can leave, get sick, not show up, or sue. The robots and AI will win hands down, time after time.
So where does that leave us, the 328,200,000 souls in this country with no employment options and no disposable income? Actually that rather depends on we the people. First we can start thinking about what the world is going to look like post employment. The recent epidemic gives us a pretty good idea of what that looks like. For a few weeks it was all sunshine and Santa Claus, and then loneliness, isolation and angst set in. Human beings need activity, reassurance and validation. Work does that for millions of people, and I think it will continue to do so in the post employment era. Universal Basic Income will provide a base, but American entrepreneurialism will not be arrested by that. Both economic and human instincts will drive some to produce and others to make-do. That is what I mean when I say these savings could be converted into potential capital investment. Untethered from basic need, entrepreneurs should be more encouraged to create and take risks. Universal Basic Income could be as revolutionary to the American economic experiment as bankruptcy and the elimination of debtor prisons were in the early 19th Century.
Of course, all this will take money. The first step is to ween the federal government off withholding taxes and replace them with a national VAT tax; primarily because VAT taxes are difficult to evade (unlike income taxes) and are ideally suited for the nature of mechanized manufacturing.
Next we should turn depreciation into a revenue stream by allowing companies to choose how long they want to depreciate something and then charging it back to them later at treble the period. As an example, If I choose to depreciate my robot at $20,000 a year for 3 years, I would then owe $20,000 a year for 9 years in tax. This may seem steep, but consider this: if the robot replaces 5 workers at $50,000 per year per employee in salary, and the cost of employees is 118% of wages, that is $295,000 per year in labor costs. Under the 12 year schedule we posited above, that is $3,540,000 in labor costs (presuming cost of labor and salaries do not increase during that 12 year period-- which they will). $180,000.00 in reverse depreciation tax is a small price to pay; in fact it is 95% less than employees, and the rates can easily be adjusted to allow for revenue fluctuations as necessitated by national needs such as wars and disasters.
Lastly tariffs. While the United States economy is retooling to the post employment age, American business needs protection from undercutting labor markets. Congress would have to return to the concepts of the 19th Century, and eschew foreign products by way of heavy taxation or, give heavy VAT discounts to domestic goods. Either way, we will be supporting our robots and our AI, not someone else's.
And what will we do with all this leisure time? Will we all go to drum circles and shaman retreats? Doubtful. I would imagine our post-employment world will look a lot like our recent epidemic world. Intellectually inclined people will read and write a lot. Those who enjoy handicrafts will find local markets for their goods. The mechanically inclined will supplement their income with car repair, lawn maintenance and painting. I think we will all grow and preserve a lot more of our own food. Suburban goats and chicken will probably return to the scene as was common in late 19th and early 20th Century American suburbs. I live in Puerto Rico where we have a strong cottage industry and village economy. One of the reasons the GNP of Puerto Rico is so low is because so much of it is unrecorded. I think the same would be true in a post-employment mainland.
Another major difference would be conspicuous consumption. As we move away from workplace rivalries, the overwhelming need for more clothes and more cars will diminish greatly. We will in fact move closer to the America Thomas Jefferson envisioned; a republic of equal yeoman with the ability to do whatever they like. It was a noble goal in 1776 and it is noble goal now. And technology will put the means to accomplish this idyll within our reach this generation; that is if we choose to seize the advantage. This is why I say nothing less than the salvation of capitalism rests upon how we decide. The choice is ours and ours alone; and hopefully we choose wisely.
Editor's Note: Few essay's published by The Socratic Review have garnered more reader reaction than this one. Since the editor acknowledges that this was a particularly dense topic for 10,000 characters, and some valid questions have been posed regarding particulars of this proposal, the following clarifying notes are being provided. Thank you for your readership and participation in wonder and wisdom... Robert E.L. Walters
The Universal Basic Income (UBI): The Universal Basic Income (UBI) described in this essay would be distributed to every U.S. citizen (only) from age of majority until death and would replace all other social spending to include: Social Security, Medicare, Medicaid, Food Stamps, WIC and any other social programs currently disbursed by the United States Federal Government. Any social spending beyond UBI would be left to states, counties, municipal governments and private charities.
Federal Income and Payroll Taxes: Federal Income and Payroll Taxes would be abolished: Since the premise of this plan is that there will be widespread unemployment due to job elimination; income and payroll taxes would be obsolete. The essay suggests returning to the historic means of collecting taxes before the innovation of income taxes in the early 20th Century: asset taxes (described in the essay as "reverse depreciation"); tariffs (taxes charged on foreign goods to protect domestic industry); and a consumption tax (described in the essay as a VAT (Value Added Tax) which taxes the value of manufactures between raw material and finished good. States would be permitted to collect sales, excise, income and property taxes as they see fit. The taxation discussed in the essay only addresses federal taxation,
Ability to Work/Equal Income: The UBI discussed in this essay would not discourage or penalize work; quite the opposite. Since this plan would abolish federal income and payroll taxes, those who could find work (or create it via entrepreneurial enterprises) would do so with less tax burden. And also with less payroll and compliance issues, since federal taxation and collection would not be executed by employers (unless those employers were manufacturers and then VAT collection would become an issue). But any employees working for an employer would not be subject to federal income or employment taxes. Since UBI is universal (and thus would not require means testing) most people who could work would want to work, since they would basically be living at poverty minimums (think unemployment benefits) rather than anything approaching a "living wage."
Funding and Mutability of Taxation: The initial funding for the UBI described in the essay would be the Social Security Trust Fund, and the current year allotments for other social programs also placed in trust. The UBI Trust Fund would then receive a dedicated 56% (a percentage contemporary to current social spending) of general fund revenue from the sources described above. Annual disbursements (executed monthly) would be derived from the previous year's principle as an annuity. Congress would not be able to borrow or trade treasury bills against this principle, as this would be an annuity trust. Hopefully the universality of the program would motivate citizens to keep a tighter watch on congress, since it would be in their direct interest to do so. Any enacting legislation (and requisite Constitutional Amendment) would prohibit the federal government from any means tested or blanket social welfare disbursements to individuals or states funded from the annuity trust or the general fund.
Constitutional Amendment: Since federal income tax would be abolished, a constitutional amendment would be required to execute these proposals. It is suggested that such an amendment have three non-negotiable principles: 1.) A Balanced Budget Clause: A super majority of 66% of both houses of congress would be required to surpass a debt ceiling not to exceed 5% of the previous year's Gross National Product. 2.) The Immutability of Trust Funding: 56% of all federal tax revenue would be placed in the UBI Trust Fund. General services and all other federal functions would have to be funded by the remaining 44% of federal revenue. Intrastate Funding Prohibition: Congress would be prohibited from disbursing any federal funds for any intrastate project without a 66% super majority in both houses of congress. Federal facilities on federal property within the states, and Native American reserves would naturally be exempt from this provision.
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