Can a Citizens Dividend Replace Welfare?
Jeffery J. Smith
[Reprinted from
GroundSwell, March-April 2007]
This presentation was given in the US BIG track in
Eastern Economic Association Conference in New York City at the
Crowne Plaza Hotel on February 23-25, 2007
Abstract
Many voters feel an antipathy towards welfare for the poor and
are oblivious to welfare for the rich, e.g., corporate welfare. Many
people lump a Basic Income in with the more familiar welfare for the
poor. BIGists, too, tout this extra income as an antidote to
poverty, not as an antidote to the time famine, or as simply a fair
sharing of society's surplus. Many BIGists also promote this social
salary as a supplement to conventional welfare, not as a substitute
for same. Doing so forces the public to see the income supplement as
another handout, just on a grander scale.
Yet given a sizeable enough social surplus, the Citizens Dividend
would be large enough to obviate conventional welfare. Under a
geonomic scheme, whereby government does not tax income, sales, or
homes but instead recovers all the rents for sites, resources, EM
(electro-magnetic) spectrum, and any special privileges such as
corporate charters, the absence of counterproductive taxes would not
only leave people's incomes heftier but also let site values rise
higher, fattening the dividend, too.
Coupling this extra income to a call for zero taxes and zero
subsidies removes the proposal from the wish-list of the left, from
the category of handouts to the poor, to an evenhanded identity, a
new identity, one of parceling out justice equally to all members of
society. Not only would the CD provide a substantial floor beneath
everyone, including the neediest members of society, but linking a
social salary to the libertarian, Jeffersonian philosophy of minimal
government as optimal government also embraces broader political
values, giving the notion a stronger chance of actually becoming the
law of the land.
Introduction
Many voters feel an antipathy towards welfare for the poor and
are oblivious to welfare for the rich, e.g., corporate welfare.
Indeed, even the term welfare -- a mandate in the US Constitution --
no longer means everyone faring well but tax-financed charity for
the poor. Those expenditures are usually assumed to dominate federal
and state budgets, whereas the sweetheart deals with major
corporations may occasionally be acknowledged but rarely raise the
same visceral disgust as "welfare queens".
Upon hearing about the Basic Income proposal, many people lump it
in with the more familiar welfare for the poor. BIGists, too, tout
this extra income as an antidote to poverty, not as an antidote to
the middleclass time famine, or as simply a fair sharing of
society's surplus. Many BIGists also promote this social salary as a
supplement to conventional welfare, not as a substitute for same.
Doing both forces the public to see the income supplement as another
handout, just on a grander scale. And many BIGists also advocate
funding the extra income with a tax on income, raising howls of "redistribution"
from most normal people -- and they'd be right.
However, it's neither necessary to confiscate private income nor
to continue conventional welfare. Government could just as easily,
if not more so, tax or otherwise redirect private spending on sites
and resources. Nor would a Citizens Dividend -- based on bounty not
need -- be so paltry that it could not do more than just add to
conventional welfare but can be hefty enough to actually replace it;
the flow of rent in society is substantial enough that were it
shared equitably, the former disadvantaged would no longer need
special programs just for themselves. Under a "geonomic"
scheme, whereby government does not tax income, sales, or homes but
instead recovers all the rents for sites, resources, EM spectrum,
and any special privileges such as corporate charters, the absence
of counterproductive taxes would not only leave people's incomes
heftier but also let site values rise higher, fattening the
dividend, too.
How much rent, how big a Citizens Dividend?
Even if a formerly disadvantaged person were to receive a CD
smaller than the welfare they now get, the person might nevertheless
be better off. Politically, conventional welfare payments are at the
whim of politicians holding office. That's not stable. Conversely,
once the CD is instituted, that payment would be more secure then
are current conventional welfare payments. For instance, the oil
dividend in Alaska may never be repealed, despite having its
detractors who would like to reroute its revenue away from the
people, to special programs.
The source of the CD, on the other hand, is secure; it's a
function of the size of society's surplus, which in turn is a
function of the health of its economy and society itself. That is,
society's surpluses are the tradable values that attach to locations
(and to government-granted privileges), and land values are higher
where government defends rights, where infrastructure is convenient,
where trade is vigorous, where crime is low, etc. All those social
goods translate into higher sites values which, when recovered and
shared, translate into fatter Citizens Dividends.
Economically, the Citizens Dividend could be immense, based on
the amount of rent flowing through society. Most people are unaware
of rent and even economists ignore it or routinely underestimate its
size. But consider how much money Americans spend each year for
land, not just residential land but also agricultural, sylvan,
mineral, and especially commercial; it's trillions annually. For a
rough estimate, a cousin to rent is FIRE (Finance, Insurance, &
Real Estate); FIRE constitutes over 40% of the US GDP. And besides
spending for the surface, consider spending for just owning or
controlling (not extracting) the subsurface natural resources and
the supra-surface EM spectrum; there are many more billions to add
to the running tally.
Along with sites and resources, add in ecosystem services. That
amount can be estimated by damages from pollution. Were government
to charge polluters, they'd finally bother to quit fouling our nest,
and a cleaner nest has higher site values, worth at least as much as
the cost of the pollution (or, economists reason, people wouldn't
choose to quit polluting). Some ecological economists estimate that
pollutions costs -- clean-up costs, medical costs, etc. -- are
greater than FIRE (over $5 trillion dollars annually).
Attributing all that spending to higher future land values yields
a number unbelievably high for most people. Moving the decimal over
to the left one place still leaves an annual rent total of over $5
trillion dollars. Diverting just a quarter of that spending into an
extra income -- collection via land dues, disbursal via rent
dividends -- generates a Citizens Dividend for registered voters of
about $1,000 per month, or $25,000 for a couple, or $37,500 for a
successful menage-a-trois -- enough to reconsider one's basic
household unit.
Giving the CD to registered voters, to adults, seems to deprive
children, but not necessarily. If the CD goes to kids at half the
size -- $500 per kid per month -- then some may decide to have more
children, diluting the size of the CD to everyone. On the other
hand, if there are fewer recipients, everyone's share is bigger. Not
only would parents receive bigger shares, but so would doting
grandparents, childless aunts and uncles, co-workers and
co-believers and generous neighbors would all be better endowed. The
monetary amount each kid gets could be just as much, even more,
without having to reward parents directly.
Over time, that monthly thou would grow, and not just from a
cleaner planet pumping up site value, and not just from a fairer
distribution of society's surplus bringing down the crime rate to
something comparable to Northwest Europe. Those two factors -- crime
and pollution -- though their absence would boost land values
tremendously, once they're gone, the impact is over.
Yet there is another factor that would continually raise the
value of locations, and thus swell the dividend, and that is
techno-progress. Note how the most recent wave of
physical-capital-advance -- the computer revolution -- magnified
land values in Silicon Valley, Silicon Forest, and the other silicon
geographical features. As humans keep doing more with less, they'll
keep making land more valuable and land's rent -- if shared broadly
-- a blessing for all.
Economically, taxing land (or otherwise recovering its rent, as
via dues or fees) drives down land price (leaving land's value where
it was, value being price plus tax); as the tax on land rises, the
price for land falls, which is why realtors and speculators often
argue against the geonomic tax shift from buildings to land. Yet
where government has made the shift, it has lowered the price of
land, which in turn trimmed mortgages, which reduced the amount of
debt in society. With less debt, there's less excess currency/credit
and slower inflation, as happened in Denmark in the late 1950s. In a
world with the minimally useful amount of debt coupled with
techno-progress, the cost of living -- even in current dollars --
would fall and keep falling, just as the value of land and the size
of the CD were to keep growing. Hence a monthly dividend would not
only gradually grow from a thousand upward, it'd be worth more with
each passing year as prices kept falling.
Enough to replace social services?
A dividend of $1000 per month is enough to serve as a basic
income to cover the basic needs of food, clothing, and shelter in
most metro regions but not along the coasts. Yet the geonomic tax
shift would also lower the cost of shelter. First, homes and other
buildings would not be taxed, lowering their cost and raising their
quality with better insulation, etc. Second, home sites, as well as
all valuable sites, would be taxed (or "fee'd"). To pay
the fee or dues, owners who'd been underutilizing their land would
develop it, adding to the housing stock, thereby lowering the cost
of housing. Pittsburgh was named America's Most Livable City twice
for its affordable housing and minuscule crime, delivered by
shifting its property tax landward. Less expensive dwellings means
the $1000 dividend need not stretch so far.
While the CD could meet the first trio of basic needs -- food,
clothing, and shelter -- could it also cover the second trio of
basic needs -- transportation and two huge public budget items,
schooling and medicine?
First, transportation. Sprawl is enormously expensive, not just
to get around, but for local government, too, required to expand
infrastructure, policing, and school districts -- some say over
$25,000 per each new home. Conversely, more compact cities shorten
trips and become more busable, bikable, and walkable, and thus save
citizens money. Note, a city that recovers site rent would motivate
landowners to put their locations to best use. As owners of prime
urban sites develop their lots, they'd in-fill cities; Stephen Reed,
Mayor of Harrisburg PA, gives complete credit to his city's land tax
for sparing their suburban farmland. A city not wasting money on
extending infrastructure could either cut taxes or swell the
dividend or both.
Additionally, charging polluters would depreciate conventional
cars, motors, and car companies. At the same time, removing taxes
from capital and gains (and labor and wages) would swell investment
and quicken techno-progress. Hence more affordable modes of
transportation could gain market share, and people on the go could
save money; citizens would not need to spend so much to get around.
Would schools and students need subsidies? Could a parent -- with
a CD and untaxed income, living in an affordable home, and saving
money on transportation -- be able to cover the cost of sending kids
to school and college? Perhaps not at today's costs, but would the
cost of unsubsidized schools fall? Could teaching methods and
classroom instruction improve, as all other fields -- medicine,
electronics, automobiles, etc -- have advanced during the Industrial
Revolution?
Some compassionate thinkers -- Mark Twain, Albert Einstein,
George Bernard Shaw -- all noted how public schooling beats the
curiosity out of innocent children. Since the amount of knowledge is
growing exponentially and remaining inaccessible to a public bored
with reading and learning, something must be done fundamentally
different if more kids and adults are to learn what they need and
want to know. Students who've been home-schooled or passed through
charter schools typically score higher on standardized tests.
De-subsidizing schools while endowing parents enables students,
parents, and educators the opportunity to seek what works best for
them, and at lower cost.
Would sick people need subsidies? Could a person needing medical
attention -- even after saving money on taxes, housing,
transportation, and education -- afford a doctor or hospitalization
or insurance from their CD? Perhaps not at today's costs, but
today's costs have gone up as insurance has become more widespread;
doctors, HMOs, and hospitals keep charging as much as the market
will bear. Yet could the cost of unsubsidized medical attention ever
fall?
Consider both the supply of and demand for medical attention. One
overlooked subsidy -- how the state keeps qualified people from
practicing medicine, such as immigrant doctors from Europe -- keeps
the supply of doctors artificially low. On the demand side, both
stress and pollution keep the cost of doctoring, medication, and
hospitalization artificially high. If people were to receive a
social salary and live in a society of narrow income distribution,
they'd feel more worthy and less stress, many medical studies show.
And if people were to live in a wholesome, pollution-free
environment -- thanks in part to a government at last charging for
ecosystem services -- then people's bodies would stay healthier,
too. So in a geonomy, the supply of qualified medical personnel
would rise while the demand for their services would fall; the cost
of medical attention would fall.
If polluters must pay, then farmers would pay for the current
dominant style of mechani-chemical agriculture. To avoid the extra
charges, many would switch to organic methods. People eating organic
food would be healthier. Organic farmers do not get subsidized as do
mechani-chemical factory farms; the present subsidy program -- a
major part of the federal budget -- does not benefit family farmers
but only agri-business, as the subsidies go to the biggest growers
and push up the price of land, beyond what dirt-on-hands farmers can
afford. For them, a dividend and good cheap land would be much
bigger benefits. And if government no longer pays farming subsidies,
again it can either lower taxes or fatten the CD; either way, the
$1000 need not stretch as far each month.
What about the special cases that would probably still exist --
such as an uninsured person losing mobility in an accident? They
might have a hard time getting by on $1k per month. Would they be
better off with a bureaucracy to serve them (and to tax others)? Or
would they -- receiving a CD and enjoying falling prices for
housing, transportation, learning, and doctoring -- be able to fare
well in a tax-free, subsidy-free society?
First, the requisite bureaucracy to serve them would not be cheap
(they never are). Second, the benefits of geonomics are enjoyed also
by disadvantaged person's friends, family, neighbors, any
co-workers, any co-believers, and the people who contribute to
charities would also be better endowed and less financially
stressed. In the past, unions and churches provided more service to
needy members than they do now, but became less user-friendly as
government took over more of the charitable functions. Perhaps the
personal interaction of receiving help from a familiar face might be
preferable to many people with special needs. And in a society
that's wealthy, just, and compassionate, they may receive as much or
even more money than they would from an impersonal bureaucracy.
Lose charity for equality?
Hypothetically, if the truly needy don't need an extra
governmental program, then who would? Not farmers, not car drivers,
not students, not homeowners, and certainly not corporations -- no
one would. An advocate could offer people an extra income, from
society's surplus, in tandem with reduced taxation and reduced
government spending, two things that citizens now only wish could
come true.
Coupling the Citizens Dividend to a call for zero taxes and zero
subsidies removes the proposal from the wish-list of the left, from
the category of handouts to the poor, to an evenhanded identity, a
new identity, one of parceling out justice equally to all members of
society. Linking a social salary to the libertarian, Jeffersonian
philosophy of minimal government as optimal government not only
would provide a substantial floor beneath everyone, including the
neediest members of society, it also embraces broader political
values, giving the notion a stronger chance of actually becoming the
law of the land.
Proponents of the Basic Income might consider de-coupling their
proposal from the rhetoric of the left, reframe the idea outside the
confining box of charity, and pitch to not just the usual "bleeding
heart liberals" but to society at large, self-described as
non-ideological in America. Harp on society's surplus, a windfall, a
bounty that costs us nothing and belongs to us all and now only
obscenely enriches a few, and harp on sharing it, closing the
grotesque income gap, and reweaving the bonds of community that
sharing what's already ours engenders.