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.