Economic Security Should Be Lifelong
In 1935, President Franklin D. Roosevelt’s Committee on Economic Security defined economic security as “the assurance of an adequate income to each human being” at every stage of life, and called for its establishment in the US through a piecemeal process. Out of the committee’s work came what we know today as Social Security and unemployment insurance, the first pieces of a grander vision.
Eighty-four years later, the lack of economic security in America remains staggering. Yes, thanks to Social Security and Medicare, insecurity among the elderly has declined dramatically, but among nearly everyone else it is as high as ever.
The root of today’s insecurity is insufficient labor income. This is due to multiple factors—globalization, automation, financialization, monopoly power, concentration of wealth and decline of labor unions—none of which are going away soon. Thanks to insufficient labor income, tens of millions of Americans live today on the financial edge, a paycheck or two away from existential panic. This isn’t good for their health or stability, or that of their families and communities. It costs our country dearly and we need to address it head-on.
Economic security depends on three things: enough income to pay bills, a cushion for hard times, and the assurance that some money will be there for the rest of your life, no matter what. It is the sum of these elements that heightens peace of mind and the ability to save, pay off debts and plan for the future.
The appropriate response to our increasing economic insecurity is to extend economic security downward from old age to birth, making it a lifelong right. This could be done through a universal basic income, with a uniform amount of money distributed to every legal resident. Or it could be done less expensively using two venerable institutions, the Social Security Administration and the Internal Revenue Service.
The Social Security Administration sends monthly wire transfers to over sixty million Americans, most of whom are over 65. Recently, the National Academy of Social Insurance, a think-tank devoted to economic security, published a paper exploring the idea of lifetime assured income—a monthly payment to all Social Security cardholders regardless of age. (Disclosure: I was a co-author.)
Unlike old-age pensions, lifelong assured income would not be funded by payroll taxes; given that its purpose is to supplement labor income, it can’t be financed by further taxing it. Instead, a variety of non-labor revenue sources would be used to provide a predictable flow of non-labor income to everyone. One potential revenue source is a national value added tax (VAT) similar to those in Europe. Democratic presidential candidate Andrew Yang has proposed funding a $1,000-a-month “Freedom Dividend” with a ten percent VAT. Like any consumption tax, a VAT is regressive if it stands by itself but becomes progressive if all its revenue is recycled equally.
The NASI paper identifies several other potential funding streams. One is what the IRS refers to as unearned income—dividends, interest, capital gains, rent and the like. At the moment, Social Security’s benefits are financed solely by a 12.4 percent tax on the first $132,900 a year of labor income; unearned income is completely exempted. This exemption isn’t fatal if the purpose of the tax is to supplement workers’ retirement savings, but it makes no sense if the aim is to supplement working-age labor income. The best supplement for working-age labor income is, by definition, non-labor income. For that reason, the paper suggests dedicating a 12.4 percent tax on unearned income, with no upper limit, to funding lifelong assured income.
Additional funding could come from fees for use of common assets such as our atmosphere and financial infrastructure. Through such fees, polluters and speculators could be made to pay for harms and risks they currently impose cost-free, a worthy goal in itself. The bottom line, according to the paper, is that a mix of non-labor income streams, exclusive of a VAT, could generate about $200 a month for every American ($800 a month for a four-person household). That compares with an average Social Security benefit of about $1,500 a month.
Then there’s the Internal Revenue Service. In 1968, economist Milton Friedman proposed a double-edged tax system he called a negative income tax. One side would tax moderate and high incomes progressively, the other would spit out “negative taxes” to people with low incomes. This, he argued, would be less bureaucratic and stigmatizing than our current welfare system.
In 1970, President Richard Nixon tried to enact a version of this. What emerged was the Earned Income Tax Credit, a tax refund to low-income wage earners. As tax credits often do, the EITC has grown over time. Now there are proposals to cover unpaid family caregivers and students, and to make the refunds monthly. For example, Democratic presidential hopeful Kamala Harris has proposed a “LIFT the Middle Class Act” that would send $250-a-month tax rebates to most low and middle-income adults, financed by repealing most of President Trump’s tax cuts for corporations and the rich. It is thus possible to imagine that we might one day arrive at a negative tax system that links variable monthly payouts to income. The higher a person’s income, the lower the payout, until at some level it drops to zero.
In short, we have today the wherewithal to assure lifelong economic security to all Americans. It need not be a brand new thing called “universal basic income.” Instead, it can be a three-layer system administered by the Social Security Administration and the IRS, funded without de-funding existing programs or enlarging the national debt.
This lifetime economic security system would combine equal (albeit modest) monthly payments with means-tested tax rebates and existing social insurance programs. The assured monthly payments would provide a universal stabilizing base, social insurance would protect against wage loss due to unemployment, disability and old age, and need-based tax rebates would make sure no one falls into poverty for any reason. In this time of deep economic anxiety and social division, nothing could heal our country better.