The Solution Starts with a Citizen Dividend

Attention conservatives: Do you want to simplify the tax code? End welfare as we know it? Reduce crime dramatically? Restore patriotism? Reduce the flood of immigrants? Balance the federal budget? Restore federalism? Make American industry competitive again? Then call for a Citizen Dividend.

Attention Christian conservatives: Do you want capitalism and economic freedom, but all those passages in the Bible about taking care of the poor give you pause? Then call for a Citizen Dividend. It’s closer to the Biblical welfare system than what the Left is offering.

Attention environmentalists: Do you want to tax fossil fuels? Tax toxins? Make cities more livable Replace natural resource use with labor? Make buying local a viable option? Bring government and business back down to a human scale? Then call for a Citizen Dividend.

A Citizen Dividend is the beginning of the solution to the problems mentioned above. Not the whole solution, but a start. A huge start. Indeed, it is next to impossible to make headway on many of these fronts without setting up a Citizen Dividend first.

So, What is a Citizen Dividend?

Let’s look at the two words that make up “Citizen Dividend” and tease apart the implied meanings. Take the second word first: Dividend.

A dividend is a regular payment based on how many shares of an asset you own. It is not based on your life circumstances, on your other income sources, on whether you work or not. For retirees and those who inherit a very large trust fund, dividends could be a complete income – no work necessary. For a smaller number of shares, dividends function as an income supplement.

“Dividend” also implies some connection with the profits made by the corporation that you own shares in. True, some corporations pay dividends even when they aren’t earning profits – for a while. But that arrangement is not sustainable long term!

Now throw in the word “Citizen.” A Citizen Dividend is a dividend that is received by citizens only. We are not extending the US social safety net to the entire world. You cannot have the responsibility without the authority, and few foreign nations are willing to give up their independence in return for US largess.

Put the two words together and you get a shareholder model of democracy. Every adult citizen gets one share. That means one ballot and one share’s worth of the profits.

Federal Government as Consumer Coop

Many intellectuals wax philosophical on the nature of Government, how it represents the General Will, how government is not subject to the same rules of morality as mere subjects/citizens. Such thinking is a good way to get a government grant…

Libertarians, on the other hand, try to apply the same rules of morality to government as to individuals, and find government wanting. Calls for anarchy often result. But anarchy is impractical.

There is a middle view. Think of government as a utility, a natural monopoly corporation which provides useful, or even essential, services. Having three power companies serving the same neighborhood would be a mess. Lots of redundant wires! One corrupt and inefficient power company can still be cheaper with better service than three in competition. The same holds true for certain government functions, such as national defense, copyright registration, criminal law, etc.

Monopolies are dangerous. Power companies are subject to more regulations than corporations which have to compete for business. Similarly, the federal government is subject to the Constitution. Some utilities are organized as consumer coops: each customer owns a share; excess revenues are given back to the customers in the form of dividends.

In a democracy (or democratic republic) each citizen gets a single vote. If we have a Citizen Dividend, then we could have the federal government rebate excess revenues in the form of a dividend, just like with an electric coop.

A natural monopoly has tremendous revenue generating potential. It can afford to do cool things like long term basic research. Bell Labs gave us the transistor, the laser, the UNIX operating system, and statistical quality control. Pretty cool!

But natural monopolies can also be bloated, inefficient, and unresponsive to customers compared to companies that need to compete for business. It is generally better to encourage such businesses to give out dividends than to reinvest too much of their profits into new product lines.

The same holds true for the federal government. The federal government funded moon landings and the initial development of the Internet. But it has also funded defective welfare programs, horrible architecture, Amtrak, corn subsidies and worse. Politicians of both political parties have tasked the federal government to do too many things. Management has become unwieldy. The bureaucracy – aka the Deep State – is unresponsive to shareholders.

Give all citizens a dividend. Tie that dividend to “profits” and you have a formula for weeding out stupid programs. Do you want that Lawrence Welk museum or a bigger dividend check?

This is not an iron clad formula, unless you have a constitutional amendment, but it’s a start. (And, by the way, a constitutional amendment without the Dividend probably won’t work. It’s hard to perfectly balance a budget. Easier to shoot for a surplus and rebate the extra.)

Prerequisite for a Carbon Tax

The solution for global warming begins with a carbon tax. Green energy is more expensive than fossil fuels and this is likely to remain the case for some years to come. You can either create a gigantic array of alternative energy mandates and subsidies, or raise the price of carbon from the ground. The former option often leads to stupid projects which harm the environment and don’t reduce fossil fuel use all that much. See the movie Planet of the Humans for examples.

A carbon tax, on the other hand, enlists that gigantic calculator known as The Market to find the optimal balance between efficiency, alternative energy, and doing without. And the government gets tax revenue as a bonus – a rather important bonus given our perpetual federal budget deficits. (And yes, deficits matter! Deficit spending is a trillion dollar annual subsidy for the Already Rich at the expense of those who work for a living.)

But we have a problem: a carbon tax is a flat tax, and we already have an unacceptably high wealth gap in this country.

Payroll taxes – Social Security and Medicare taxes – are also flat. Replace them with carbon taxes (and other consumption taxes), and we swap one set of flat taxes for another. In the process we move the burden of taking care of Baby Boomer retirees from labor to natural resource consumption. Not only are labor taxes reduced, but the process of computing payroll is greatly simplified. The number of taxes that employers need to compute goes down from eight to four.

And we can get employers out of the business of managing retirement plans as well. Consumption taxes have an automatic IRA provision. You don’t pay tax until you spend the money.

At the top, such a tax shift would be very progressive compared to FICA taxes: FICA taxes are flat only up to $137,700; they drop to zero above that level. A carbon tax would hit jet-setting Hollywood virtue signalers. A carbon tax would hit Al Gore.

But it would also hit the poorest. Those who live in apartments and bike to work have much lower carbon footprints than commuters from McMansions. But their footprints don’t scale all the way down. A certain amount is required to keep warm. And the rural poor live in energy inefficient mobile homes.

For them, we might need to make a carbon tax progressive at the bottom. The simple way to do it would be to rebate part of the tax as a Citizen Dividend. Exactly how much is a subject we will explore later.

A Flat Tax for the 99%

Getting rid of payroll taxes makes life simpler for small employers, but they still need to deal with the nightmare of different income tax withholding rates for different employees – based on their income, marital status, and whether they are working other jobs. It would be nice if employers could take out a fixed percentage for all employers and send it in.

We could indeed do this and have a system that’s more progressive than what we have today – a progressive flat tax! The key is to replace the lower tax brackets with a Citizen Dividend.

For 2019, the tax brackets are:

To these income numbers add in the Standard Deduction – $12,200 for single and $24,400 for married – to get total income.

For a couple, the 24% tax bracket begins at $195,850/year and runs up to $345,850. A 24% flat tax could thus be a complete wash for couples in this range if we set the Citizen Dividend correctly. Under current tax law (assuming no deductions other than the Standard) a couple pays $29, 211 at the beginning of the 24% bracket. With a 24% flat tax the tax becomes $47,004. We thus need a Citizen Dividend of $17,793 for a couple or $8896 per adult citizen for this to be a wash for those currently in the 24% bracket.

Let’s make the numbers round: 25% flat tax and a $9000/year Citizen Dividend. Then look at the impact on couples over a range of incomes.

What do you know? We have an ultra simple income tax that’s a windfall for the working class and a small tax increase for the professional class. (But the professional class gets something: much easier tax calculations for nannies, gardeners, etc.)

That negative net tax at the bottom means we could probably do away with unemployment insurance. Employers now go down from collecting 8 taxes down to two: federal and state income taxes.

Expect more employment opportunities.

A Welfare to Work Bridge

Today, under need-based welfare programs, if the poor work, get married, or save money they lose benefits. This perpetuates poverty. The claw back of welfare benefits as the poor try to better themselves acts as a very steep marginal income tax. Exactly how steep it is at the moment we leave as a research project for the reader. See Charles Murray’s book In Our Hands for some older numbers.

Since legal entry level work pays little, or even costs money, it pays for the poor in the welfare ghettos to engage in illegal activities: selling drugs, tax free cigarettes, or performing outright crimes. Since drug money is not protected by the legal authorities, criminal gangs perform law enforcement functions. The results are unpleasant: high violence, Stop and Frisk, No Knock warrants, tyrannical levels of incarceration, and suburban sprawl.

A Citizen Dividend makes legal entry level employment worth taking. Give all adult citizens the Dividend. Cut welfare benefits by the amount of the Dividend. The claw back of benefits is thus reduced greatly. Starting a career, even if humbly, is worth doing.

A Boon to Family Values

The Citizen Dividend is for individuals. There is no marriage benefit or penalty. This gets the federal government out of the business of determining what constitutes marriage. Had we used a Citizen Dividend to reform welfare a few decades ago, we might have been spared the gay marriage issue and its resultant weaponization by the Radical Left.

And since there is no marriage penalty – even for the very poor – we would have much higher marriage rates in poor neighborhoods.

We might even see educated young people getting married earlier, while the passions are high, instead of going through a decade or more of fornication while waiting to attain an income high enough to support a marriage.

An End to the Immigration Subsidy

The US government restricts immigration, and the US government subsidizes immigration. Through need-based welfare, the government reduces competition for entry level jobs. If the borders were locked tight, then wages for those jobs would go up to entice more people to get off welfare. But the borders aren’t tight, and so millions of people cross the border, both legally and illegally, in order to arbitrage our welfare system.

Also, part of our welfare state consists of a very progressive tax system at the bottom. Low wage workers get more government services than they pay for in taxes. This includes low wage workers who are not citizens.

Were we to flatten the income tax and replace progressiveness with a Citizen Dividend, guest workers – legal and illegal – would pay more tax. Here is a tax table for single workers comparing the income tax after the Trump tax reform and with a 25% flat tax with no exemptions or Citizen Dividend:

This should cut the need for border enforcement noticeably.

We would still have guest workers. There are guest workers here willing to do hot sweaty labor that few citizens would want to do, even with the welfare penalty for working eliminated. There are also guest workers with skills in high demand for which US salaries are worth coming here for even without a tax rebate.

And, finally, for true refugees it is better to pay high taxes here than to be persecuted there. For those sad cases of refugees struggling to make ends meet, there is charity. Let virtue-signaling liberals exhibit some real virtue.

Putting the Us back into US

By reducing the subsidy for coming here, we filter immigrants for other reasons, including those who want to come here because they like our way of life. We can import conservatives, people who want to preserve the America that they paid a price to join.

And just what should that price be? If we give naturalized citizens the Dividend, then we are back to subsidizing immigrants.

One possibility would be to set it at the annuity value of the Dividend. We will leave it as an exercise for the reader to research what that would be.

An easier method would be to use the 4% draw rule for retirement income. That is, if you have a conservative investment portfolio, spending 4% each year supposedly allows you to maintain the same income indefinitely. That is, if you have a million dollars conservatively invested and spend only $40,000 per year, you have enough to retire. (Warning! This rule of thumb might be obsolete! The safe draw rate might be lower today. See link above.)

Four percent of $225,000 is $9000/year. The Citizen Dividend is thus the equivalent of giving all adult citizens the equivalent of a $225,000 trust fund. (If the safe draw rate is lower than 4%, then the equivalent trust fund is bigger.)

For those who are well off because of their citizenship already, this is not a windfall. They were already getting the equivalent of this as tax rebates. For the working poor, and those trying to get off welfare, this is a windfall approaching that $225,000 figure.

And just who are the working poor and those stuck in the welfare trap? Quite a few of them belong to the Previously Persecuted. A Citizen Dividend serves as a substitute for Reparations…This might reduce disgruntlement.

And for those still disgruntled – Previously Persecuted or not – perhaps they could be allowed to sell their shares to outsiders dreaming to become Americans. Let those who dream of socialized medicine move to Canada or Britain and sell their share to a foreigner who wants to be a capitalistic American.