About Me

In writing the "About Me" portion of this blog I thought about the purpose of the blog - namely, preventing the growth of Socialism & stopping the Death Of Democracy in the American Republic & returning her to the "liberty to abundance" stage of our history. One word descriptions of people's philosophies or purposes are quite often inadequate. I feel that I am "liberal" meaning that I am broad minded, independent, generous, hospitable, & magnanimous. Under these terms "liberal" is a perfectly good word that has been corrupted over the years to mean the person is a left-winger or as Mark Levin more accurately wrote in his book "Liberty & Tyranny" a "statist" - someone looking for government or state control of society. I am certainly not that & have dedicated the blog to fighting this. I believe that I find what I am when I consider whether or not I am a "conservative" & specifically when I ask what is it that I am trying to conserve? It is the libertarian principles that America was founded upon & originally followed. That is the Return To Excellence that this blog is named for & is all about.

Sunday, July 10, 2016

Universal Basic Income - A Key To Returning America's Prosperity

click on graphs to enlarge
According to the latest decennial census done in 2010, 43.6 million people living in America (14.3%) had incomes @ or below the federal poverty level, 54 million people were living under 125% of the federal poverty level, & the number of "deep poor" – defined as people whose incomes are less than 50% of the federal poverty level – was 17 million people so the number of people living in America's mixed economy who need to raise their standard of living is enormous.  America's mixed economy is one that still includes some degree of capitalism but an ever increasing proportion of socialism – the latter is what hurts the poor's chances of improvement the most.
For decades, economist like the great libertarian professor Milton Friedman, have advocated a universal basic income (UBI), in the form of a cash grant (i.e., demogrant - a pure government transfer based on demographic characteristics, such as sex or age, & is paid to an individual irrespective of their income, wealth, or previous contributions) be distributed from the federal government to needy citizens.  For instance in 1962 Professor Friedman endorsed the implementation of a negative income tax in which all households were guaranteed a minimum level of income before the cash grant phased out – see above graphs.
Proponents of the various UBI programs look @ the cash grant as the least damaging way for the federal government to transfer wealth from some citizens to others thereby enhancing the entire society.  One key provision of UBI programs is that they replace existing welfare-transfer programs & the bureaucracies that oversee them.  Please understand that under the current welfare system people become ineligible for benefits when & if they take a job – this is not the case under any UBI program that has ever been proposed.
Under a negative income tax arrangement households with no income would receive a subsidy check (same as cash) from the federal government for the maximum amount.  As household income rises the subsidy declines @ the rate of the normal tax rate as shown in both of the above graphs.  Once the subsidy has been exhausted the household will have a positive tax liability.  The entire negative income tax program promotes an incentive for people to leave the poverty ranks.   
Over the years universal basic income programs were developed that were designed to replace all of the welfare programs (except Social Security & Medicare) in America with an automatic income of say $10,000 per year for the welfare recipients.  A click of a mouse would result in people receiving $10,000 cash instead of benefits from the 126 welfare programs currently identified by the Cato Institute not to mention the elimination of the costs of the administrative bureaucracy required to process the welfare benefits.  This cash alternative is less costly than processing individual welfare claims & administrating all of these welfare programs plus has the added advantage of putting the administrators of these welfare programs to work making a positive contribution to the economy.
Just last month Charles Murray (a long time proponent of UBIs) proposed a $13,000 universal basic income be furnished to all Americans over 21 years old – $3,000 of which is to be used for healthcare insurance.  Murray's plan would eliminate the entire entitlement bureaucracy including Social Security, Medicare, & Medicaid – the three cornerstones of the American welfare state.  Murray is supporting the UBI again because of the cruel labor market he foresees where many Americans are unable to compete in the global economy – reference post #1 below includes the results of a study estimating 47% of total U.S. employment is @ risk of being automated during the next twenty years & that occupations with low incomes & low education requirements are the most probable of being eliminated.  Taxpayers can earn up to $30,000 under Murray's UBI plan without losing a penny of the grant; after which the grant would be lowered as incomes increased to $60,000 – the point where the grant would be frozen @ $6,500, a sum intended to make up for the loss of Social Security & Medicare benefits.
Please remember that the UBI is financed by elimination of the costs of the current welfare system.  The UBI annual cost in 2014 would have been about $200 billion less than the cost of the current welfare system & is projected to be about $1 trillion less by 2020.  Professor Friedman always thought the negative income tax program was superior to the numerous welfare programs designed to help people living @ or below poverty.
Now UBIs reached a level of significance last month with the 23% to 77% rejection of a Swiss initiative to guarantee a minimum income to Swiss residents.  The main difference between the Swiss initiative & other UBIs discussed in America is that the Swiss guaranteed income program would have required large tax increases rather than relying totally on money saved through the elimination of Swiss welfare programs.  Regardless, the Swiss initiative is expected to return for another vote in the future.
Back in January 2012 I identified four points needed to change the American mindset from a "you deserve, you're entitled to" mindset to one of (even limited) personal responsibility – especially for Medicare & Social Security which are on track to overwhelm the federal budget in the not too distant future unless some change is made. 
The 2016 projections of the Trustees of the Social Security & Medicare trust funds are for Medicare's Hospital Insurance Trust Fund to be exhausted by 2028 @ which time Medicare's hospital benefits will be reduced about 13% & the Social Security Trust Fund to be exhausted by 2034 @ which time Social Security retiree benefits will be reduced about 25%.  Now even though the great majority of the money used to finance both Medicare & Social Security comes from the general treasury only Medicare's Supplementary Medical Insurance Trust Fund that covers both doctors & prescription drugs readily admits this.  This fund's financing is derived from general revenues without camouflage of any trust fund - 75% from general revenue & 25% from beneficiary premiums & copays.
Of course all of the above mentioned trust funds are merely fictitious accounting gimmicks – all money is really taken from the general treasury funding Medicare & Social Security @ current levels.  When the bean counters say that the money repaid (borrowed) by the treasury to (from) the trust funds for money already spent on other projects is accounted for the above reductions in benefits will take place.
But getting back to UBIs – three of the four solutions I identified in 2012 involve economic principles related to universal basic income to some degree.
First of the four solutions: replacing the income tax system & all its disincentives to our productivity with the FairTax Plan that offers a solution to our stagnant economic problems that will bring fairness & prosperity back to our country & its citizens by revitalizing the free market capitalistic system unfettered by government regulations & taxes – this will help bring manufacturing jobs back to America.  Unlike the income tax system, under the FairTax if you work, save, or invest you will not pay any tax.  The FairTax taxes only the final consumer or user in the U.S. of new goods or services meaning essentially that it taxes retail sales & government consumption.  The FairTax Act of 2015 uses the demogrant principle of universal basic income in its prebate feature.  Students of the FairTax know that the prebate provides every household with an advance tax full rebate (UBI) each month that has the effect of exempting purchases of necessities from the FairTax; i.e., offsetting the tax for spending, up to the poverty level, for basic necessities.  It not only is fairer to provide the prebate than to offer exemptions from the consumption tax (FairTax) but it is actually less costly by half when compared to the deductions, preferences, loopholes, credits, & favors of the income tax system.  Source Joint Committee on Taxation.
Second of the four solutions: reducing the initial benefit of Social Security (a pure demogrant program) so that the initial benefit is calculated based on the CPI rate instead of the wage rate solves the Social Security solvency problem described above – otherwise the program is destined to provide 75% of benefits when people need this reduction the least.  The FairTax strengthens Social Security because the stable consumption base of the FairTax is more than twice the dwindling income tax base of the current income tax system.
Third of the four solutions: replacing the current Medicare plan (parts A, B, & D) that is currently 75% funded by the federal government with one of premium support where the government provides a demogrant for beneficiaries to purchase private insurance.  The key is that the demogrant is in nominal dollars – unadjusted for inflation into the future -  that will bend the Medicare cost curve down even faster than shown on the bottom curve of the following graph.
click on graph to enlarge
For the past 40 years Medicare spending per capita has been growing @ twice the rate of our economy – see blue line on graph labeled Current path, GDP + 2%.  All of the other lines on the graph represent various proposals but all of them, except the one labeled Ryan plan – Price indexing, keep Medicare expenses growing until some point when the cost is unsustainable.  The Ryan plan – Price indexing curve indexes the Medicare premium support cost to the CPI which will bend the curve down because the CPI rate is less than the rate @ which Medicare has been growing for decades.
But even better is to freeze the demogrant @ the start of the premium support program that is figured to be ten years hence to give people over 55 years old time to adjust to the premium support program.  As each year goes by the nominal dollar demogrant will buy less & less insurance so younger people will start to rely on it less & less.  Someone like my 13 year old nephew will not rely on it @ all thereby breaking the dependence on government provided healthcare insurance.  The demogrant freeze curve will bend down faster than the bottom curve shown on the graph.
Many companies have moved to such a system in providing healthcare support for their retired employees.  Retirees receive a set amount of money to do with as they like regarding medical needs including purchasing insurance or otherwise covering medical & dental costs.  Retirees have the ability to make whatever changes they deem necessary in their own personal medical program as their needs change as opposed to a government one size fits all program with government calling all the shots.
One last point on premium support – Thomas Savings, who served two terms as a public trustee of the Social Security and Medicare Trust Funds wrote "Even though the CBO assumed premium support would increase with consumer prices (price indexing), the resolution that House Republicans actually voted for (in 2011) contains no specific escalation formula."
Reference Posts:


  1. You always amaze me on your topics. You do a lot of research which takes time and you make it simple reading for general public.

  2. Loved this latest post - the streets would be paved with gold.

  3. RTE
    Negative income tax and especially Fair Tax provide incentives for the poor to maximize their revenue through work and developing skills to earn more money, thus growing the economy faster. The Left Elite is totally against this as this threatens their core agenda - increase Dependency on Gov class so Elite Left maintains their control of presidency, courts, and very possible soon, Congress again.

    Tactic for Trump to pursue:
    Charge Democrats, via their Immigration policy, take away jobs for the poor and increase drugs to take advantage of the poor and others dependent on the Gov. drug usage leads to sicker and less motivated people, ever more dependent on Gov.

  4. Wow! You're beyond me. The vow of poverty looks good to me.

  5. Hi Doug - I have been meaning to write you to thank and commend you on your Milton Friedman and the Universal Basic Income post.

    Well written and hopefully it will help some people to think outside the box.