American Citizen’s Dividend

The Social Security cash-benefits programs—particularly retirement benefits and disability insurance (OASDI)—have been the most successful programs we have ever established, lauded even by foreign nations whose public retirement pensions programs aren’t nearly as good. Due to its funding structure, Social Security faces challenges which may eventually lead to a 20% cut in these benefits.

To guarantee retirement and disability benefits without cuts or major tax increases, we must restructure Social Security’s cash-benefits programs around a Universal Citizen’s Dividend. This approach guarantees solvency while strengthening benefits payments, and simultaneously creates stronger economic equity.

Funding

The American Citizen’s Dividend pays a benefit (“Dividend”) to every American adult. This acts as a form of Negative Income Tax (NIT): it net-pays to lower-income Americans and net-taxes from higher-income households. In 2016, a two-adult household earning less than $96,000 would see a net-reduction in taxes.

We fund the Dividend by a 12.5% FICA on all personal income and corporate profits. This is divided equally among all adults, then paid out twice each month—in 2016, this would amount to two $250 payments per month, or $6,000 per year.

That’s not the whole story, however: we can adjust our tax brackets such that lower-income households receive a greater net benefit, middle-income households receive a lower benefit, and approximately nobody pays more in taxes. We propose exactly this as we restructure Social Security around the Dividend.

The Restructuring

Social Security retirement benefits act as a form of assured income, while disability insurance acts as a form of insured income. Both use a cost-of-living adjustment: the benefits are computed from inflation, and payments are adjusted to fit.

A Universal Citizen’s Dividend is a broader, self-directed form of assured income. Under a restructured Social Security program, retirement and disability would ensure a minimum total benefit, including the Dividend itself.

Restructure of Social Security. The Dividend is comparable to SSI and EITC, but paid to every American adult; and Retirement and Disability recipients receive the same total.

This approach ensures not one recipient of Social Security benefits sees even one dime cut from their total benefit.

The Dividend itself increase faster than inflation because it is effectively tied to productivity gains. Social Security’s OASDI program surpluses increase and deficits decrease, and we can increase retirement and disability benefits even while lowering the OASDI FICA over time.

Impact on Other Programs

The Dividend isn’t just a restructure of Social Security, but a harmonization of programs.

Assured Income (purple), Insured Income (green), and means-tested welfare (blue) functioning as a whole architecture instead of individual programs.

The Dividend pays to each adult nearly the maximum Earned Income Tax Credit (EITC), and so itself is a restructuring of the EITC program into a more-effective form.

EITC and Social Security’s Supplemental Security Income (SSI) are almost mutually-exclusive: you can’t collect EITC without income, and you can’t collect SSI if you have too much income. SSI would vanish as well.

The Dividend represents means even though it’s not taxable income. This immediately lifts some people far enough out of poverty as to reduce their welfare eligibility, and creates jobs where there is a great deal of poverty so as to reduce the need for welfare even further.

Even so, our welfare programs operate with the Dividend, taking the place of what little might otherwise remain of SSI. These programs face reduced loads and can provide stronger benefits at lower budgets, simply because people who might need them have more income.

This doesn’t eliminate welfare, but it does roll SSI and EITC together, and reduce the cost of welfare while increasing its societal benefits.

Impact on Taxes

By taking the place of part of Social Security’s keystone programs, the Dividend allows a major restructuring of taxes to minimize its own costs.

Taxes minus the Dividend benefit are lower—more so for lower-income households. A large portion of the Corporate Income Tax becomes a FICA; while Social Security’s retirement and disability programs are easily funded by the payroll FICA alone.

The 12.5% Dividend FICA becomes part of the tax rate on personal income and corporate profits. While the corporate tax rate stays roughly the same, Social Security’s now-smaller OASDI FICA tax shifts entirely to payroll, and the Dividend payments themselves offset personal income taxes.

Diagram of the budget restructuring leading to lower net personal taxes. Low-income households receive an increase in income nearly equivalent to the maximum earned income tax credit, but for each adult: a low-income, two-adult household can receive twice the benefit the EITC would provide.

We project only a $40 billion reduction in the $330 billion of welfare costs, representing higher incomes offsetting up to one-quarter of HUD and SNAP costs. We also expect TANF to refocus toward children of low-income families. Further savings will only come through a large-scale reduction in poverty.

This is only a starting point, and we can adjust these taxes further in the future to provide for universal healthcare, stronger Social Security retirement and disability benefits, and any other initiatives Americans deem necessary.

This is a foundation. This program is necessary. It’s not just another thing we should do; it’s the thing we must do for all other programs to operate effectively. This and a structural minimum wage are essential, or else we will forever suffer from inequity and economic injustice, localized recession, and ultimately economic instability.