How Much Government Money Can You Get?

So, suppose we implement the Free Money for All proposal. How much is your share? That depends on how much tax we are willing to collect to give out as a universal stipend/citizen’s dividend and how many other programs we are willing to shut down. Let’s run some crude numbers using the current size of government and then in subsequent articles we will go into a few more details.

If you pull out your 2009 IRS 1040 instructions and turn to page 100, you’ll find a handy pair of pie charts showing where the government got its money and where it was spent for the previous fiscal year: 2008. This page also has the totals. The government received $ 2.524 trillion and spent $2.983 billion for a deficit of $459 billion. The current fiscal year is rather different, but it reflects temporary measures to deal with the recession, so the older numbers are perhaps better to work with for long term planning.

According to the Census bureau, we had around 211 million U.S. citizens 18 or older in 2008. I took the chart and added male and female above 18 and subtracted out those not a U.S. citizen. If we divide all the 2008 tax receipts by the adult citizen population we get nearly $12,000 per adult citizen, or $1000/month. That should be enough to avoid grinding poverty as long as you behave yourself reasonably well. You’ll need to get a job or at least a roommate/spouse if you want to live better than a hippie, however. But since this money would be unconditional, you could work and still receive your free money!

$1000/month may be a bit optimistic. We cannot zero out the entire federal budget just to hand out free money! Yes, we could dispense with most social programs, federal housing, unemployment insurance, farm subsidies, and a good chunk of Social Security. For the last, we give out the greater of {expected benefits, Citizen’s Dividend}. We might want to continue funding the military and the State Department, which takes 24% of the current budget. And we need to pay the interest on the debt (8%), and a few other functions which need to be at the federal level (interstate commerce law, air and waterway pollution, endangered species protection, etc.) If we keep roughly 40% of the 2008 federal budget we take out about $1.2 trillion which nearly cuts the dividend in half -- unless we continue running a deficit, which is a rather bad policy!

However, the Free Money for All proposal is meant to replace not only welfare benefits and entitlements but also many of the existing tax deductions. We could dispense with the personal exemption, the standard deduction, the home mortgage deduction and quite a few other deductions. We could also fold FICA and Medicare taxes into the income tax for a flat tax of 30% for 90+% of Americans. (Maybe we throw in a higher tax rate for the truly rich, those making over a half million a year or so. We can let Congress and the talking heads duke it out on that one.)

Since some people spend irresponsibly, we might want to require that some of the dividend be spent on catastrophic health insurance -- a point made by Charles Murray in his implementation of the free money for all idea. (BTW, Murray proposed $10,000/year in 2002 dollars, so this $1000/month figure is quite similar after factoring in inflation. We’ll suggest differences/variations on Murray’s ideas as we proceed.)

Details, Exceptions and Variations

In the remaining articles in this section, we’ll explore several other ways to calculate how much free money each U.S. citizen should receive. In the future we’ll add articles elsewhere on how to handle some of the special cases: who would still need welfare as we know it, who should still apply for government grants, etc. We’ll also explore alternative taxes to pay for the free money. A flat or flattish income tax is a proven and quick to implement solution, but it may not be optimal. We’ll look at the national sales tax idea, pollution taxes, fee for service government and Henry George’s ideas on land value taxation.

For those of you living in other countries, you will need to look up the numbers for your own respective countries. While this is a U.S. centric site, the ideas herein can be applied in most other countries of the world. The amounts will differ, of course, as different countries have different tax bases to work from, and different costs of living. But the principles hold in any country where the government currently has a welfare system or expensive subsidies on basic consumer goods. In other words, the ideas herein may not be appropriate for Somalia. Free money from the government does need to be restricted to citizens of respective countries, however. Otherwise, people will cross borders to arbitrage welfare systems.

Now, back to the United States: is $1000/month enough to eliminate poverty? Could we afford this much? Do we need to give more or is this too generous? How should we pay for it? What is the optimum tax system? We will look at some of these questions in the remaining articles in this section. (See the sidebar.)

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