A Radical Fix for the Social Safety Net: Replace It All With One BIG Idea

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"Social engineers, on both the right and the left, have made [Social Security] complex in order to achieve their ends without anyone being able to see what they were doing. Whatever really underlies the 2,728 rules in Social Security's handbook and the tens of thousands of rules ... that 'clarify' the 2,728 rules, our Social Security system as currently designed is a travesty that leaves most of us largely in the dark about our retirement incomes." -- Boston University Economics Professor Larry Kotlikoff

Precisely. And it's not just Social Security. The whole social "safety net" system in America is pretty messed up. With names like Medicare and Medicaid, SNAP, TANF, SSI, WIC, and Section 8, this hodgepodge of dozens of federal and state programs costs tens of billions of dollars a year just to administer.

Yet it's still rife with abuse, with allegations of cheating by welfare recipients, doctors and hospitals billing Medicare for services never performed, government housing assistance and mortgage relief being collected by folks driving BMWs, not to mention a pervasive unemployment and underemployment problem so vast that one out of every seven Americans now needs food stamps.

It's enough to make you want to just chuck the whole system and start over.

And in fact, that's precisely what Allan Sheahen proposes in his July 2012 book -- recently issued in paperback -- on the "Basic Income Guarantee," or "BIG."

What BIG Is

At its heart, BIG is just what it sounds like: a government guarantee that every adult citizen in America will receive a basic level of income, sufficient to survive on, which comes to $11,500. That's $10 above the current federal guideline definition for poverty for a single person in America. So institution of the BIG program would (if one ignored the fact that some poor people have children) eliminate U.S. poverty in a single stroke.

This money would be paid out with no strings attached -- no work requirements, no reductions for folks who earn too much. But also no cost-of-living differentials for folks living in places like New York City, where $11,500 doesn't go very far, as opposed residents of someplace like rural Alabama, where one might conceivably subsist on it. And it would be paid out to every American citizen age 18 or older.

What BIG isn't

Thus, BIG isn't so much a program to give away money to the poor (or the lazy or irresponsible, depending on your opinions), as it is a floor level of income that would be guaranteed to every adult, no exceptions. Nor is it "just another welfare program."

Rather, BIG would replace the hash of today's social welfare programs, all of which cost time and money to administer -- badly -- with a single system of grants that everyone is entitled to.

How BIG Works

The BIG idea also isn't a creation of fuzzy math. As Sheahen lays out in clear, easy-to-understand numbers, it's possible to ensure a minimum level of income to everyone in America in just a few easy steps:

First, everyone gets $11,500, tax-free -- from the unemployed kid just out of high school to the multibillionaire Jeff Bezos tinkering on his rocketship out in the desert between boardroom meetings at Amazon.com.

Second, anyone who needs more than $11,500 is welcome to get a job and work for it. Everyone pays a flat 35 percent income tax on their wages, so that, for example:
  • If you have no job, you can just scrape by on $11,500 a year.
  • If you earn $50,000 a year, you end up with (65% x $50,000 = $32,500) + $11,500 = $44,000. (The mathematically inclined will notice that that's an effective 12 percent tax rate for the average American earner.)
  • And Mr. Bezos, who took home a $1.68 million paycheck last year, gets to keep $1,092,000 of that, plus his BIG payment of $11,500 -- so $1.1 million and change.
Third -- there is no third. While the system could be tweaked by cutting spending here, adding national health insurance or free education there, or raising the taxes somewhere else, the basic idea of BIG is elegant in its simplicity.

Won't people abuse BIG?

Absolutely. In any country with citizens as creative as ours, some scoundrels will find a way to "work the system," and Sheahen acknowledges this.

But trial runs of BIG-like programs in the past have shown that while some folks may try to mooch off the system, by and large BIG does what it's intended to do: Free people from the fear of starving and eviction in the event of a temporary loss of work, so that they can do more productive work. For example:
  • A wife might decide to stay home and raise the kids, rather than feeling compelled to earn a second income.
  • A laid-off autoworker might take a year to retrain to service the robots that took her old job.
  • A warehouse worker might switch to part-time hours, and take afternoon classes for his college degree.
  • Or a college graduate might ditch his "McJob" and spend a few months interning for free in his field, in hopes of landing a "real job."
Trial runs of BIG conducted in the decade between 1968 and 1979 saw an average 9 percent reduction in total hours worked by people in the program, but with wide variations. For example, in one experiment, husbands with families to support worked only 1 percent less with BIG than without -- despite having their basic income needs covered by the government. Overall, the "biggest" reduction in work hours under BIG was found among mothers, both single and married, as they cut back hours at the office by between 7 percent and percent to spend more time at home raising the kids. Across all trial groups, fathers were found to work only 6 percent less.

Crucially, Sheahen notes that "none of the researchers found evidence of people who simply stopped working so that they could live off" of BIG.

A BIG Idea Whose Time Has Come?

As an author and a board member of the U.S. Basic Income Guarantee Network, Sheahen has been pushing the U.S. to institute a BIG for the past 30 years for the establishment of a level playing field for income in America, and a revamp of the social welfare system.

But in fact, this movement has been around even longer than that.

Libertarian and science fiction author Robert A. Heinlein, for example, outlined a world in which BIG was a fact of life in his first, unpublished novel, "For Us, the Living" in 1938, and advocated for its adoption (as a "social credit") under President Franklin Delano Roosevelt.

Thirty years later, in the 1960s, proposals for institution of a Negative Income Tax (yet another name for BIG) began being seriously considered in Congress. From 1968 to 1979, municipalities in New Jersey and Pennsylvania, Iowa and North Carolina, Indiana, Washington state, and Colorado all set up pilot projects to test the idea (with the aforementioned results). In 1980, Alaska went whole hog with a version of the program, establishing the wildly popular Alaska Permanent Fund to share the state's oil wealth with its citizens through annual dividend payments.

Fast-forward 30 years more, and it seems the time has come around again for America to discuss whether we deserve a Basic Income Guarantee.

Motley Fool contributor Rich Smith has no position in any stocks mentioned, and hopes Mr. Bezos won't mind being singled out up above -- seeing as most folks will buy the Basic Income Guarantee book on Amazon.com, after all. The Motley Fool recommends Amazon.com and also owns shares of Amazon.com.

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