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August 16, 2006

A Versatile Solution

By Carl Milsted, Jr.

Illegal immigration, job outsourcing, trade deficits, budget deficits, workers in poverty, the welfare trap, an insanely complicated tax code… What do all these problems have in common?

The answer: They could all be substantially fixed by implementing a citizen’s dividend.

Today, the seriously poor get welfare checks and public housing. The working poor get the Earned Income Credit. Old people get Social Security checks based on their income history. The temporarily unemployed get unemployment insurance. The middle class gets the personal exemption, the mortgage interest deduction, and a host of other tax loopholes.

Everyone is getting money [back] from the government, but they are receiving that money through dozens, if not hundreds, of different mechanisms. The result is a bureaucratic nightmare which makes our businesses less competitive, weakens our moral fiber, and makes life less pleasant generally.

Why don’t we just give every citizen a chunk of money each month and be done with it? This is the idea behind the citizen’s dividend. The Fair Tax people are proposing such a dividend to make a large national sales tax to replace the income and employment taxes. Followers of Henry George advocate a citizens’ dividend based on ground rents. I personally prefer replacing income and labor taxes with a mix of excise, property (including copyright and corporate value), and possibly sales taxes, combined with a citizens’ dividend.

The common thread in these ideas is to replace our current complicated tax code, which requires having an extensive government dossier on everyone, with simpler, more anonymous, taxes coupled with giving everyone the same sized rebate check. (Or a larger check for those with easily measured disabilities such as old age, blindness, etc.)

If you are paying significant amounts of tax, then the dividend constitutes a tax rebate. If you are not paying much tax, then the dividend constitutes a no questions asked welfare check. The government does not need to know which.

Such a change in the tax code would make U.S. citizens’ labor much more competitive with foreign competition and illegal immigrants. With the dividend, low skill laborers could take home more money without pricing themselves out of a job. They get a living wage without the unemployment that results from jacking up the legal minimum wage.

Potential illegal immigrants would have less incentive to cross the border. They wouldn’t get the citizens’ dividend. The government could save the money and diplomatic embarrassment that would go into building a giant wall.

To the degree that we use sales taxes to replace income and labor taxes, we implicitly raise the tax on foreign goods–tariffs are no longer needed. (And illegal aliens would pay these sales taxes, without benefit of rebate.)

Such a huge simplification in the tax code would reduce the economies of scale of doing business. We could become more of a free agent society. The anti block store Luddites would have much to cheer.

We could even use the citizens’ dividend as a tool to discipline our big spending congresscritters. We could make part of the dividend proportional to the budget surplus. For example, for each dollar that tax receipts exceed spending, we could use $.25 to pay down the debt and $.75 to increase the dividend. The progressive members of Congress would have a strong incentive to reign in spending.

There is one major downside to this plan. For it to work the federal government would need to know who the citizens are and where to send their checks. This is a concern for privacy nuts like me. But perhaps this is a sunk cost. We already need to give over our SS number to get a job or open a bank account, and any alternative plan to reduce illegal immigration would require everyone to produce their papers to prove they have a right to be here. With a citizens’ dividend, those concerned about their privacy could legally refuse national identification—at the expense of forgoing their dividend check.

Carl S. Milsted, Jr. is a senior editor for The Free Liberal.





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