Why state-funded Social Security or guaranteed income is a colossal mistake. It should be federal.

I long have favored a federal plan in which every man, woman, and child in America would receive a monthly stipend from the federal government. (Some call it UBI—Universal Basic Income. Others call it GI—Guaranteed Income, or Social Security for All.)

A federally funded Social Security for All program was described in a post published seven years ago.

Today, that post was brought to mind by the following article:

a $1,000 monthly ‘guaranteed income statewideThe proposal would have taxpayers fund statewide, $1,000 monthly ‘guaranteed income.’
A measure creating a task force to look into monthly guaranteed taxpayer-funded “unrestricted cash” subsidies to specific individuals in Illinois is being discussed in the state legislature.

An Illinois Senate appropriations committee would review “the landscape of cash supports available to low-income residents” and identify “populations without significant access to cash supports.”

The bill, as filed, says after the board is dissolved at the end of 2027, DHS would administer the program with monthly cash payments of $1,000 to Illinois residents, regardless of immigration status, who provide care for a child or specified dependent, recently gave birth or adopted a child or is enrolled in an educational or vocational program.

Mike Buehler, an opponent of the measure, said it’s irresponsible to discuss such a program without knowing how much it will cost taxpayers.

You may be surprised that I oppose this and other similar plans.

Here is why:

1. Local governments are monetarily non-sovereign (unlike the federal government, which being Monetarily Sovereign, has the infinite ability to create dollars).

With few exceptions, local governments get their spending money from taxpayers.

The federal government gets its spending money by creating it ad hoc. The federal government does not spend tax dollars.

That is why it can run trillion-dollar deficits with no funding problem at all.

State, county, or city taxpayers pay for local government-funded UBI programs.

Most local tax dollars come from sales taxes and/or local income taxes, most of which are paid by middle—and lower-income residents. Extracting dollars from middle—and lower-income taxpayers is exactly the opposite of the UBI plan’s basic purpose.

2. While the federal government has unlimited access to dollars, local governments have limited abilities to pay for things. So, the benefits must be limited to local governments’ affordability estimates.

This, in turn, requires limiting benefits to specific groups and denying benefits to other groups, which creates two problems:

A. The government must set up a complex and expensive apparatus for monitoring recipients so that people do not cheat.

B. People just outside the limit of qualifications are unjustly deprived of aid, and/or try to find unanticipated ways to qualify.

“I understand that you would have to be a person with a child, or caring for someone in your home or school to be eligible for the benefits.

A local government would have to hire dozens (or thousands?) of people to monitor these qualifications. (Do you have a child? How old? Are you really “caring for” that boarder? Are you still in school, and exactly what is a “school.” How many days or hours do you attend?

Additionally, there would be extensive and expensive paperwork filed, read, and authenticated.

That could be millions of people and the cost could be in the tens of billions of dollars,” Buehler told The Center Square. “And where’s the state going to come up with these funds and the only place to come up with that is to get it from the taxpayers.”

Guaranteed income programs in Chicago and the Metro East St. Louis areas are ongoing, costing taxpayers millions. In 2022, the city of Chicago was in line to spend $31.5 million for $500 a month to go to 5,000 low-income residents.

That same year, Illinois legislators approved a pilot program using state taxpayer funds worth $3.6 million for the Metro East St. Louis area.

Inevitably, a state-run, money-restricted program would evolve to a “nanny-state,” where the money only could be used for approved purposes. And that would have to be monitored.

Ameya Pawar with the Economic Security Project said there are 150 different programs across the country. He gave examples of people using the money to buy sports goods for their children or even to take a vacation.

There is widespread belief that the poor who receive money from taxpayers, should be told what to do with the money (the poor supposedly being too ignorant to know what is best for them). Buying sports goods and taking vacations is not “good” for the poor.

The nanny preference is only to feed starving children, not just make them happy with toys and entertainment. Note the hinted outrage Ameya Pewar expresses for recipients buying baseballs to entertain their kids.

“And all of this money that goes into the pockets to stabilize households flows through local businesses,” Pawar told the committee. “So you see some of this money back in sales taxes, and other taxes.”

No buying from Amazon allowed??

Buehler said there could be unintended consequences, like reducing work productivity and more.

“For regardless of immigration status, I think an unintended consequence could be a flood of migrants coming to Illinois looking for benefits and not having to work for it,” he said.

3. If one state, county, city, or village offers better benefits than another, people will tend to go where the money is and the taxpayers will pay. This is true for citizens as well as migrants.

And note the common but false belief  that the poor are so lazy and unmotivated, if you give them money, they won’t get jobs.

Pawar said the proposed statewide guaranteed program of “unrestricted cash” should be in addition to other taxpayer-funded safety net programs.

Programs like Supplemental Nutrition Assistance Program funds go to buy food. The Low Income Housing Energy Assistance Program is for heating bills. The Temporary Assistance for Needy Families program provides monthly cash assistance to low-income families with children.

“And to get this income, they may not necessarily spend that in their own best interest or the interest of the citizens at large,” he said.

Again, the taxpayer requirement exacerbated the nanny-state belief that the poor are too stupid to spend in their own best interests. “Why am I, as a taxpayer helping these people to take vacations, if I can’t afford one myself.”

All the above-mentioned problems would be addressed by a federally-funded, Social Security program covering every man, woman, and child in America, regardless of income or wealth.

The rich, poor, citizens, non-citizens, young, old, married, single, renter, homeowner, in or out of school, etc., all would receive the stated benefits — and unlike with state and local government programs, no one would pay a penny.

Federal Social Security payments made to every man, woman, and child, require much less monitoring. Most importantly, affordability would cease to be an issue. The federal government can afford anything, and without collecting taxes.

All of the money spent by the federal government would be added to the local economy, increasing everyone’s income.

Here are excerpts from another article on the subject.

33 basic and guaranteed income programs where cities and states give direct payments to residents, no strings attached
The concept of a “universal basic income” has inspired widespread interest in recent years.

Actually, there are “strings,” in the form of qualifications.

More than interest — when former US presidential candidate Andrew Yang announced that a UBI program of $1,000 direct payments to citizens every month would be the keystone policy of his platform, he drew an unexpected amount of grassroots support in a crowded primary year.

Guaranteed income programs have been gaining even more traction during the pandemic, which took a particular toll on low-wage workers and threw many Americans into poverty.

At least 11 direct-cash experiments went into effect this year, Bloomberg estimated in January.

Former Stockton, California mayor Michael Tubbs, took the idea to the next level by launching the Mayors for a Guaranteed Income network. As of this year, there are 60 mayors in the program, advocating — and launching pilot programs for — guaranteed income for their residents.

California recently launched the first statewide guaranteed income program in the US, providing up to $1000 per month to qualifying pregnant people and young adults leaving the foster care system.

“Young adults leaving foster care” and “pregnant people” comprise two, very narrow classes, and $1000 a month is a meager amount. The task of verifying qualifications would be costly. (Imagine trying to verify pregnancy for thousands of people, and who monitors when pregnancies end before birth?)

The basic income program that Tubbs launched in Stockton in 2019, the Stockton Economic Empowerment Demonstration, has been considered the model for other cities that have followed in its footsteps, offering low-income residents hundreds of dollars a month and measuring their job prospects, financial stability, and overall well-being afterward.

It seems like a massive and expensive project for just hundreds of dollars’ worth of benefits.

According to SEED, participants improved in all those metrics.

“Guaranteed income makes a case for investing in our undocumented neighbors and formerly incarcerated residents. In doing so, it addresses the reality of the nation’s fragmented, punitive welfare structure.”

Will taxpayers consider this a reward for being undocumented or incarcerated? (Want to make an easy few hundred dollars a month? Go to jail for some minor charge.)

This kind of program isn’t a new idea, however. The Eastern Band of Cherokee Indians Casino Dividend in North Carolina has been giving tribal members annual funds since 1997, for instance. Alaska has been paying residents out of its oil dividends since 1982.

The Eastern Band of Cherokee Indians Casino Dividend in North Carolina gets its money from casino revenue. Alaska gets its dividend money from oil. Neither collects taxes to pay recipients. That is a major consideration.

Here are a few of the 33 examples mentioned in the above article.

Compton, California. Duration: December 2020 to December 2022. Income amount: $1,800 every three months for 2 years. Number of participants: 800

Tacoma, Washington,Duration: December 2021 to December 2o22, Income amount: $500 every month for 1 year, Number of participants: 110

Stockton, California, Duration: February 2019 to February 2021, Income amount: $500 every month for 2 years, Number of participants: 1ount: Based on the annual dividend from state-owned oil companies, ranged from roughly $2,000 per person in 2015 to $800 in years with lower gas prices.

 Oakland Resilient Families, Duration: Summer 2020 to present, Income amount: $500 per month for 18 months, Number of participants: 600

Alaska Permanent Fund , Duration: Annual, Income amount: Based on the annual dividend from state-owned oil companies, ranged from roughly $2,000 per person in 2015 to $800 in years with lower gas prices , Number of participants: Alaska residents

North Carolina, Cherokee Tribe, The Eastern Band of Cherokee Indians Casino Dividend pays every tribe member annually, Duration: Annual, Income amount: $4,000 – $6,000 per year, Number of participants: Every tribal member.

The Alaska and Cherokee programs succeed long term because they are not funded by taxpayers. A federally funded program would succeed for the same reason. Federal spending is not taxpayer funded.

When state and local taxpayers fund a spending program, the result is that a large group of middle- and low-income people transfers some of their money to a smaller group of middle- and low-income people.

The large group includes all those who pay sales and income taxes. The small group is all those who receive those tax dollars. It’s just dollars rotating within the municipality, enriching some residents at the expense of others. The municipality’s economy receives nothing.

By contrast, when the federal government funds a guaranteed income program the government creates new dollars and sends them to the nation’s recipients. The result is that there is no expense to anyone, but the nation’s economy is enriched with net dollars. (GDP = Federal Spending + Nonfederal Spending + Net Exports).

Guaranteed income programs help narrow the income/wealth/power Gap between the rich and the poorer. While reducing poverty, in of itself, is a worthwhile goal, narrowing the Gap also helps address related, social problems:

Wide Gaps affect not only poverty itself, but health and longevity, education, housing, law and crime, war, ownership, bigotry, taxation, GDP, scientific advancement, the environment, human motivation and well-being, and virtually every other issue related to economics. 

The most successful guaranteed income programs share several features:

1. Funded by a Monetarily Sovereign government or by state owned and controlled businesses. This takes taxpayer costs out of the equation.
2. Minimal requirements for participants achieve voter support by making the plan fairer.
3. Significant benefits. Trivial payments, i.e. $100 a month, etc. will not generate positive voter sentiment.
4. Easy entry and supervision. Difficult entry results in negative feelings by voters. Easy supervision lowers costs.
5. Easily understood goal.

A national Social Security for All plan, with a minimum benefit if $5,000 per year for each adult (18 and over) and $2,500 a year for a child would begin to address the abovementioned social problems.

The Cost:

The U.S. has about 260 million adults (18+) and about 70 million children.

At the $5,000/2,500 level, the benefit cost of the Social Security for All would be $1.3 trillion for adults and $175 billion for children, totaling somewhat south of only $1.5 trillion.

Why do I say “only”? By comparison:

1. 1. In 2023, the federal government spent about $6.2 trillion.
   2. The Gross Domestic Product (GDP) for the year 2023 had a current-dollar value of $27.36 trillion.
   3. In 2023, the U.S. federal government collected a total of approximately $4.71 trillion in tax revenue.
   4. In fiscal year 2023, the federal government’s spending exceeded its revenues, resulting in a deficit of $1.70 trillion
   5. By the end of 2023, the cumulative federal deficit was $26.236 trillion.
   6. The U.S. M2 money supply is about $20 trillion.

Given that:

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”

and

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

A Monetarily Sovereign government spending $1.7 trillion to send an additional $5,000 to every adult and $2,500 to every child — and at no cost to anyone — would seem to be a bargain price and a great investment for America.

Further, because of the multiplier effect*, that additional $1.7 trillion in federal spending, would increase Gross Domestic Product far more than $1.7 trillion.

*Per Investopedia:
A government increases spending or decreases taxes in part to inject more money into the system.

Such fiscal policy has a multiplier effect. That is, every dollar spent can be expected to cause an increase in the gross domestic product (GDP) by more than a dollar.

This is due to the sheer momentum created by the policy. Consumers spend more so businesses produce more goods.

Businesses have to hire more to produce more goods, so more people have more money to spend on goods.

The same phenomenon occurs for both government spending increases and tax cuts. Either tends to increase GDP disproportionately.

A cut in government spending can reduce GDP by a greater degree than the amount saved by the cut.

The expanded Child Tax Credit had a multiplier effect of 1.25 on GDP in the first quarter of 2021, according to an analysis by Moody’s Analytics. The increase in the Supplemental Nutrition Assistance Program boosted GDP by a 1.61 multiplier effect in the same period. Increased defense spending had a 1.24 multiplier effect.

Infinite benefits at no cost to anyone: Can any knowledgeable person object to Social Security for All?

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY