How to End the Welfare State

How would Republicans react to a proposal that would eliminate the food stamp program, shut down welfare, slash the state and federal workforce, replace Social Security, and end the minimum wage? How would Democrats respond if that same program extended the social safety net across the entire scope of the population, eliminating poverty and fueling opportunity in under-developed areas?

The answer: Both sides would ignore it.

Those seemingly contradictory goals could actually be accomplished with an idea conceived by Libertarian economists. Neither major party, nor the Libertarian Party for that matter, has any interest in the idea but as the “big government” concept rattles to pieces under the weight of modern complexity, this approach to social welfare may rescue representative democracy from itself.

Establishing a universal “Basic Income” would eliminate the administration, politics, and preference that travel in the wake of the welfare state while snuffing out poverty once and for all. Friederick Hayek described the concept in Law, Legislation, and Liberty, Vol 3:

The assurance of a certain minimum income for everyone, or a sort of floor below which nobody need fall even when he is unable to provide for himself, appears not only to be wholly legitimate protection against a risk common to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born.

Milton Friedman worked with the Nixon Administration in 1969 to propose something along these lines, calling it the Family Assistance Plan. The effort failed in Congress and has not been revisited in a serious manner.

Scholars meanwhile have kept the idea alive. Charles Murray, of all people, has formulated what may be the best plan. It involves paying every adult, regardless of need, a minimum monthly income sufficient to stave off poverty, probably about $10,000 a year.

There would be no needs analysis, no application, and no bureaucracy to decide who gets what. Everyone would receive a basic income on a monthly basis.

Income tax and a surcharge to recover the grant would start at around $25,000 in earnings. This would avoid work disincentives and the complex qualification standards that plague current welfare measures. The surcharge would end at the first $75,000 in individual income, taxing away only half of the grant.

In order to be effective, the program would have to be augmented with a universal health insurance measure. Murray rejects this concern, but that doesn’t make it go away. Without universal insurance, health costs would destroy the impact of the minimum payments. A tax-funded, state-administered, private health insurance program might be the best fit.

At current population levels, a basic income would carry an annual cost of around $2.4tr. That’s roughly double what we spend on welfare programs and Social Security now. The price tag sounds high until the savings are calculated.

To meet the $2.4tr revenue goal a budget might be structured as follows. Phase out Social Security (value accrued to current payees would have to be paid), and eliminate the rest of our suite of welfare programs. That saves currently about $1.2tr.

A 6% consumption tax would bring in about $300bn (the dynamics of a basic income might drive this revenue much higher). The tax surcharge would recover approximately $700bn. The remaining $200bn would come from a personal income tax increase of about 15% if it were applied across the board. That means an earner in the top 5% who currently pays on average almost 21% of their income in federal income tax, would instead pay roughly 24%. If we decided to keep Social Security or something like it, the income tax increase would be roughly double to cover the gap.

Such a modest tax increase could fund the end of the welfare state as we know it, end poverty, slash the size of the state and federal bureaucracy, and shrink government to a pre-World War II scale. Other benefits could include revitalization of our dying countryside, improved range of options for young people pursuing a continuing education, and support for mothers or fathers who wish to take time out of the workforce to raise children. It is solid value for the money.

Despite the potential advantages, there is little if any support for this concept on either side of the political spectrum. For all its promise, the pursuit of such an ambitious plan raises valid questions, some of which are nearly impossible to answer with certainty.

How would our lives, economy, and culture change if no one ever faced the possibility of being penniless? By opening up basic support to everyone, would we see massive new influx of entrepreneurship and risk-taking, or a great new age of sitting on the couch consuming entertainment?

Traditional conservatives are queasy about a basic income because it replaces one massive social engineering scheme with a brand new massive social engineering scheme. Liberals resist removing government from its nanny role. They fear the impact of an ownership-oriented social safety net on those who they feel need the benevolent guidance of government bureaucrats.

Circumstances may soon force a closer look at this solution. Our bureaucracy was built to tackle the problems of a mid-20^th industrial democracy. That structure is failing under the pressure of a vastly more dynamic economic and cultural environment. Proposals like a basic income open a window to adaptation that could preserve the features we value in our government while stripping away much of its ponderous bulk. The idea has its problems, but it deserves serious consideration.

ABOUT THE AUTHOR: Chris Ladd is a Texan who is now living in the Chicago area. He has served for several years as a Republican Precinct Committeeman in DuPage County, IL, and was active in state and local Republican campaigns in Texas for many years.