The United States government currently spends over $4 trillion per year on welfare and entitlement programs, redistributing over 80 percent of our nation’s annual tax revenue through a gauntlet of outdated and inefficient programs.
To many, the above sentence is sacrilege. Welfare programs like food stamps, housing vouchers, and supplemental security income are a bedrock of democracy and fair economics, I hear you say. And that may be true, but there is also evidence that these programs have prevented many Americans from earning their own money and building their own wealth, creating perverse incentives to depend on government funding and entrapping too many in poverty.
There is also the very real problem that Social Security faces insolvency by 2034, at which point benefits are expected to be cut by 20%, creating yet more poverty. Our health care system, which accounts for over 18% of GDP, is almost 50% more expensive in terms of percentage of GDP than any other system in the world, even though we rank 48th in terms of life expectancy.
The sad fact is that half a century after President Lyndon Johnson announced an “unconditional war on poverty,” official poverty rates are at about the same level as in 1970. What we have created is a system that is both dysfunctional and unsustainable. Our national debt is now rising past $34 trillion, or 120% of GDP, which is up from 60% of GDP 20 years ago, driven primarily by the costs of our welfare and entitlement programs.
We have no choice but to develop an alternative to our broken system. My proposition – and I am running for Congress on it in California’s 46th District – is to gradually phase out all of our existing welfare and entitlement programs, including Social Security and Medicare, and distribute the funds equally to both workers and non-workers.
Some call this UBI – universal basic income. I call it smart economics.
Four trillion dollars is a lot of money – enough to fund a basic income of $16,000 per year for every citizen 21 and older for the rest of their lives. A quarter of this amount, $4,000 per year, could be designated for health insurance costs. At current prices, this would be enough to pay for an individual’s catastrophic plan with an $8000 deductible. We would have universal health care with private insurers. The remaining $1,000 per month could be paid directly into individual bank accounts through the Social Security Administration, and people could use this money however they want. Setting aside the transition costs of grandfathering in people who are already in, or within 30 years of, retirement and given our citizen population of 225 million who are 21 and older, such a system would cost at most $3.6 trillion per year, $400 billion less per year than the programs to be replaced.
I hear you grumbling: How, what, when, why? You’re crazy! Impossible! But let’s imagine for a moment how this system would change lives. People on existing welfare programs would be released from the rules that restrict their income, assets, and living situations, allowing them the freedom to direct their own finances. The basic income would become an asset, like current welfare benefits, with the difference that it could be used for any kind of expenses as well as savings and investments to build long-term wealth. Instead of an asset requiring inactivity (remaining unemployed), the basic income would jumpstart its opposite. Studies of similar programs in the US and across the world, such as the Alaska Permanent Fund or Native American gaming distributions, have shown that individuals do not tend to waste such money on drugs and alcohol but use it to build up long-term assets.
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Working families would benefit most from my plan, because they currently pay into a welfare system without reaping any immediate benefits. How many times have you heard: Why should I work so hard to support those who don’t? Basic income could help diffuse political – and economic – polarization. The biggest change would be that working people would receive benefits previously reserved for the non-working. An individual who works a day job could start a small business at night. A married couple, receiving $32,000 per year, could get ahead in saving to buy a house or to build up a retirement fund.
Local economies would also be boosted by this plan. With citizens each receiving $16,000 per year, spending decisions would be made by individuals rather than the federal government, shifting more economic decision-making to the local level in ways that would directly support small businesses and community organizations.
Half a century is a long time for a welfare system to grow up and become too old. Americans deserve a new system that can introduce an era of socioeconomic mobility and opportunity for all. This new future is within reach. We just have to choose it.
David Pan, a candidate for California’s 46th Congressional District, is a professor at the University of California, Irvine, and a former McKinsey consultant.
