How Much Government Money Could You Get?

So, suppose we implement the Free Money for All proposal. How much is your share? That depends on how much tax we are willing to collect to give out as a universal stipend/citizen’s dividend and how many other programs we are willing to shut down. Let’s run some crude numbers using the current size of government and then in subsequent articles we will go into a few more details.

If you pull out your 2011 IRS 1040 instructions and turn to page 97, you’ll find a handy pair of pie charts showing where the government got its money and where it was spent for the previous fiscal year: 2010. This page also has the totals. The government received $ 2.163 trillion and spent $3.456 trillion for a deficit of $1.293 trillion. This huge deficit reflects lower tax receipts due to the recession as well as various bailouts. When I first did this page using the 2008 form, receipts were around $2.5 trillion.

According to the 2010 census, we have 243 million people in the U.S. 18 years old and older. We have 22.5 million non-citizens here. If we assume that nearly all the non-citizens are adults, that comes out to be about 220 million citizens 18 years or older. If we divide all tax receipts by the adult citizen population we get nearly $9,800 per adult citizen, or about $800/month. This is nearly enough to reach the poverty line without having to work at all. Share a house with another dividend receiving adult and you are above the poverty line. (When I first did this calculation using 2008 figures, I came out with $1000/month. Population growth and falling tax receipts mean belt tightening for everyone.)

Even $800/month may be a bit optimistic. We cannot zero out the entire federal budget just to hand it all out for free! Yes, we could dispense with most social programs, federal housing, unemployment insurance, farm subsidies, and a good chunk of Social Security. For the last, we give out the greater of {expected benefits, Citizen’s Dividend}. We might want to continue funding the military and the State Department, which takes 24% of the current budget. And we need to pay the interest on the debt (6%), and a few other functions which need to be at the federal level (interstate commerce law, air and waterway pollution, endangered species protection, etc.)

Then again, maybe not. The Free Money for All proposal is meant to replace not only welfare benefits and entitlements but also many of the existing tax deductions. According to the Mercatus Center, tax expenditures cost the federal government $1 trillion per year! We could dispense with the personal exemption, the standard deduction, the home mortgage deduction and quite a few other deductions. We could also fold FICA and Medicare taxes into the income tax for a flat tax of 30% for 90+% of Americans. (Maybe we throw in a higher tax rate for the truly rich, those making over a half million a year or so. We can let Congress and the talking heads duke it out on that one.)

And once we replace this Gordian Heap’s worth of social programs and tax expenditures with unconditional cash, we can expect the economy to pick back up. Welfare recipients will have reason to work. Businesses will have less tax and regulatory headaches. Big corporations will bring some jobs back from overseas. We’ll soon be able to afford to up the dividend to something like $1000/year, as per my original calculations.

Since some people spend irresponsibly, we might want to require that some of the dividend be spent on catastrophic health insurance -- a point made by Charles Murray in his implementation of the free money for all idea. (BTW, Murray proposed $10,000/year in 2002 dollars, so we might need $1000/month figure to match his proposal factoring in inflation. We’ll suggest differences/variations on Murray’s ideas as we proceed.)

Details, Exceptions and Variations

In the remaining articles in this section, we’ll explore several other ways to calculate how much free money each U.S. citizen should receive. In the future we’ll add articles elsewhere on how to handle some of the special cases: who would still need welfare as we know it, who should still apply for government grants, etc. We’ll also explore alternative taxes to pay for the free money. A flat or flattish income tax is a proven and quick to implement solution, but it may not be optimal. We’ll look at the national sales tax idea, pollution taxes, fee for service government and Henry George’s ideas on land value taxation.

For those of you living in other countries, you will need to look up the numbers for your own respective countries. While this is a U.S. centric site, the ideas herein can be applied in most other countries of the world. The amounts will differ, of course, as different countries have different tax bases to work from, and different costs of living. But the principles hold in any country where the government currently has a welfare system or expensive subsidies on basic consumer goods. In other words, the ideas herein may not be appropriate for Somalia. Free money from the government does need to be restricted to citizens of respective countries, however. Otherwise, people will cross borders to arbitrage welfare systems.

Now, back to the United States: what would it take to eliminate poverty? Could we afford this much? Do we need to give more or is this too generous? How should we pay for it? What is the optimum tax system? We will look at some of these questions in the remaining articles in this section. (See the sidebar.)