Our party has created a national dialogue about record corporate profits and taxes on the rich, yet forgotten the poor and middle-class. While Federal taxes are, on the whole, progressive, millions of working Americans struggle to pay for their homes, food, and healthcare. Unemployment and underemployment deny many full access to a fair minimum wage.
To combat poverty and ensure economic fairness, we must ensure all Americans share in our economy's wealth and productivity gains. We must provide a strong social safety net on top of this foundation. To these ends, Congress and the State of Maryland must produce:
- A Federal Universal Dividend to give all Americans a modest share in our productivity
- A stronger welfare state
- Permanent solvency for the Social Security system
A Universal Dividend
I support—and designed—a Universal Dividend, giving every American a share in our nation's growth. I've modeled the Dividend on our tax structure up to 2017, before the abomination that is the Tax Cuts and Jobs Act. Compared to the Act, the Dividend provides greater, permanent, and continuously-growing benefits to the poor and middle-class, while remaining revenue-neutral to a pre-TCJA tax code.
This benefit grows without an increase in the tax rate, lifting the poor from poverty and raising the standard-of-living of the middle-class. Behaving simultaneously as an anti-poverty aid package, stimulus, and tax reduction, the Dividend is a keystone policy in eliminating poverty, protecting Social Security, reducing the tax burden, creating and stabilizing jobs, preventing and recovering from recessions, and reducing our Federal deficit.
The Dividend is a new Social Security benefit which restructures our income tax system, then builds Social Security's OASDI benefits on top of the result. It initially replaces the Earned Income Tax Credit—paid once-yearly to low-wage earners—with a larger, unearned benefit paid twice monthly. To compute the model, we:
- Incorporate FICA for Social Security's Retirement and Disability benefits into the existing tax brackets.
- Calculate the portion of Federal income tax plus FICA revenue represented by Old Age, Survivors, and Disability benefits ($910.4Bn), the refunded portion of EITC ($60.6Bn), and 1/4 of TANF, Housing Assistance, and SNAP ($34.38Bn).
- Proportionally reduce all tax brackets and the (35%) Corporate Income Tax by that portion (40.2%).
- Add a Dividend tax (14%-15%) onto all income, excluding tax-deferred savings such as 401(k) and IRA.
- Distribute the Dividend revenue equally among all adults.
- Set FICA to fund the difference between the Dividend and OASDI's full retirement and disability benefits.
I target a 10% Dividend; however, the initial Dividend must guarantee Social Security's solvency at full benefits and without retirement age increases with a FICA completely fit into the payroll tax portion.
The Dividend gets its funding source in part by this restructuring of Social Security to begin paying out at age 18 (target 16). The other part is by its scaling: everyone receives the same Dividend, and the income after taxes increases most for those with the least income, and less as incomes increase. The tax rate is slightly-higher before accounting for the Dividend as a tax refund.
Because the Dividend funds from an uncapped, flat income tax source, it grows with GDP-per-capita. That means it outpaces a cost-of-living adjustment (COLA), reducing the tax burden over time, cutting into poverty, and unburdening Social Security.
Impact on Jobs
The Dividend generally lowers tax burdens while putting money directly into the hands of the poor and middle-class consumer. In 2016, the Dividend would have brought over $2 billion into Baltimore's economy and over $30 billion into the state of Maryland—over 8% of our state GDP.
More consumer spending drives the creation of new jobs, whether that be in retail, services, or manufacture. Job creation has a reciprocating effect: new jobs means new productivity, which in turn means a higher Dividend. Tying minimum wage increases to the Dividend drives a higher wage for many of our workers with this productivity increase, folding even-larger gains back into the hands of working families.
Our welfare system serves a great many people in need. In 2015, 781,035 Marylanders participated in the USDA's SNAP program—as many people as are in an entire Congressional district. Over 94,000 low-income households received housing assistance. These programs, together, bring over $2 billion of Federal funding into the State of Maryland each year, spent into our economy as a job-creating stimulus on top of the direct impact on struggling households. Yet many Marylanders—and 41 million Americans across the nation—continue to struggle with homelessness and food insecurity.
Today, one of every four HUD-qualified households receives a housing assistance benefit, while the rest wait their turn. SNAP doesn't provide enough for a healthy diet, frequently leaving people without enough food for the month. TANF programs have all kinds of limitations, and the program hasn't kept up with inflation. Clearly, our public aid programs need help.
Increasing these benefits requires further raising taxes, with additional outlays in the hundreds of billions of dollars. Instead, I propose the Universal Dividend as a new foundation for our public aid programs.
The Dividend will move many lower-income families above the poverty guidelines, and most others close to it. This allows housing assistance, SNAP, TANF, and other aid to reach more families with a greater impact. The jobs created by the Dividend will further reduce the number of struggling households, easing the load on these programs further.
In three months, the landlords will be struggling to build new apartments fast enough to house everyone who used to live in a tent, and nobody in Maryland—or the entire nation—will go hungry.
This approach sharply reduces middle-class taxes, rather than raising them. Because the Dividend grows faster than COLA, it continues to further reduce poverty, welfare program load, and tax burdens at the Federal, state, and local level.
By making people less-poor, we reduce—but do not necessarily eliminate—the need and therefor cost of welfare.
Protecting Social Security
Social Security supplies the Dividend as an income-tax-funded benefit dictated by the Dividend tax rate, not as a cost-of-living adjusted benefit. Because of this, the Dividend cannot become insolvent: its obligations are in terms of what it collects, rather than in a promised benefit amount. Social Security's other obligations—retirement, survivors, and disability pensions—are built on top of the Dividend: they promise a total benefit, including the Dividend plus additional payment.
Since the Dividend grows faster than COLA, this structure steadily reduces the burden on Social Security's retirement, survivors, and disability Trusts. By 2024, the Trusts will have an increasing balance unless we increase benefits or lower FICA taxes. In this way, the Dividend provides guaranteed Social Security solvency.