Through employing a variant of a capitalistic free market system.
Note: I am not an economist. What I am is someone with some talent in taking seemingly disparate elements and bringing them together in a new way. Such that the sum is greater than the whole of its parts. The novelist Victor Hugo, whose most famous works are the novels The Hunchback of Notre-Dame (1831) and Les Misérables (1862) once observed that, “No force on earth can stop an idea whose time has come“. This may be such an idea.
Establishing premises: A broad based, abundant economy results in the maximum amount of satisfaction for the maximum number of people. That translates into the societal stability that a people in which all are doing well brings, benefitting even the richest. It is also a given that, sufficient revenues are required for even the least possible governance.
Historical context: America has tried two methods of raising the funds needed to govern. “Before the U.S. Constitution was ratified in 1788, the federal government lacked the power to raise revenue directly. Even after the Constitution was ratified, federal revenues came mostly from tariffs* and excise taxes**. *tariff: A tax on products imported from foreign countries.
**excise tax: A tax on the sale or use of specific products or transactions.
The problem with tariffs is that they economically depress the growth of the domestic economy, since they negatively impact the finances of the middle class and poor.
“During the Civil War, the federal government required much more revenue than the tariffs and excise taxes could provide.”
Accordingly, in 1862 “President Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. The measure created a Commissioner of Internal Revenue and the nation’s first income tax. It levied a 3 percent tax on incomes between $600 and $10,000 and a 5 percent tax on incomes of more than $10,000.Sep 29, 2022”
The tax on income was abolished after the war. America got away with that due to westward expansion and massive immigration. But by 1900 our Manifest Destiny had essentially been achieved and tariff’s no longer sufficed.
“The ratification of the Sixteenth Amendment in 1913 gave Congress the right to levy and collect income taxes. Income taxes tend to be progressive because they tax a larger percentage of income from high-income groups than from low-income groups.”
The problem with an income tax, indeed with all taxation, however justified the need, is that it is nevertheless theft from the individual by the group. Income tax is also inherently unjust, in that it places a disproportionate financial burden upon those with less economic resources. Even ‘progressive’ taxation does so. A 5% tax on income of $30k is more onerous than a 25% tax on income of $150k.
Plus, it is counterproductive, in that it also depresses the domestic economy by limiting the amount of financial resources available for investment. Beyond a minimal percentage, increased taxation results in less productivity and thus in less revenues. Yet our history demonstrates that a minimal percentage of taxation cannot be maintained in the face of the public’s demands upon their representatives for… more.
So another, better means of raising federal revenues needs to be found. Fortunately, that alternative arose out of the discovery of the vast oil field deposits in and off Alaska’s shores.
Alaska’s oil resources were discovered long after the continental US and Middle Eastern oil reserves had begun to be exploited. Someone came up with the idea and then persuaded the Alaskan people of the proposition that Alaska’s oil belonged to the Alaskan people. As owners, they are due monetary compensation from the profit that the sale of their property brings. Accordingly, the Alaska Permanent Fund (APF) was established in which Alaska’s oil is owned by its citizens and managed by the State. (1)
Private companies that wish to develop Alaska’s oil fields pay to the State a percentage of whatever the oil they extract sells for on the open market.
Alaska uses part of that revenue for government operations. That helps to keep Alaska’s taxation at a lower level. Alaska pays out an annual dividend out of the Permanent Fund to every adult Alaskan citizen. As far as I know, Alaska only does this for oil and gas. But if the natural resource of oil in the ground belongs to its citizens, then why would that not apply to all naturally occurring resources? ’Natural Resources’ being defined as naturally occurring materials and processes that are not man made. No individual or group can claim to have a blanket ownership of the air or the oceans or sunlight.
I propose that America embrace what Alaska has done and pass a new constitutional amendment that through the process of eminent domain, all of America’s natural resources be brought into that system. The process of eminent domain would in this case entail just compensation being paid to the former owners of prior private ownership of natural resources. Some common sense provisions for extenuating circumstances would need to be included within the legislation. Developed land, such as homes and businesses already existing could not be simply swept aside to get at the natural resources within the earth. The voluntary selling of land upon which homes and business already resided would be allowed, though only with the provision that such did not impinge upon the rights of neighbors. (I can’t sell out to an oil company, who then puts an Oil Derrick next to your front yard).
Yet Alaska’s oil revenues only amount yearly to an average dividend for Alaska’s residents of $1,600. This despite the fund in 2019 amounting to $64 billion dollars.
Even with all natural resources being subject to this methodology it would not result in revenues sufficient to fund federal and state government operations. (2)
But those revenues could act as a seed from which a tree could be grown, needing only the proper amount of time and protection to reach its full potential.
Which suggests an adjunct method of raising revenue for the Federal and State governments. Happily that method is easily identified and known as the ‘miracle’ of compound interest. Compounded interest is the magic formula for growth in wealth creation. Of course, compounded interest requires it be left to grow and dipping into a ‘Piggy Bank’ is not limited to children. Politicians (“but I repeat myself”), in response to public demand, see government ‘Piggy Banks’ as an irresistible temptation. Giving credit where credit is due, the person who first brought to wider public awareness how to prevent politicians from being able to raid government Piggy Banks was presidential candidate Al Gore in 2000. A former Member of the U.S. House of Representatives, Gore knew exactly how Congress operates and how it dispenses federal revenues. To address the Medicare program’s future threatened financial insolvency, he proposed that future Medicare revenues be placed in a “lockbox”. So that Congress could no longer ‘borrow’ from it, as it has done for decades. Thus preventing the otherwise mathematically certain future bankruptcy of the Medicare program. Gore lost the election and political apathy and Congressional intransigence prevented serious consideration of his idea. The Medicare program is now projected to run out of money in the 2030’s.
Again giving ‘the devil’ his due, Congressman Paul Ryan fairly early in his time in Congress proposed a method for privatizing federal entitlement programs like Social Security by incrementally and conservatively investing Social Security funds in the stock market. Ryan rightly saw that money invested in the stock market over the typically 40 years of a person’s earning years resulted in far more growth than does the current methods used by Social Security. As currently formulated, Social Security is a Ponzi scheme, one that falls apart when succeeding generations number greatly less than prior generations.
Ryan’s proposal was demonized by the Democrats along with little support from congressional Republicans and it too never received serious congressional consideration.
These three factors; citizen ownership of the country’s natural resources, Al Gore’s ‘lockbox’ and the ‘magic’ formula of compound interest form the core of my proposal.
Revenues collected from fees paid by private companies for the use and extraction of natural resources would be funneled into a ‘lockbox’ and invested in safe, solid investments. No withdrawal of those funds could take place for a minimum of 60 years or more. Yes, for this to work several generations would have to sacrifice and invest for the well-being of future generations. I know, good luck with that… but the alternative is the mathematical certainty of sovereign bankruptcy and far greater economic misery for those adults then living who refused to embrace disciplined sacrifice.
I envision several steps to this proposal. After the fund in the lockbox grew sufficient to allow for withdrawals, for every dollar withdrawn, an exact reduction, dollar for dollar in federal and state taxation would be required by federal law. Firm limitations on the percentage that could be withdrawn would have to be written into law, so that the principle could continue to increase.
Eventually as the withdrawals from the fund increased, income taxation would decrease until it was eliminated. Indeed, if properly managed the fund would increase astronomically, as there is no inherent limit to the growth of compound interest, literally growing into the trillions of dollars. The inescapable result would be that all taxation could be eliminated with literally all social welfare programs funded, at least those that are actually needed. Withdrawals would be strictly limited by law to a certain percentage of the fund, such that slower but continued growth would occur in the fund. That would ensure that as the principal continued to grow, revenues both to the Federal and State governments would gradually increase.
But wait! There’s more! The second step in the process would be initiated once all taxation by federal and state governments had ceased. At that point, the fund having grown to a predetermined point, dividends could begin to be paid out to the citizen’s individual lockboxes. Those dividends to the citizens would also increase overtime. An additional provision is that funds paid to citizens would start at birth, but could not be withdrawn either until retirement or possibly after 18, with some percentage of the funds able to be withdrawn by the citizen under certain conditions, such as payment of excessive medical expenses, attending a trade school, furtherance of education or starting a business.
Such that in a century or two, the funds within the lockbox would both entirely replace the revenues needed for the operation of governments and would provide a Universal Basic Income for every citizen. Which I believe will become an inescapable necessity, given the future conditions that will arise with the development of the G.R.A.I.N. Technologies. Intelligent robotics are already eliminating many unskilled labor jobs. Yet the G.R.A.I.N. Technologies also have the potential to usher in an age of unprecedented abundance. The talented will find uses for their talents and the indolent and average will have a sufficient income to live comfortably.
Properly managed, the lockbox would continue to grow, and so too would the amount of Universal Basic Income paid out to the individual citizen. Every generation would receive a bit more than the prior one.
In principle, there is no essential difference between passive dividend income through ownership of conventional stocks and/or returns from bond ownership and, what is essentially a Universal Basic Income derived from shared ownership of a country’s natural resources. Mathematically and pragmatically, I can see no basic, factual objection to this proposal. What works for the rich can work for everyone. It’s not a matter of smarts but of the will to put resources to efficient use.
Of course as a wise man once observed, “Man is not a rational animal, he is a rationalizing animal.” So abuse of any system is a given. The real issue is what can be done to reduce abuses as much as possible. “There are no ‘solutions’, only trade-offs” Thomas Sowell
So careful and strict provisions would need to be put in place that could not be revised without perhaps 90% of the country’s citizens voting in favor of that proposed revision. I well recognize that what can be done, may not be possible to do, given social and psychological realities. But what may not be possible today, may become essential, once enough pain has been experienced. Delayed gratification is as healthy a habit for a society, as it is for the individual. Impulsive indulgence leaves Jack and Jill living on the precipice, forever in debt and utterly dependent upon getting that next paycheck. Pain is the body’s feedback mechanism to correct dysfunction. So too is sovereign bankruptcy a society’s feedback mechanism. Ignorance is curable, stupid is forever. As Robert Heinlein observed, “Stupidity is not a sin, the victim can’t help being stupid. But stupidity is the only universal capital crime: the sentence is death, there is no appeal, and execution is carried out automatically (by nature) and without pity.”
America is in the position of paying now or paying far more later.
1) “As of 2019, the fund was worth approximately $64 billion that has been funded by oil revenues and has paid out an average of approximately $1,600 annually per resident (adjusted to 2019 dollars).[5] The main use for the fund’s revenue has been to pay out the Permanent Fund Dividend (PFD), which many authors portray as the only example of a basic income in practice.”
(2) “According to the National Association of State Budget Officers (NASBO), Alaska’s total expenditures in fiscal year (FY) 2022 were $14.4 billion, including general funds, other state funds, bonds, and federal funds.”
The View from Britain 