A Plan to Address Income Inequality
“The future is not what it used to be” may be an apt response to my previous two blog posts. Big changes are in store.
In “Diverging Demographic Destinies” I reviewed the disconnect between the fast-growing population over age 65 and retired, and the relatively smaller population age 15-64 in the labor force expected to support services for persons over 65. This change is occurring in all parts of the world.
In “Technology and the Work Force” I wrote about recent studies that addressed how automation can be expected to replace many low-skilled, repetitive jobs while creating new jobs requiring advanced technical skills. Although analysts see jobs created outnumbering jobs lost, not all future jobs will require advanced technical skills. A significant share of new jobs will be in fields such as health care that involve personal interaction not replaceable by machines, and many will be low-paying.
The prospect of fewer jobs and/or lower-paying jobs has prompted discussion of a universal basic income, or UBI, about which I wrote in “Experimenting with a Universal Basic Income.” A basic income, adequate to provide essentials, would be distributed to all citizens. Canada, Finland and Oakland, California have experimented with the concept. The UBI would provide a floor that would prevent people from falling into poverty, addressing inequality to some extent.
A recent proposal for a national distribution of income to all citizens comes in the form of a social wealth fund, defined as “collectively held financial funds, fully owned by the public and used for the benefit of society as a whole.” “Sovereign wealth funds” and “citizen’s wealth funds” are similar names for the same concept. The proposal, by lawyer and policy analyst Matt Bruenig, is called the American Solidarity Fund. He compares it to the Alaska Permanent Fund, set up in 1977 funded with oil royalties. Those funds are invested in a diversified portfolio; over 34 years it has an average return of 8.78%. The dividend paid to each citizen of the state has been as high as $2,072, or $8,288 for a family of four.
Bruenig’s American Solidarity Fund would be owned by the citizens of the United States, with each citizen receiving one share. Shares would not be transferable and would return to the fund upon the owner’s death. As Bruenig proposes, “the government will gradually accumulate assets for the fund to manage, such as stocks, bonds, and real estate. As the assets under management increase, the value of the shares held by the citizen-owners will increase.” Citizen-owners will be paid an annual dividend from the income earned by the fund.
The annual dividend would be a percentage of the five-year moving average of the fund’s market value. In his example, a 4% distribution based upon a five-year average fund value of $10 trillion would be $400 billion. Bruenig does not estimate what the market value of the fund could reach, but for comparison he reports that the current collective net worth of all U.S. households and nonprofit organizations is approximately $100 trillion. Using Bruenig’s distribution of $400 billion for calculating individual dividends, the dividend per person for the 2017 estimated U.S. population for 325 million would be $1,228, and a family of four would receive $4,912.
In addition to Alaska’s Permanent Fund, Bruenig compares his plan to existing plans in other U.S. states: the Texas Permanent School Fund, Utah’s State School Fund, and Oregon’s Common School Fund. Bruenig states that the Alaska Permanent Fund is the only social wealth fund in the world that pays an annual cash dividend. He believes the concept applied to the whole country would be a significant step toward reducing income inequality.