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Silicon Valley’s quest for a basic income in the US just got a boost from a $1.4 trillion tax proposal in Congress

September 15, 2017
In The News

The White House is bracing for a tax reform fight, with Democrats already on guard against any plan rewarding the rich (US president Trump now denies this will happen: “The rich will not be gaining at all with this plan,” he said on Sept. 13). On the other end of the spectrum (and the country), Silicon Valley congressional representative Ro Khanna is introducing his own plan: a $1.4 trillion tax credit that could move the US closer to something resembling a universal basic income (UBI).

Khanna, whose district includes the headquarters of tech’s biggest companies, co-sponsored the Grow American Incomes Now Act (GAIN) Act this week to massively expand of the earned income tax credit (EITC), the federal tax credit for low- and moderate-income workers. In broad strokes, it lays out the blueprint to start assembling an American UBI, a minimum payment for all US citizens (at least those who work).

Khanna’s bill, sponsored with Ohio Democrat senator Sherrod Brown, would nearly double the EITC for families with qualifying family of two seeing an increase to $10,783. Childless workers would see their maximum credit rise six-fold from $510 to $3,000. The bill, which is expected to cost $1.4 trillion over 10 years, would be paid for by taxes on financial transactions and top earners. All of GAIN’s benefits would flow to poor and working class workers as the credits phase out as incomes top $75,940 a year for families of three or more.

“I think it’s going to be our party’s answer to Donald Trump on taxes,” Khanna told the San Jose Mercury News. “While he’s proposing tax cuts for the investor class, we’re proposing support for the working and middle class.”

The EITC, introduced in 1975, has won plaudits from liberals and conservatives as a cost-effective way of lifting millions out of poverty each year (only social security has a bigger impact). Studies of the cash transfer program show it boosts employment, increases student achievement, and cuts crime, delivering billions of dollars in social benefits (although some have derided the fraud in the program).

Khanna is pitching the GAIN Act as a way to put cash back in the pockets of the poor and middle class who missed out on nearly all the nation’s productivity growth since 1979. Except for the highest-paid workers, wages have been stagnant for almost 30 years (pdf). Millions of poor and middle class have been thrown into short-term jobs with low wages and uncertain hours that account for almost all new net US employment in recent years. Khanna argues his bill would effectively compensate these workers for wage stagnation, as well as make up the decades of losses for the bottom 20% of earners.

It’s hardly surprising the bill would come from Khanna whose district is home to Intel, Nvidia and other technology giants. The industry’s wealth, in many cases, has come from automating traditional, routine jobs with more efficient software and hardware. As a generation of ill-equipped workers faces shrinking opportunities in the new economy, Silicon Valley sees a basic income, or an EITC, as a way out of this economic train wreck (and perhaps absolution for their role in this latest phase of “creative destruction”).

Erik Brynjolfsson, director of MIT’s Initiative on the Digital Economy, says the EITC may be the ideal vehicle for the US to keep people in the workforce and support the private sector, while rebalancing the distribution of profits. But time is running short to make the economy work for everyone. “We’re likely to see a lot more disruption in the next decade than we’ve seen in the last,” he said in an interview. “There’s a big opportunity in tax reform. … The national conversation needs to be not just about making the pie bigger, but how do we share prosperity.”

Building a constituency for such a bill is tricky. Americans have long resisted building a welfare state as robust as Europe’s (although its similarities with Europe’s are actually far greater than is widely recognized), but politically conservative Alaska may point the way. The northern state, a deep Republican stronghold, has become one of the nation’s biggest proponents of wealth redistribution.

The Alaska Permanent Fund, a $60.1 billion state fund established in 1976 drawing on Alaska’s oil and mineral lease revenue, now sends a dividend check to every Alaskan resident of up to $2,072 per person, or $8,288 for a family of four (it was reduced last year amid a budget crisis from a shortfall in oil revenue). It has become integral to the fabric of economic and social life in the state, with people using payments for essentials, emergencies, retirement and education (only about 20% report spending it on “extras” such as travel and vacation, a pattern in line with other studies). Despite deep skepticism of the plan at the outset, residents would now prefer to raise taxes than scrap their dividends, according to a recent survey.

As division within the Republican party ramps up, the GOP tax reform effort (paywall) is already flirting with the same fate that doomed the repeal-and-replace push against Obamacare. The GAIN Act is virtually certain to founder in the GOP-held Congress as well.

But as a political gambit, it may succeed. The act’s unapologetic call to help poor and middle class workers, an echo of the Democrat’s new “A Better Deal” slogan, may establish itself in the broader political conversation and perhaps even the Democratic party’s platform (at least 50 Democrats have already signed on to the bill). Who knows? If Trump makes a hard-left populist turn, maybe it will enter the Republican’s as well.

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