The Freedom Dividend may not be as free as you think
By Steven W. Trettel
So, as many people who have known me in my youthful days will attest to, I had no concerns for the “unimportant” matters in life such as finance, work, or how to properly open a cup of apple sauce, but that’s besides the point. When I was young, my parents gave me an allowance of seven dollars a week. I did not care where these seven dollars came from, the only thing that mattered was that I got money and that meant more Legos. This system worked out great until my parents began demanding labor for my money. For an eleven-year-old who lives on a street so steep that a lemonade stand would mean having lemonade pour out of the pitcher at a steady sixty-five-degree angled stream, the idea of having to do chores to earn my meager wage sounded quite unappealing. That is, until I was offered a job doing contract work which meant earning almost double what I earned a week, per hour. The idea of getting paid this much convinced me that work wasn’t such a bad thing, and we were all better for it. My parents because they didn’t have to pay their money-grubbing son seven bucks a week, me because I learned the value of hard work and the value of being paid, and my boss because he had someone to assist him in his work.
While that was quite a lengthy anecdote, I think it perfectly encapsulates the situation with the social security dilemma. I could not agree more with Presidential candidate Andrew Yang in that the social security system is excruciatingly broken and must be fixed as it has become a black hole that sucks in retirement money with a greedy smile. Yet, I believe our opinions differ on the matter of how to fix it. While presidential candidate Yang’s idea of a “Freedom Dividend,” is certainly an interesting and creative proposition, I do not believe that it would effectively work in our economy as it stands.
Before I address what, I find to be some issues in the argument for the “Freedom Dividend,” I must first say that no matter how you slice it, the policy would be better than the trash fire we have now. The line of thinking that, instead of having someone pay into a fund to get paid later in life, we should just give the person money, is reflected by the economist Timothy Taylor in a lecture he did with the Great Courses.
However, the issue with this policy is the matter of where the money would come from. Since people won’t be paying into this the thousand dollars per month, per person over eighteen, the government must take the money from somewhere. Yang proposed that taxes be raised. The taxes he is thinking of raising are the value added tax, along with a carbon tax. Now, taxing carbon is a bit of an issue in that it is almost universally used by Americans. So, only the poorest of the poor would not be affected by this tax. But everyone who does use carbon including the lower class, middle class, and upper class, would be taxed. To put it a better way, anyone who buys a pencil (graphite is made with carbon) will be taxed. Along with this, Yang proposes to incorporate a larger value added tax to pay for a majority of his Freedom Dividend. The issue this proposal shares with the carbon tax is that the money would also be coming out of citizen’s pockets. Any person who owns a business in the manufacturing chain will have to pay extra to the government. Along with this, if the entire stock of said product is not sold, the people purchasing the product will have been taxed as well. Now, this seems slightly counter intuitive as with certain people, a large portion of their thousand dollars would go to paying taxes. In a way, it almost seems as if the “you get what you pay in,” mentality of social security would be better.
Another issue with these thousand dollars per month payments, is that it very well may completely reduce the incentives, for people actually receiving them, to go out and find work. While one thousand dollars might not seem like a lot of money, I know that I could feed myself for a month with a budget half that size. Top Ramen might not be the healthiest meal, but its cheap and can be used in a lot of ways. This seems like it might run into the same issues that welfare has, with people abusing the system when they could be searching for or have another job. With this system, there is a constant payment. If you want to abuse the system and not work, it seems very easy to do so. Add this with Mr. Yang’s belief that the “Freedom Dividend,” would be stackable with other benefits, and you have a recipe for disaster. If this policy were enacted, you could go out, get your Freedom Dividend, grab your Welfare check, along with any other benefit you would be receiving and this would allow you to live, jobless, for as long as you please. Despite current issues with Social Security and Welfare’s abuse, these issues would increase massively if Mr. Yang’s proposal was put into action. For this policy to work, the government would be counting on the absolute moral purity of every citizen of the United States. As we saw above, when I was receiving an allowance, I didn’t have to work for it, but when my parents began to make me do chores for the money, I was less incentivized to do so, as I had been spoiled with free money for so long that I didn’t want to work. This is a common problem with policies like welfare and the “Freedom Dividend.”
I do think that Mr. Yang was close to a feasible solution, however. The key lies in his quote, “There's zero bureaucracy associated with it.” We don’t want the government to be involved with the social security policies. As we have seen, they have been like the five-year-old who keeps stealing from the cookie jar, and even though there are no more cookies left, they still check every day in hopes that Mom will make more. My proposal is to reinstate social security. This might sound a bit confusing since I agreed that social security as it stands is a trash fire. My change, however, comes in that it would be a privately-run organization. This shares similarities with what is known as the “Alternate Plan.” Now, many times the funds in these private accounts are plugged into the stock market which, while nice looking when the economy is growing, looks very sad and scary as the money is lost when the market drops. This could be mitigated by the use of a financial adviser/planner. There is a reason why the industry of investment firms has not gone out of business yet, and that is because of these advisers’ big beautiful brains. With proper planning, even in downturns in the economy, the money invested would continue to grow. On the off chance that a person loses their investment due to a bad investment, there would be a sort of refund policy that could be implemented. There is physical proof that this concept works as well. The Texas counties of Galveston, Matagorda and Brazoria have all implemented this plan and have seen significantly more success, along with larger growth in the savings of the people on social security, since they adopted the policy in the eighties.
While Andrew Yang’s idea of a, “Freedom Dividend,” sounds lovely on paper, it would not be a sustainable replacement for social security. This is due to its easily abusable nature and its taxing practices which would tax nearly every person being given the` payments, thus reducing the amount given. A better alternative would lie in changing the system so government can’t get its grubby little hands on it, and having the social security be personalized. It would not be mixed with the issues of welfare, and it would not run the risk of being unable to pay back the original investments, due to the money being strictly used for the people’s retirement funds. It is for these reasons that the “Freedom Dividend,” would not work.
Steven Trettel is a homeschooled highschooler in an AP Macroeconomics class. This is his first contribution to Enter Stage Right. © 2019 Steven Trettel