For the Cost of Republican Tax Cuts, We Can Give Working Americans Up to $18,000 a Year

Instead of corporate tax cuts for big companies that can be used to create more robots, we could allow Americans to benefit from the wealth automation creates.
May 8, 2017, 2:00pm

Gregory Ferenstein is the editor of the Ferenstein Wire , a syndicated column. Ferenstein helped craft Rep. Ro Khanna's Earned Income Tax Credit policy as part of ongoing project to bring lawmakers and ideas from Silicon Valley together. The work was unpaid.

While newly elected Congressman Ro Khanna was still a candidate, he told me about his interest in authoring an ambitious tax credit, one that would give trillions of dollars to middle- and low-income working Americans.


At the time, the idea was a mere novelty to me. It was a fascinating symbolic gesture that I knew my readers in Silicon Valley would find provocative, especially considering that many tech leaders—from Bill Gates to Elon Musk—were becoming fans of large cash transfers from the government to people as an answer to inequality and automation-spurred job loss.

The threat of mass automation and the subsequent need for a "basic income"—money provided by the government to its people to offset the costs of the most basic human needs—is often spoken about as something we won't really need to implement for many years down the road. But after the election of Donald Trump, I became convinced that tech had underestimated just how desperate Americans are for change and how much they fear their futures; voters had rejected incrementalism.

It turns out that the United States government can afford to offer Americans up to $12,000 a year, which would cost about as much as one of Donald Trump's latest tax reform proposals

Indeed, one of the strongest predictors of support for Trump, according to economist Jed Kolko, was the percent of a region's workforce that is vulnerable to automation.

Perhaps, I thought, it was time to stop talking about the threat of political backlash from robots as some futuristic possibility and leverage America's craving for ambitious change to implement policies that could allow them to actually benefit from technological disruption.



Image: Ro for Congress/Flickr

The dream of basic income isn't some bloated welfare state where people are paid to loaf around playing video games. Many in tech see government cash funding a world where everyone can have an interesting job and maximize their creative potential.

At the moment, an unconditional cash transfer of more than $10,000 to every American would be prohibitively expensive—costing as much as $3 trillion a year by some estimates.

Instead of an unconditional basic income, Bill Gates has argued that a work-conditional cash transfer program is the practical alternative.

"Even the US isn't rich enough to allow people not to work," Gates wrote in a recent Reddit AMA. "Someday we will be, but until then, things like the Earned Income Tax Credit will help increase the demand for labor."

The Earned Income Tax Credit is a widely popular anti-poverty program that doles out between 7 and 30 cents in annual tax credits for every dollar earned on the job.

Under the current EITC, for instance, a single mother of 3 would get a check from the government for roughly $2,200 at the end of the year if she earns $5,000 in yearly income. She'd get a government check double that size if she earns $10,000 a year at work. But, if she makes $35,000, the check would be the same size as if she earned $5,000.

Image: Center on Budget and Policy Priorities

The inverted u-shape payout curve of the EITC is supposed to encourage more hours of work for America's poorest people by offering more cash for every dollar earned on the job. The credit then slowly phases out as individuals earn more than poverty wages. It's essentially a progressive income floor that's adjusted by yearly income.

The EITC began as the brainchild of libertarian economist Milton Friedman in the 1960s and has enjoyed bipartisan support ever since. Leaders of both parties, including Speaker Paul Ryan and President Obama, have supported expanding the EITC by modest amounts (President Obama proposed doubling the credit for childless workers to about $1,000).


Up until now, tax credits for low-wage workers have always been viewed as an anti-poverty program. But, economists are now beginning to argue that the same economic growth could occur by giving tax credits to ordinary Americans, rather than corporations.

Anyone who could earn $12,000 a year driving part-time for Uber would get a matching $12,000 from the government

MIT economist Andrew McAfee, author of a new book on automation, Machine, Platform, Crowd, told me there's reason to believe that an expanded EITC could help the economy as a whole.

"The EITC is a direct incentive to enter the labor force, and to work more hours, up to a limit," McAfee said. "The research is pretty clear that it works as designed. So I support expanding it: making it both bigger and available to more people."

I decided to put down my journalism hat and start directly helping policymakers willing to take Silicon Valley's ideas seriously. In Khanna's case, I convened experts who knew how to calculate just how much money it would take to offset the effects of automation on middle-class wages. I asked the Tax Policy Center's economist Elaine Maag to imagine the biggest tax credit she thought was feasible.

It turns out that the United States government can afford to offer childless working Americans up to $12,000 a year and up to $18,000 for large families. In fact, at a price tag of roughly $700B a year, this super tax credit would cost about as much as one of Donald Trump's latest tax reform proposals. Anyone who could earn $12,000 a year driving part-time for Uber would get a matching $12,000 from the government.


In other words, the creative utopia that Silicon Valley imagines is already affordable.

Instead of corporate tax cuts for big companies—which may just be used to create more robots—we could use the money to transition the workforce into the creative economy, allowing many Americans to participate in the wealth creation of technological progress.

Khanna plans to introduce a bill this Summer into the powerful House Budget Committee to expand the EITC up to $12,000 a year for families, 6,000 for childless workers. This is smaller than the maximum credit drawn up by Maag, and is more politically prudent. According to the Tax Policy Center, Khanna's (still-forming) plan will cost somewhere between $1-2.5 trillion over the next decade, roughly equal to the corporate tax cut plans currently being debated by House Republicans (which is probably more politically realistic than Trump's massive proposal).

Khanna's plan isn't as revolutionary as the idea of guaranteeing a living wage through cash transfers, but it would nonetheless be a historic step toward that goal. With a large enough tax credit, anyone could work part-time while studying architecture, writing a book, or trying to create the next Facebook.

A lot of economic and policy work needs to be done to understand how we could support a work-conditional basic income economy full of artists, engineers and entrepreneurs—perhaps other living costs, such as housing, would need to be reduced to make the scheme self-sustaining. And it remains to be seen whether a $700 billion a year program will be sustainable over the long run.

But a basic income economy and universal creative, fulfilling work is no longer science fiction. It's within reach and worth serious exploration.

Details of the revenue estimates are provided by Elaine Maag of the nonpartisan Tax Policy Center, based on a plan first popularized by Chuck Marr , a finance expert at the Denver-Based Center for Priority Based Budgeting fiscal think tank.