A couple of months ago I wrote about letting human interest drive the minimum wage debate and how we are better off as a party arguing from a person centered position rather than a business centered position. Another similar opportunity rises regarding the democrats’ push for a basic minimum income payment. If we argue from a human standpoint we can diffuse their argument and bring some of their more moderate voting members into the big tent.
The dollar is an economically unusual currency in that it is not pegged to another currency, and it is not pegged to a precious metal to define value. The Federal Reserve can add or withdraw currency into circulation without a direct, quantifiable impact to the value of the dollar since there is no finite value it is pegged to. In some sense this means that the Federal Reserve can impact fiscal policy for taxation by simply increasing or decreasing the money supply available for taxation without regard to the value of the dollar. If more currency is in circulation relatively more tax revenue is generated; if less is in circulation relatively less tax revenue is generated.
The Democrats make an argument for a basic minimum income payment on humanitarian grounds and to the extent that fiscal consequences are concerned use the above reasoning of more circulation will lead to more tax revenue supporting the payment. The trick for Republicans is to make a proposal that will have a similar impact without actually adding more to the deficit. We can do that by allowing individuals elect to receive the child tax credit on a monthly basis rather than when they pay their taxes.
We already know the IRS has the ability to handle this task. Obamacare uses this idea with the tax credit to pay for health insurance premiums. The premium is calculated when you enroll in your healthcare plan for the year, and the government automatically pays the insurance company one twelfth of the credit each month. The stimulus payments have established the IRS has the ability to send stimulus funds to all taxpayers. From a logistical standpoint all the logistic infrastructure is in place.
From an economic standpoint this will not add to the deficit. Allowing individuals to receive their child tax credit on a monthly basis is using economic policy that is already in place so the budget impact is already in place. Releasing the credit 1/12 every month leads to an economically more efficient use of the credit as putting the money into circulation spurs economic activity leading to an end result of more taxes collected.
However, the entire credit should not be released. In order to be economically beneficial the amount released each month must be low enough that it is likely to be spent rather than invested or saved. The idea is to make sure everyone has a sustenance level of income that is going to be spent in order to make sure need is remedied and economic activity is increased. Since this is a credit that is being released early it could have disastrous consequences at tax time and placing a limit on the amount available for release each month caps the negative impact of the early release at tax time.
Acting in a economically responsible way to address need while at the same time boosting economic activity serves both the fiscal and social wings of the Republican party’s needs. If the democrats accept the proposal we take the issue off the table for the Democrats to use going forward. If they don’t accept the proposal it exposes the Democrats cry for a basic minimum income as something they are using for a political tool rather than a genuine desire. Either way we come out ahead, and have acted within our value set.