Recently a newcomer to the political scene, Andrew Yang, has announced that he will be running in the 2020 presidential campaign on the democratic platform. While a new candidate is relatively boring news, Yang’s entire campaign rests on his idea to “implement a Universal Basic Income, ‘the Freedom Dividend,’ of $1,000/month, $12,000 a year for every American adult between 18 and 64”(The Freedom Dividend). Universal Basic Income, referred to as UBI from here on out, isn’t a particularly new idea. But it has been gaining some traction within particularly left leaning groups because of recent advances in automation.
Yang’s believes that implementing UBI is necessary because according to him automation will upset America’s economy by displacing enough workers to cause either a significant depression or at the very least more poverty. Here’s the catch that Yang likes to brush over though, a conservative estimate of the number of eligible citizens is 201,945,890(U.S. Census Bureau). Which means that the cost of implementing his UBI is about 202 billion usd a month or $2.43 trillion annually. That number is over half the total U.S. federal budget last year and more than four times the annual military spending. To put that into perspective, if the U.S. Government were to cut all subsidies and spending in: Medicare and Health, Military, Food and Agriculture, Education,Transportation, Science and Environmental efforts then there would be just enough money to implement UBI, assuming there was still a country left to give it to and no government overhead.
So something's got to give obviously, and that “thing” is that Yang proposes a 10% VAT in order to cover about a third of the UBI costs. He has yet to state how he will get the rest of the money. For those that don’t know, VAT stands for value added tax and functions essentially the same as a sales tax, but with the producer paying the tax instead of the consumer. The effects of such a tax are quite simple, prices of goods and services affected will go up in price by about 10%, or more accurately, the supply graph in a supply and demand graph will shift upwards resulting in a new equilibrium price that in this case will be about 10% higher.
Value added taxes are dangerous for several reasons. First of all, they are hidden from consumers. If you or I went to buy gas there is no way for us to know whether the government is taking 5% of our purchase or 20% despite still having to pay that amount of money. Secondly, VAT is regressive since it is a consumption based tax meaning that you are hurt more the poorer you are. Considering that this tax is supposed to fund a program to help poor people that seems a bit backwards to me. Additionally, taxes beyond a certain level have been proven to reduce economic growth(Gale) which means that the quality of life overall will not increase as quickly as it has in past, potentially leading actually worse conditions for Americans even with an extra $1000 in their pocket every month. Unfortunately the economic effects of a rise in taxation as extreme as this one is unstudied, but they will for sure be harmful to the economy.
Yang hopes that the economic benefits of automation and more spending money for low income groups will offset the tax burden, but even optimistic economists are quite uncertain about the effects of UBI since the trials in Canada and Scotland are under a year old and the trial by the Finnish government only targeted unemployed citizens There are a couple of other problems theorized to be inherent to UBI that I haven’t mentioned yet. For one, the inflation of prices for staple goods and services such as food and housing is likely to increase as an increase in disposable income could shift the demand curve to the right. Unemployment would also decrease significantly since UBI is a disincentive to work. This unemployment means we produce less as a country, meaning we have less money, making UBI even harder to pay for.
Finally consider immigration problems. What will certainly happen if the U.S. were to start giving all people “free” money? We become an immigration hotspot for everyone, which means that the smart and productive potential immigrants are less likely to get in and we will be flooded with immigrants that provide no value. Additionally, the increased taxes will cause companies and people capable of moving away to do that. Without the rich paying the taxes the government would have to increase taxes more, causing more people to move away, eventually ending up with a situation like Chicago; and let me tell you, the U.S. does not want to emulate Chicago.
Works Cited
“File:TaxWithTax.svg.” Wikipedia, Wikimedia Foundation, en.wikipedia.org/wiki/File:TaxWithTax.svg.
Gale, William G., and Andrew A. Samwick. “Effects of Income Tax Changes on Economic Growth.” Brookings, Brookings, 8 Aug. 2016, www.brookings.edu/research/effects-of-income-tax-changes-on-economic-growth/.
“The Freedom Dividend.” Andrew Yang for President, Andrew Yang, www.yang2020.com/policies/the-freedom-dividend/.
“U.S. Census Bureau QuickFacts: UNITED STATES.” Census Bureau QuickFacts, 2018, www.census.gov/quickfacts/fact/table/US/PST045217.
I agree that it would cause issues. If he were to do that freedom dividend, he may cause inflation to the country with more money floating around for people. There are also people who would get money who would use it for other things then living, kinda making it look bad on some homeless people who actually try to do what they can to make a living.
ReplyDeleteWhile I would support an increase in minimum wage, I believe that the UBI may be too dramatic to implement. The inflation and taxes caused by the UBI would certainly be unpopular, and even with our current technological progress, unemployment has remained low nationally -- so I think a UBI is unnecessary with our current situation.
ReplyDeleteI agree that there are many problems with implementing this system. We have always made progress in technology, including automation, and if anything, it has had a positive impact on jobs, creating more high up engineering, and operating jobs, instead of manual labor jobs that nobody likes doing. Maybe in the future, if automation does somehow destroy the economy, this could be implemented, but right now I think it is much too early.
ReplyDeleteI agree with you that this system is a very bad idea. Our economy is growing at a steady pace and we don’t need to be giving out free money to everybody. Maybe instead of giving out free money, we should try to help the people in poverty by creating better educational systems and such, helping the people that would actually need the money.
ReplyDeleteWhile I have not heard much about Yang in particular, I have read up a lot about UBI in general. While I understand its goal, I agree that there is many downsides to it. I think that the issue many European countries have faced with similar programs is the high unemployment rates. Also, in a country where we already face rising debt, giving away trillions of dollars to decrease the deficit could likely cause crowding out and further harm the economy and its growth. While I am in full support for protecting our people, we must attempt to help all people, and a move towards UBI is a move towards the poverty stricken communist nations we once decided we had to fight.
ReplyDeleteI agree that UBI is a awful idea, but I am going to try to argue for it. If we implement UBI then people will have more money to spend, so if people have more money to spend they are probably going to spend it. So if they buy things from the store then the store needs to hire more people, and the company is going to need to make more goods. This will lead to more jobs, so eventually if everyone spends enough money, then everyone will have a job, and we won’t need the UBI anymore. I believe that is the thought process that brought this idea to fruition. This would only work in a world where everyone wanted to do their fair share of the work, and inflation didn’t exist.
ReplyDeleteClearly having a universal income would cause a massive problem. You bring up a good point about immigration. And for people who say immigrants need help so they need the universal income, my family came here with nothing. My great aunts and their sons and daughters came here with the clothes on their backs and a few suitcases. They worked hard, and acclimatized to the culture of the United States and we have done well. It's all about your attitude.
ReplyDeleteIt would be nice to see some numeric estimates added into your writing. You lay out possible consequences of the policy but you don't mathematically prove that demand pull inflation and the increased tax burden would out-weigh the positives. You should start with a consumers budget constraint and go from there.
ReplyDeleteThe VAT tax he proposes would not be applied to daily consumer goods if I'm not mistaken. Staple items (food, gas, clothing, etc.), will not apply. It will primarily apply to luxury goods as well as tech companies who are currently paying $0 in federal income tax. Can we reevaluate the outcome given this data?
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