On Sept. 20, Andrew Yang placed seventh in an average of the five largest national polls tracking the race for the candidate for president. Even though he may only have an outside shot at becoming the 46th president of the United States, one of his policy initiatives is winning the attention of the nation: universal basic income, or U.B.I.
Yang calls it the “Freedom Dividend,” some people call it unrealistic. The idea is simple, according to Yang’s campaign website: “... a universal basic income of $1,000/month, $12,000 a year, for every American adult over the age of 18.” If you follow contemporary politics, odds are that you’ve heard of the freedom dividend.
As one might reasonably guess, there is a cost to such a plan.
U.S. Census data shows that there are around 236 million U.S. citizens over the age of 18. Each of these citizens would receive $12,000 a year. So multiply 236 million by $12,000 and you get the annual price tag of Yang's freedom dividend: $2.8 trillion.
That’s more money than one can even conceive of and we, the U.S. taxpayers, get to foot the bill. Yang proposes to pay for it with a wide assortment of taxes, with the headliner being a blanket 10% Value Added Tax (V.A.T.)— which would essentially increase the cost of goods by 10% in the U.S.
The logistics of the freedom dividend are murky, but the merits of such a proposal need to be gargantuan enough for Americans to even consider the discussion.
What people might not know is that Yang sees this as a reactionary piece of policy.
One of the major issues that Yang is campaigning about is automation. More specifically, how automation is permanently displacing workers at high rates. According to the U.S. Department of Labor, 3 million workers were displaced from their jobs between January 2015 and December 2017. The two years before that saw a similar number of workers displaced.
Yang’s freedom dividend is designed to help ease the burden on families that lose income due to automation. A U.B.I. would also benefit students, such as those here at Gonzaga University.
This $1,000 a month would help students to focus all of their energy into school, instead of trying to find a balance between school and work. Not having to worry about basics like food, rent, and even student loans could go a long way to improving the lives of college students. But suggesting that something like the average G.P.A. of GU students would rise as a result the freedom dividend is very speculative.
One suggested benefit of Yang’s freedom dividend is long-term economic growth. In short, that is probably not what would happen. What we would literally see is a reduction in the long run size of the economy. Those taxes (V.A.T., carbon tax, and payroll tax increase) that will help foot the bill for a U.B.I. would reduce labor force participation and consumer spending over time.
The Tax Foundation, a U.S. tax think tank, found that “the resulting reduction in hours worked would ultimately reduce output by 3 percent.” This means that if Yang’s U.B.I. is implemented, we should expect to see a permanent 3% reduction in the size of the U.S. economy.
Besides a permanent reduction in the size of the U.S. economy, there is another issue.
That big, shiny V.A.T. that Yang proposes as the main revenue source for his “Freedom Dividend” is a point of contention for some (for good reason). This tax would affect the poor more than the rich. A U.B.I. is most effective for low income households, but a blanket V.A.T. would hurt low income households (not high income ones).
With all of these factors in play, it becomes clear that Andrew Yang’s “Freedom Dividend” isn’t all that he makes it out to be. As with most economic proposals, there are costs that come with the benefits. But, at $2.8 trillion a year, the cost of a U.B.I., for this country, is just too high.