I know, I've done this one before to some extent, but that was primarily melded with my third UBI plan in which I spent more time trying to fix it. This is more a follow up of my previous article defending UBI and specifically, at times, Yang's UBI, from criticism from outsiders, particularly "progressives" and even leftists. This time, I'm going to, as someone who makes my own UBI plans and feels qualified to talk about this, delve deep into Yang's UBI plans and discuss them in detail, looking at what he did, trying to understand why he did it, and look at how it works, and how it doesn't.
Taxes
First, let's look at how he pays for his basic income.
10% VAT
The VAT is his primary funding mechanism, expected to raise $987 billion. It's a 10% VAT, half the European level, and attempts to be the primary clawback mechanism Yang uses to pay for his dividend. This idea is controversial, seeing how the VAT is a "regressive tax", meaning it impacts the poor more than the rich. The VAT being flat, hits the rich and the poor at the same rates, but the rich are more likely to save their income and not spend it, while the poor are more likely to save every dollar. To be fair, not all products are subject to VAT, and the figures on the "freedom dividend" site so some basic necessities are exempt, meaning taxes will be lower on the poor. It should be noted that VAT with a UBI IS progressive. The VAT itself might not be, but with a UBI, it gives most people money back and then some. And given a $12,000 a year UBI with a 10% VAT, one would need to spend $120,000 to effectively pay into the UBI. On an individual level, less than 10% of the populace would be funding UBI in this way. That's extremely progressive.
My big issue with a VAT though, relative to an income tax, is that the VAT can very well eat into the UBI itself. It's unclear how much it will do so since at least some of the stuff people will buy will not be subject to the VAT at that income level, but it's very well possible people will be paying some of the income back with this tax. That said, Yang's UBI could, in practice, be worth as little as $10,800. This is why I go with an income tax in my own proposals. I get Yang's logic of taxing transactions to allow for taxing companies, but despite that framing, it's basically an effective sales tax on consumers. So, that's the real problem with this idea. It's not the fact that it's flat and "regressive", the "rich" actually do pay quite a bit into it in practice. It's just that, when you have any social program, you need some phase out mechanism, and this is the primary one Yang chose. It's not what I would have chosen given the fact that it reduces the effective value of the UBI itself, but the effect is still progressive in practice.
Tax revenue from pushed up income
The freedom dividend site mentions because UBI would top off peoples' income, it would push people into higher brackets in their income tax. This would raise $207 billion per year. You know, I find this odd. Is UBI considered taxable income under income tax on Yang's plan?! My own plan didn't do that, and I find this problematic as it further erodes the basic income itself. This basically would make the UBI itself subject to a 10-12% tax (although people may pay less in practice), and potentially bump some people up into a higher bracket with extra income.
EDIT: due to the standard deduction, this would effectively be not taxable, but would push up any earned income to taxable levels. My bad. Also, stealing this idea for my own plan in my own way as it's brilliant.
New revenue from cap removal on social security payroll tax
Yang would remove the cap on social security payroll tax, which impacts primarily the rich. This would bring in an additional $120 billion a year. I like this, and this is a progressive approach to taxation that impacts primarily the top 10% of the population. Given the cap is $142,800, this is progressive as fudge. I like this.
New carbon tax & dividend
Literally also in my plan. Would raise $176 billion in his calculations. I approve.
New financial transaction tax
I've always wondered if these taxes would bring in revenue, and I know I've toyed around with this with Bernie's proposals. Yang claims he would get $50 billion from one, and this doesn't seem like an unrealistic number. If it works, it works.
Capital gain/carried interest tax
Essentially Yang tries to remove special treatment for capital gains and carried interest taxes, and expects to raise $49 billion this way.
Funny how the opponents of UBI always focus on the VAT being "regressive" but they ignore all these progressive taxes aimed at the rich.
Discussion on taxes on the whole
Yang's plan is a bit hit and miss on taxation. The VAT is regressive on paper, but hardly tells the whole story. It actually does have exemptions for some necessities, and while I consider it an inefficient tax, given his approach to funding UBI in this way, it only actually negatively impacts the top 6% of earners or something. I mean, the problem with the VAT is that UBI itself should NOT be taxed itself. That is regressive, and it undermines the very UBI you're giving people. His plan attempts to mitigate this but I wonder if it would actually work in practice.
Still, Yang does do a lot of interesting things that I was not even aware of. He would raise capital gains taxes, remove the cap from social security, implement a financial transactions and carbon tax, and all of these taxes would be progressive. No one talks about these when bashing Yang. They just crap on Yang without thinking about it. These taxes on the whole come up to about $1.59 trillion a year, and that's...not terrible. Of course we also need to fund the other roughly half of a UBI his plan would cost. So let's see how he wants to do that.
Fiscal savings
Now let's look at what he cuts from the federal government as it exists.
Overlap with welfare
Yang expects to raise $161.6 billion from removing overlapping welfare. You see, rather than cutting welfare, Yang expects people to choose between welfare and the freedom dividend, and while some programs like social security are excluded from this, this is his way of cutting welfare without eliminating the programs.
If anything I think these calculations are low. My own UBI plan had this number around $290 billion, although I cut many programs outright. Still, this is better than the original $500-600 billion I remember him proposing, which seems nuts.
A lot of the left criticizes this proposal in particular, but here's the thing. He doesn't want to cut welfare outright, he wants it to be there for those who want it. But let's be honest, many would move from welfare to UBI given how much welfare sucks. I do think there is one weakness of Yang's plan here mine does not have and that's the fact that a lot of welfare is aimed at single moms with lots of kids, and given Yang does not have a UBI for kids, his program might not be as good for that group of people. So many single moms might choose to remain on current benefits given FD can't adequately replace them. He really should have a childrens' UBI. If he did, I bet this number would be much higher and many programs could just be eliminated outright like my program does.
Savings from bureaucratic downsizing
Now this is an interesting aspect of the FD I didn't think about. He would save roughly $49 billion from bureaucratic downsizing. Traditional welfare programs require bureaucrats to dish out the goods, and with UBI being unconditional, those people are no longer needed, so we could let go tons of these guys from their jobs. I think he might be overzealous here, but he also is slashing the bureaucracy in other ways not included in the welfare aspect of it. I have mixed feelings on this one. I mean, sure, there's a lot of waste in our government, but whenever republicans start slashing benefits it often gets in the way of people doing their jobs. Yang ensures this will not happen, but it seems like wishful thinking. Not sure I like this one.
Savings from reduced healthcare spending
Yang expects to reduce healthcare spending by $110 billion. He bases this on the mincome experiment reducing healthcare costs when UBI was implemented there. However....this seems a bit...sketchy. Were the feds spending this much on healthcare here? I mean, sure there's savings, but who saves? Not sure it's the federal government. There is math here discussing how 37% of spending is from federal sources, and then 8.5% was reduced, which is how he got that number, but that seems a bit lazy. A large portion of federal spending is from medicare, and seniors already got social security, so will we really be reducing costs this much? At best I'd give him half of this number, focusing primarily on medicaid spending.
Savings from homelessness decrease
Yang expects to save $6 billion from reducing homelessness. However, his numbers rely on the fact that taxpayers pay $36k a year on each homeless person given all of the services spent. However, this ignores the fact much of this is likely spent at the local level. You can't just claim that that would save money on the federal level. So this is a fuzzy number.
Savings from property crime reduction
Same thing. Not sure this would be realized federally.
Federal revenue from 5-10% high school dropout reduction
Well it is federal, so I guess it counts.
Final thoughts on cost savings
These numbers seem a bit...questionable at times. I mean, to be fair on welfare I feel like he errs on the side of caution and his numbers are too low, but on other things he just plucks these savings out of thin air in the sense that while these things would save society money, that doesn't necessarily mean they will be realized as tax revenue. Still, this section is less unrealistic than I recall it being, and most of these savings would likely be realized.
He estimates $327 billion per year here, which isn't an unrealistic number. if I recall it was previously like $500-600 billion but I think he changed his mind on social security so he updated these numbers. Seems fair.
Economic growth
Yang expects to raise $558 billion from economic growth increasing tax revenues. This part of his plan is flat out shady. While he may or may not be right, I hate relying on economic growth in this way. Economic growth can increase but so do our obligations, and quite frankly, this is relying on deficit spending to pad out the freedom dividend. I do not like this idea. It might work out that way, but you know what? Reagan said the same thing about trickle down and look at where the national debt is now.
This section I'm going to have to criticize Yang harshly.
Net Cost
Oh come on, the dude is basically talking about printing money at this point, this is ridiculous. Bad Yang. Bad. ($321 billion)
Summarizing and fixing the actual problems I see
First of all, the big elephant in the room is the deficit spending. He is almost $1 trillion short on funding roughly by my estimations. $558B from his "economic growth" section, $321B from his "net cost" section, and potentially another $100B from his fiscal savings section. This isn't good. If we don't fund a basic income via taxes or fiscal savings, it is going to be deficit funded, and that is going to be inflationary. Yang's numbers are well thought out in some ways, but sometimes he just doesn't connect how this saves the federal government money, or ignores the fact that it will take years to achieve that economic growth meaning that in the process we're just adding to the national debt or printing money. His plan is very stimulative, and it might actually be so in a negative way.
That said, Yang needs a more robust funding mechanism, potentially raising the VAT to 20%...which...gets me into another issue with him.
His VAT. I don't like the VAT for reasons different than other people who don't like the VAT. It's not that it's a "regressive" tax in how progressives define it, it's the fact that while Yang did try to make exemptions for basic goods, it's going to trickle down and tax the UBI itself. Assuming no exemptions, a $12000 UBI is actually worth $10800 with a 10% VAT and $9600 with a 20% VAT. It's still progressive, but it potentially hurts the people UBI is supposed to help. Which is a huge reason I go the income/payroll tax route and only hit income from labor.
On him choosing between welfare and UBI, I don't think that's bad with one exception. His UBI is only given to adults, and I know many people on welfare are single moms, and kids under 18 don't get the UBI. So large families will suffer moving to UBI. This wouldn't exist under my own plan as I fund UBI for children too. However, for a single adult, or a family with multiple adults, as I pointed out yesterday UBI should be a far superior option.
If I were to give a grade to his UBI plan, what would I give it? Eh, a C- I think. If he didn't have the funding issues I'd bump it to a B. It does some good things. I want to like it. I really do. But this just keeps reminding me of why I end up being repulsed from Yang in practice. I love his ideology. I love his core platform, but the dude isn't good at policy. And his UBI has flaws on it. I love and respect the dude for raising UBI's profile and bringing it into the mainstream, but his actual plan is weak on details, as are many of Yang's ideas in practice.
I'm sorry to any leftie who comes across this and was turned off from Yang's UBI. We're not all like this. I'm not even convinced Yang even realizes what this plan does. He seems naive and ignorant as fudge at times. Not all UBI plans are like this, and there are pretty easy fixes to his plans' weaknesses, many of which are implemented in my own plan.
Still, is Yang's plan BAD? Well, outside of the funding holes, no. Despite its flaws, it would be very beneficial to many people and I still would support it. I would structure things differently, have a higher flat tax, and fund it from the income/payroll side of things, while exempting UBI itself from taxes. This would make it far more progressive. But at the same time if I were forced to say yay/nay in its current state the only thing that would really make me say "nay" is the funding holes. Assuming those are taken care of I would approve it. You're never gonna have anyone agree with you 100% after all, I can compromise with someone giving me a somewhat flawed implementation of what I want.
Still, my plan is better, and I'm not going to pretend it's even close.
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