Thoughts on Universal Basic Income
Andrew Yang has proposed a Universal Basic Income of $1,000 per adult per month sent unconditionally, with some of the current welfare programs eliminated. https://2020.yang2020.com/what-is-freedom-dividend-faq/
https://2020.yang2020.com/policies/the-freedom-dividend/
The means
to pay for the basic income will come from four sources:
Current
spending: We currently spend between $500 and $600 billion a year on
welfare programs, food stamps, disability and the like. This reduces the
cost of the Freedom Dividend because people already receiving benefits would
have a choice between keeping their current benefits and the $1,000, and would
not receive both.
Additionally, we currently spend over 1 trillion dollars on health care,
incarceration, homelessness services and the like. We would save $100 – 200+
billion as people would be able to take better care of themselves and avoid the
emergency room, jail, and the street and would generally be more functional. The
Freedom Dividend would pay for itself by helping people avoid our institutions,
which is when our costs shoot up. Some studies have shown that $1 to a poor
parent will result in as much as $7 in cost-savings and economic growth.
My
reaction:
“In FY
2021 total US government spending on welfare — federal, state, and local — was
“guesstimated” to be $2,410
billion, including $762 billion for Medicaid, and $1,648
billion in other welfare.” https://www.usgovernmentspending.com/welfare_spending. So, the elimination of some programs would create
some savings. The question is, “How many of the programs will endure once the recipients converge on Congress to demand “their
essential program” survive?” Without them
all going, you don’t get the savings in complexity or elimination of the expensive
bureaucracy.
We need to exclude the cost savings of Medicare, Medicaid, Veterans Administration and all other health care
costs as these sources of funding are
already fully used and will be needed as well if a national program of Medicare
for All is enacted. If these were rolled
into one “Americare”, it would drastically cut the huge waste in the administrative
costs of the current system with health insurance companies and their billing. But, In this analysis, one
must be careful not to count the savings twice, in paying for Americare and UBI.
I like the idea of current Social Security and SSDI recipients being allowed
to choose which they would get: Their current benefits or the UBI. One way to cut
the cost of the program would be to give the UBI only to those who need it,
i.e., the poor. This means testing could be done with minimal administrative
costs as Social Security/Medicare does it to determine how much of the annual
premium the recipient of Medicare pays, based simply on last year’s 1040 Adjusted
Gross Income.
One thing I would not wish to see
weakened is "personal responsibility". I strongly believe in the huge
potential of (almost) everybody but see us all far short of our potential, and
unfortunately, some disastrously far short. Some of that might be attributable to
"learned helplessness" due to racial injustice here in the U.S. while
I see it a lot among the refugees I work with in the Uganda Refugee
Settlements. The environments we experience matter. So I acknowledge that we do
not all have equal opportunity with which to maximize our potential. But, for
us all to prosper as much as we can, as a country, we must not weaken the idea
that people are primarily responsible for the results they achieve.
We want to eliminate destitution but not simply operate a
wealth redistribution system. People with higher income and wealth certainly
did not need to get the Covid period payments, and in fact, this has
contributed to the inflation we see today (along with restricted supply lines
and now Ukraine). It is a classic case of more money chasing fewer goods.
So, this could be modified to be a “Guaranteed Basic Income” with the automated
means testing.
I fear that “We would save $100 – 200+ billion as people
would be able to take better care of themselves and avoid the emergency room,
jail, and the street and would generally be more functional.” is wishful
thinking. Making forecasts like these are difficult, particularly about the
future. Per Yogi Berra.
2. A VAT of 10 percent: Our economy is now incredibly vast at $19
trillion, up $4 trillion in the last 10 years alone. A VAT at half the
European level would generate $800 billion in new revenue. A VAT will
become more and more important as technology improves because you cannot
collect income tax from robots or software.
My reaction: This would be
technically feasible. In the long run, the added tax will get passed on to
consumers, raising prices. Thus the VAT serves more as a “consumption tax”
rather than an income tax, a form of taxation long favored by economists as
simpler. A VAT distorts market signals less than income taxes do. This would
impose a tax on many large companies that currently escape the income tax due
to many loopholes in the federal income tax code. With a VAT added, the U.S.
tax system would look more like that of the European countries, which are
capitalist or market-based economies, with higher taxation and more robust
safety nets.
3. New
revenue: Putting money into the hands of
American consumers would grow the economy. The Roosevelt Institute projected
that the economy will grow by approximately $2.5 trillion and create 4.6
million new jobs. This would generate approximately $800 – 900 billion in
new revenue from economic growth.
My reaction: I am skeptical, as too many “analyses”
estimate the number of jobs created by government spending but fail to estimate
the number of jobs lost due to the money being taken out of the economy by the
taxation. Only if the propensity to spend is higher with the recipients than
with those taxed is there a net gain. Even that is not the end of the story as
money not spent by those taxed is saved, which has the effect of keeping
interest rates low which encourages investment and capital spending more than
higher rates. So, I view this also as possible wishful thinking. So, again I have
little faith in this estimate.
4.
Taxes on top earners and pollution: By
removing the Social Security cap, implementing a financial transactions tax,
and ending the favorable tax treatment for capital gains/carried interest,
we can decrease financial speculation while also funding the Freedom Dividend.
We can add to that a carbon fee that will be partially dedicated to funding the
Freedom Dividend, making up the remaining balance required to cover the cost of
this program.
My reaction: Lots of options for increasing taxes, few of which are popular.
My tentative conclusion:
Without any means testing, we could possibly see $1,648
billion (or $500 – 600 billion as Yang says of savings from the elimination
of some welfare program) and possibly $800 billion from the imposition of a 10%
VAT on businesses. The rest of the potential sources to pay for the $3.1
trillion program are speculative.
Obviously, all of these policy changes are
HUGELY controversial and complex, but all might be doable. It would be
interesting to see objective analyses by reputable think tanks and the non-partisan
Congressional Budget Office. I suspect such an ambitious program would only be
financially feasible if changed to a Guaranteed Basic Income with automated
means testing to reduce the cost of the program.
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