Entrepreneur and Democratic presidential candidate Andrew Yang has taken us all by surprise with his growing fan base and tie-less debate attire. On social media, he’s coined phrases like #YangGang and created viral apparel that says “MATH.”
Even his stump speech features his iconic “MATH” phrase and apparel. He’s opened debates by saying, “the opposite of Donald Trump is an Asian guy who likes math.”
Yang is also known for his Universal Basic Income (UBI) proposal. He calls it the “Freedom Dividend” because, according to him, that sounds less scary. What is UBI? Yang’s website explains it as such:
Every U.S. citizen over the age of 18 would receive $1,000 a month, regardless of income or employment status, free and clear. No jumping through hoops. Yes, this means you and everyone you know would receive a check for $1,000 a month every month starting in January 2021.
Yang touts that he’s done the math to make sure UBI could be properly implemented in the United States, but experts say he got the math all wrong. John Cogan, a senior fellow at the Hoover Institution, says UBI would be an absolute disaster, both socially and fiscally.
Cogan claims that approximately 230 million adults would be eligible to receive the cash handout. It is important to note that to qualify for the UBI, you cannot be a recipient of any other welfare program. That includes, but is not limited to: Supplemental Nutrition Assistance Program (SNAP, or food stamps), Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), or Women, Infants, and Children (WIC).
If all qualifying adults chose the cash handout of $1,000 instead of other welfare benefits, here’s what it would cost. At $1,000 per month, that’s a total of $12,000 per person, per year. Thus, $12,000 for 230 million people would cost $2.8 trillion.
“Expenditures on the programs the plan would potentially replace account for a mere 6 percent of this total. So, 94 percent of [Yang’s] plan would be financed by higher taxes,” Cogan said. “These taxes would be on top of the higher taxes required to finance existing entitlement programs.”
Cogan says that to prepare for this looming cost of $2.8 trillion, the federal government would have to raise every tax rate in the federal statute books by 50 percent in the next 10-12 years.
Yang claims the only additional taxes would be on the highest earners and on pollution, plus a Value Added Tax (VAT). Yang bases his math on the revenue a VAT would create on a European model.
Hoover Institution fellow Tim Kane says we shouldn’t be fooled by this math, however, because European economies are not good role models.
[European economies] tend to be 20-50 percent poorer in terms of income per person. GDP per capita in the USA is $62,641. Germany has $48,000 and Britain has $42,000. Numerous studies confirm that high tax European countries are not economically able to catch up to our levels of prosperity. If we adopt higher taxes, especially no capital gains and uncapped payrolls, then we will see much slower growth and lower quality of life. It’s that simple.
So, UBI is a terrible idea? Not necessarily. Kane believes UBI has merit, but comes with some hefty caveats. According to Kane,UBI would be a good idea if it replaced welfare programs that diminish incentives to work.
“The only valid justification for a UBI is not to replace work but to replace the perverse anti-work incentives in means-tested welfare,” Kane said. “Yang’s UBI fails to do this, instead offering a choice between the basic income or welfare payments.”
According to Kane, a proper UBI would instead replace every single federal welfare program: TANF, SSI, food stamps, unemployment insurance, subsidized housing, subsidized health care, and the minimum wage. Without these cuts, the perverse incentives still remain.
Kane believes Yang did get one important factor of proper UBI right: making UBI truly universal. A better design for UBI would to create a federal-state partnership, Kane claims:
States could opt-out entirely: no tax increase nor UBI. Other states could opt in and have to match the revenues to fund the program in their state. Then you’d get a natural experiment, states could learn about what works and what doesn’t, which is exactly how the USA was designed.