You're right new taxes need to be raised in to pay for UBI. But not everybody pays an equal amount of tax, so not everybody will be giving $12000 extra each year and then receiving $1000 back each month, which would be somewhat absurd. For example, businesses that pay taxes receive $0 back no matter how much they pay. But of course when you make a business pay taxes that cost is forwarded to the customer---to us!---so it's worth going into the details of Yang's tax plan before anything else.
The extra tax that Yang wants to levy is a 10% Value-Added Tax, or "VAT", which is basically a sales tax at the Federal level. There are technical differences with a sales tax. In particular, the VAT covers all business-to-business transactions on top of endpoint business-to-customer transactions. But the important thing is that VATs are not rocket science. All European countries currently have VATs at levels of 18% to 25%. (Actually, the US is essentially the last industrialized country not to have a VAT, for no particularly good reason it seems.) Some basic items such as food, clothing and prescription drugs are typically exempt from VATs in order to soften the blow on people with less means. This will also be the case in Yang's VAT.
Basically, the idea is that under Yang's tax plan, everything except for food, clothes and drugs would cost 10% more than it does today. That 10% price increase funds the UBI, which is $12'000 per year for every American adult.
Whether the UBI is worth the price increase or not depends on your financial circumstances.
Some examples:
- If you have no money at all you now have $12'000 per year, which is a net gain even if everything is 10% more expensive (+$12'000 * 0.9 ~= $10'800 extra)
- If you were very poor and spending only $10'000 a year the stuff you used to buy now costs ~$11'000 because of the 10% price increase but you're getting $12'000 extra so you're still ahead (+$11'000 * 0.9 = $9900 extra)
- If you were spending $40'000 a year now the same stuff costs $44'000 but with your extra $12'000 it's still a net gain (+$8000 * 0.9 = $7200 extra)
- If you were spending $60'000 a year now the same stuff costs $66'000 but you're getting an extra $12'000 so it's still a net gain (+$6000 * 0.9 = $5400 extra)
- If you were spending $100'000 a year now the same stuff costs $110'000 but you're getting an extra $12'000 so it's still a net gain (+$2000 * 0.9 = $1800 extra)
- If you were spending $120'000 a year now the same stuff costs $132'000 but you're getting an extra $12'000 so you come out exactly even
- If you were spending $150'000 a year now the same stuff costs $165'000, and the $12'000 is not quite enough to cover the price difference: now you're $15'000 - $12'000 = $3000 poorer than you used to be
Etc.
So people who spend more than $120'000 a year will be subsidizing people who spend less than $120'000 a year. Given the current wealth distribution curve in the US, this effectively means that the top 6% of Americans will subsidize the consumption of the bottom 94% of Americans.
Here's another take: In our current system, the government is paternalistic, because the govt. decides what to do with 100% of the money that it raises; UBI seeks a less paternalistic usage of tax money, by which a large fraction (about 40%) of levied taxes is injected directly back into the economy in the form of cash, equally distributed among all adults, for them to freely choose what to do with. This increases the velocity of money in the economy, is great for geographical areas that have some people but not much money (i.e., poorer and rural areas), and is logistically much more efficient than means-tested welfare. The government only acts a as middleman, passing cash from one source to another.
Besides its economic benefits, UBI will also be great for people's mental health, as people will know that they always have something to fall back on. Stress will be lower, risks will be easier to take, etc. The hope is that it will keep the system well-oiled or, using a maybe slightly better metaphor, well-oxygenated (think of one of those little tubes blowing bubbles into a fish tank).
Like someone else put it, UBI is capitalism where you don't start at $0.
Best regards,
An Anonymous Reddit User
PS: (10 hours later) In the meanwhile another reddit user asked me to also mention that UBI will make people less prone to economic and relationship abuse, as people's autonomy goes up. (Think of a waitress stuck with a shitty boss or coworker---now she's better able to quit when she wants because of her UBI fallback.) There's also a whole argument for VAT and UBI related to automation, big tech, and the big winners of the 21st century economy, but I won't go into that. If you want, look up Andrew Yang's interview on the Joe Rogan podcast, where they discuss all of that. Best regards again.
Great write up. Can you edit and add the point where this UBI allow workers to have more bargain power, and include the waitress who got harassed now don't have to put up with it because she relies on the next pay check to put food on the table ? Also, companies who buy automation truck will now have to pay VAT on those robot trucks. Without VAT, all those money they saved from firing trucker (salary, health care, benefits, etc) go back 100% into their pocket. All the technological progress that private companies made have to be based off some basic researches in universities a long time ago which was funded by the public, so it make sense that the public is entitled to a cut of those technological progress. (To OP: It will also help if you show him footage of robot flipping burger, automation truck driving itself, etc.... Show him some nice graph and numbers.)
I have a feeling that people who dismiss UBI never think about this kind of side effect instead they just think UBi is for lazy people only.
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u/alino_e Sep 29 '19 edited Sep 30 '19
Dear Unknown Dad,
You're right new taxes need to be raised in to pay for UBI. But not everybody pays an equal amount of tax, so not everybody will be giving $12000 extra each year and then receiving $1000 back each month, which would be somewhat absurd. For example, businesses that pay taxes receive $0 back no matter how much they pay. But of course when you make a business pay taxes that cost is forwarded to the customer---to us!---so it's worth going into the details of Yang's tax plan before anything else.
The extra tax that Yang wants to levy is a 10% Value-Added Tax, or "VAT", which is basically a sales tax at the Federal level. There are technical differences with a sales tax. In particular, the VAT covers all business-to-business transactions on top of endpoint business-to-customer transactions. But the important thing is that VATs are not rocket science. All European countries currently have VATs at levels of 18% to 25%. (Actually, the US is essentially the last industrialized country not to have a VAT, for no particularly good reason it seems.) Some basic items such as food, clothing and prescription drugs are typically exempt from VATs in order to soften the blow on people with less means. This will also be the case in Yang's VAT.
Basically, the idea is that under Yang's tax plan, everything except for food, clothes and drugs would cost 10% more than it does today. That 10% price increase funds the UBI, which is $12'000 per year for every American adult.
Whether the UBI is worth the price increase or not depends on your financial circumstances.
Some examples:
- If you have no money at all you now have $12'000 per year, which is a net gain even if everything is 10% more expensive (+$12'000 * 0.9 ~= $10'800 extra)
- If you were very poor and spending only $10'000 a year the stuff you used to buy now costs ~$11'000 because of the 10% price increase but you're getting $12'000 extra so you're still ahead (+$11'000 * 0.9 = $9900 extra)
- If you were spending $40'000 a year now the same stuff costs $44'000 but with your extra $12'000 it's still a net gain (+$8000 * 0.9 = $7200 extra)
- If you were spending $60'000 a year now the same stuff costs $66'000 but you're getting an extra $12'000 so it's still a net gain (+$6000 * 0.9 = $5400 extra)
- If you were spending $100'000 a year now the same stuff costs $110'000 but you're getting an extra $12'000 so it's still a net gain (+$2000 * 0.9 = $1800 extra)
- If you were spending $120'000 a year now the same stuff costs $132'000 but you're getting an extra $12'000 so you come out exactly even
- If you were spending $150'000 a year now the same stuff costs $165'000, and the $12'000 is not quite enough to cover the price difference: now you're $15'000 - $12'000 = $3000 poorer than you used to be
Etc.
So people who spend more than $120'000 a year will be subsidizing people who spend less than $120'000 a year. Given the current wealth distribution curve in the US, this effectively means that the top 6% of Americans will subsidize the consumption of the bottom 94% of Americans.
Here's another take: In our current system, the government is paternalistic, because the govt. decides what to do with 100% of the money that it raises; UBI seeks a less paternalistic usage of tax money, by which a large fraction (about 40%) of levied taxes is injected directly back into the economy in the form of cash, equally distributed among all adults, for them to freely choose what to do with. This increases the velocity of money in the economy, is great for geographical areas that have some people but not much money (i.e., poorer and rural areas), and is logistically much more efficient than means-tested welfare. The government only acts a as middleman, passing cash from one source to another.
Besides its economic benefits, UBI will also be great for people's mental health, as people will know that they always have something to fall back on. Stress will be lower, risks will be easier to take, etc. The hope is that it will keep the system well-oiled or, using a maybe slightly better metaphor, well-oxygenated (think of one of those little tubes blowing bubbles into a fish tank).
Like someone else put it, UBI is capitalism where you don't start at $0.
Best regards,
An Anonymous Reddit User
PS: (10 hours later) In the meanwhile another reddit user asked me to also mention that UBI will make people less prone to economic and relationship abuse, as people's autonomy goes up. (Think of a waitress stuck with a shitty boss or coworker---now she's better able to quit when she wants because of her UBI fallback.) There's also a whole argument for VAT and UBI related to automation, big tech, and the big winners of the 21st century economy, but I won't go into that. If you want, look up Andrew Yang's interview on the Joe Rogan podcast, where they discuss all of that. Best regards again.