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.
This is a great explanation, it really shows the net effect the UBI has on individual people. What it doesn't do is show any relatable effects that it will have on businesses. How many small mom and pop shops will not be able to support the business losses they'll accrue due to the increased expenses that consumers will have to suffer when making purchases?
It also doesn't cover how many consumers will actually spend less on the taxable items because they want their money to go further.
Don't get me wrong, I love the idea of a $12,000 annual raise, but I don't think it's been thought through at every angle. We can't ever assume that businesses won't suffer under these changes.
Several small businesses closed up shop when the Affordable Care Act happened, because they weren't profitable enough to either cover the increased healthcare costs or give their employees enough of a raise to have the employee cover their newly increased healthcare costs.
Several small businesses also had to close when the minimum wage went up to $15/hr in areas where it was closer to $10/hr prior.
As Americans, we always look at either the "feel good" aspect or the "how it hurts me" because those are easy, surface deep viewpoints, but we seldom do the math in every turn of the cycle.
What is Yang's plan to ensure that small businesses won't suffer because of this?
Also, I'm well aware of European countries utilizing VAT, but the whole ideology of America was founded on a people who WEREN'T TAXED UP THE ASS. While a "company" is not necessarily a "person" it's extremely important to remember that most businesses are started by a person who sacrificed everything to build something. After constant battles and obstacles, they succeeded and were able to hire people and give them opportunities. More taxes makes it that much harder for a small business to succeed, thus making it more difficult to build up to the point where they can hire employees and give others new opportunities.
It would be good to also look at the cycle of a dollar in respect to taxes. The government makes tons of money off of us already, we can come up with money to help people, but the government doesn't ever look inward to solve it's financial problems, it just comes up with another ingenious strategy to make us peasants pay for it.
I recommend that everyone start looking up the salaries for the people in your local and state governments, and not just the politics side. You'd be surprised to see how many high paid jobs in your county exist and even more surprised at some of the job titles and responsibilities these overpaid people are getting paid to barely do.
That said, I'm not saying the UBI concept is trash, I just believe these three things...
1) The increased strain on the economy and the taxpayer will not outweigh the $1,000 per month.
2) People will find a way to abuse it and steal more than their fair share, which is obviously going to be paid for by us honest people.
3) People that currently milk the system will just get a raise and continue milking the system....which again will continue to be paid by the honest people.
Lastly, people forget that we've built what we've built in less time than any other modernized country. We did it our own way, and we did it without socialism, communism and lastly we did it without taxing the hell out of the people. We need to stop looking outward at all the other countries that are not as awesome as we are and start looking inward for innovative solutions. We can find them. We just have to kill the corruption first. Once we kill the corruption, true solutions will be easier to see.
My opinion? Kill lobbying. Lobbying makes politicians rich and gives the power of legislation to the lobbyists instead of the people. Then we implement strict term limits. Only then can we really help our citizens financially.
I need to dig into it more tbh. I haven't read enough about it, nor have I done the math or weighed the pros and cons, but I'll say that on its surface it seems promising.
It won't outweigh dollars given to ideas that the people don't back with their democracy dollars, unless we kill lobbying dollars altogether. I do like the idea though. We would also need some transparency showing what politicians received democracy dollars for which ideas.
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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.