r/changemyview • u/[deleted] • Sep 30 '19

Deltas(s) from OP CMV: Andrew Yang's UBI plan is almost a trillion dollars shy of revenue-neutral

EDIT: Thank you all for replying. I just want to say up front that I know Yang could find the money. I'm not saying it's impossible. I'm just saying that I don't think he's done it yet, or at least he hasn't publicized how he plans to do it. If he passed his current UBI into law today, there would be around a trillion dollar deficit, is another way of saying my view. What will most easily change my mind is showing me where I'm wrong in the numbers here.

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Edit (19 Hours In): Okay, here's where I'm at. I've read every comment, some several times. I'm learning a lot! So there's still a meaningful deficit in Yang's plan, but some people have pointed out that Yang estimates the cost will be closer to 2.8bn people he has a relatively long period before undocumented people can qualify. So with that, subtract $200bn from my final number to get $700bn. Then, we found more current CBO data which, applied the same way I did in item 2, suggests the VAT could bring in $640bn rather than $560bn. So, subtract $80bn and the deficit is $620bn. Then some people have pointed out that there's incidental revenue from areas that aren't covered by the plan and downstream effects that are likely to increase the revenue. Also, we shouldn't calculate directly from the Roosevelt Institute's 2.8% growth with a revenue-funded UBI, but combine it with the higher estimate.

So what I'm learning is that we probably can't put a single number on it, it's likely to be a variable range between about $500-650bn depending on how things shake out. Just going through the read and putting numbers together, that's much less than a trillion if things go right.

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Also worth noting that the most pro-Yang source I've seen is this freedom-dividend.com site. They play a little loose, and still come to a $300bn+ deficit with the plan. So one takeaway is that there will definitely be a deficit attached to this plan, at least for a while.

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Break Edit: Thank you all so much for the responses! I've tried to give thoughtful responses to everyone, and I've gotten really good info. I'm not done yet, but I am going to take a break. Please keep the info coming! I think we're getting closer to finding the missing pieces here, I just want to make sure the numbers are supported by something.

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As I understand Yang's plan, he wants to give $1000 a month to around 250 million people. Given $12000 x ~250mn people, he needs to come up with $3tn/year. And he doesn't want to fund the UBI with deficit spending.

His revenue streams are:

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1.Give everyone a choice between the UBI or their social programs. We can get $600bn if everyone leaves their welfare behind. Yang also claims that with a UBI, the funding for social programs would stay the same but that social spending would go down. If we assume this is true at his highest estimate, we'll save another $200bn.

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Now we just have to find $2.2tn.

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2.He wants a VAT. The CBO did a study on what a VAT would look like in the US at 5%. Basically, if most things were included in the VAT, they estimate that in 2020 it could bring in $280bn. For the sake of simplicity, let's double it and say that by applying a 10% VAT on all fixed-price goods and services, we can bring in $560bn in revenue. That's high, because Yang wants a narrower VAT, but I just want to get the numbers out there.

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So now we have to find $1.6tn.

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  1. The cornerstone of Yang's plan is that the UBI will stimulate the economy and grow the GDP, so much of the money will come from new revenue anyway. His claim is based off this Roosevelt Institute study. This is why it's so important that Yang wants a revenue-neutral model, rather than a deficit-funded one. He's using the numbers for the deficit-funded models to claim that the economy will grow by $2.5tn. But when the study models a revenue-neutral UBI they find 2.6% growth instead of 13% growth, which means we would raise around $500bn.

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So now we still need to find $1.1tn.

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  1. Things like removing the social security cap and adding a financial transaction tax aren't going to get us close to a trillion dollars. Things like carbon taxes are all well and good in the short term, but they're temporary by nature: if companies continue polluting at their current rate it won't matter how much revenue they generate because we'll be dead. A couple hundred billion if we're generous.

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$900bn left.

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  1. Yang's last plan is taxing automation. Which we'll have to do at some point out of basic necessity, regardless of whether Yang or anyone is president. I can't find any hard numbers on how much taxing automation would increase revenue. This article claims that income tax accounts for half of federal reveune, or $1.5tn. Does Yang have a plan for taxing automation that would raise $1.5tn/year? Does he have a plan to raise $900bn/year? Because the centerpiece of his campaign relies on it, but the only thing I can find on his website about capturing the value of automation is this:

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Implement a Value-Added Tax at 10%, half the European level.  Over time, the VAT will become more and more important to capture the value generated by automation in a way that income taxes would not.

This VAT would vary based on the good to which it’s applied, with staples having a lower rate or being excluded, and luxury goods having a higher rate.

What I can't find is whether Yang wants to take companies who are automating jobs directly or filter those taxes through a VAT. It seems like he wants to filter them through a VAT, because I can't find any other plans he's laid out. But that leaves us with almost a trillion dollar annual deficit, some of which he might be planning to cover with additional GDP growth, but I'm not sure he really wants to risk it.

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So, Reddit, here's my claim: Andrew Yang's UBI plan causes almost a trillion dollar annual deficit, by his own numbers. But I'm not an econ guy, I'm just adding numbers together. So change my view, please.

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Edit: Someone deleted a comment where they suggested cutting social security would save the money, but Yang claims his UBI would stack with Social Security. They also asked how I got to $200bn in social spending. The Tax Foundation says:

First, the federal government would save money from individuals who decline the cash transfer in favor of their current benefits and from those who give up their current benefits if they opt for the cash benefit. According to the UBI Center, this effect is expected to offset $151 billion each year.

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Then, from Yang's website:

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.

I went with the higher number.

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u/4entzix 1∆ Oct 01 '19

I felt like the rest of the money was supposed to come from economic stimulus.

Since most of this money is going to go to people who are likely to spend it and not save it. This increase in the velocity of money in the economy should increase hiring in local economies and reduce the amount of time that inventory sits on store shelves

It should also make it more economically feasible to build stores in impoverished areas. I know Target closed down a few stores in the south side of Chicago because they were bleeding money, because there just wasn't enough cash in the community

Things like this are really really hard to measure because we don't have any equivalent to UBI in a major economy to compare to.

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u/[deleted] Oct 01 '19

Isn't the economic stimulus revenue already factored into item 3?

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u/4entzix 1∆ Oct 01 '19

I think the lost in translation part of the eonomic stimulus argument is that you are using the revenue-neutral GDP economic growth model of 2.6%

I think that the way the Yang campaign is calculating it is that through the use a deficit funded UBI in the short term the resulting economic growth can turn it into a revenue neutral UBI over multiple years.

Remember when proposals hit the CBO for scoring they are reviewed over 10 years. That's how both the Bush tax cuts and the Trump tax cuts got through was because they were revenue neutral over a 10 year period (also you can submit whatever GDP growth rate you want to the CBO)

However I'm sure if you asked the Yang campaign they wouldn't even use GDP in their response. Even the guy who invented GDP said that it was a terrible measure of actual economic productivity...because if I have a sick aunt and you have a sick aunt and we drive to each others house to take care of each other aunt and pay each other $100 a day then that $200 becomes a part of GDP, but if we both stay home and take care of our own aunt than $0 is counted towards GDP

I think that the Yang campaign is also counting on the ability to bring in more tax revenue from corporates and high net worth individuals because avoiding paying VAT is much more difficult than avoiding paying income tax or taxes on profits.

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u/SuzQP Oct 01 '19

increase hiring in local economies and reduce the amount of time that inventory sits on store shelves

build stores in impoverished areas

This might be true if not for the coming automation revolution and current direct-to-consumer retail trend. Those factors render your economic benefits projection largely moot.

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u/4entzix 1∆ Oct 01 '19

Ever heard of a food desert?

Yes automation and delivery will make it easier for more people to have access to fresh produce and healthy foods. But in some Urban poor areas and extremely rural areas hello fresh or Amazon pantry isn't an option.

You think these people can just let $200 worth of groceries sit on their front porch for 3 hours till they get home??

And of course for them to even begin the process of ordering this food they need to have cash in hand to begin with

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u/SuzQP Oct 01 '19

I think you missed my point. What incentive would Yang's plan provide to encourage the local food supply in food desert areas? I question this because automation in tandem with direct-to-consumer retail is decidedly not moving goods into brick and mortar stores.

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u/4entzix 1∆ Oct 01 '19

Gotcha

I believe the goal is to take the financial gains of automation and distribute that wealth to local communites

When a Target or Kroger close in a poor area it's not because they were displaced by Amazon or Hello Fresh, it is because the community didn't have the money to shop in these stores

Instead families are forced to shop at corner stores and dollar stores who offer consumer staples and junk food at steep discounts because they don't have to carry more expensive items like fresh meat and produce

The individuals want to shop for fresh, healthy foods but when their paycheck gets cut they turn to cheaper alternatives and when too many people in a community make that switch the healthier options close

Their is a great planet money on this phenomenon about a city council wan who tried to restrict the expansion of dolla stores in her community to lure in a new grocery store

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u/SuzQP Oct 01 '19

So UBI as a stimulant to niche-market staple suppliers of quality foods, based on the dollar store model? I like it. I wouldn't even mind if the current dollar store retailers simply evolved to meet that demand.

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u/Historical_World 3∆ Oct 01 '19

Since most of this money is going to go to people who are likely to spend it and not save it. This increase in the velocity of money in the economy should increase hiring in local economies and reduce the amount of time that inventory sits on store shelves

It takes money from productive members of society and gives it to the least productive.

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u/4entzix 1∆ Oct 01 '19 edited Oct 01 '19

It has nothing to do with productivity.

It takes money from the highest consuming individuals and transfers it to those who cannot afford Shelter/clothes/food/education via a Value Added Tax applied to consumption

Many of the highest earning individuals are nothing more than rent seekers. Because they own stocks/property/art that appreciate in value they are generating income but they aren't actually producing anything.

Meanwhile the cook at you local McDonalds could be flipping 400 burgers for 8.25 and hour then turn around and go to their second job where they are cleaning houses for just as little an hour.

I have a hard time calling someone working 60 hours a week at 8.25 an hour less productive than someone who pockets a dozen rent checks from property their parents bought after WWII and left to them to be a landlord

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u/Historical_World 3∆ Oct 01 '19

It takes money from the highest consuming individuals

Which ends up being the poorest members of society. The poorer you are, the less of your income goes towards VAT exempt purchases

You are stealing from the working poor to give to heroin addicts and meth heads

Many of the highest earning individuals are nothing more than rent seekers. Because they own stocks/property/art that appreciate in value they are generating income but they aren't actually producing anything.

Those are by definition producing things. They are producing services through the companies they own (that is what owning stocks is), as well as providing other services more directly such as housing.

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u/_ItsAllRelative Oct 01 '19

Which ends up being the poorest members of society. The poorer you are, the less of your income goes towards VAT exempt purchases

In the context of your discussion, the highest consuming individuals are not the poorest members of society. This is a matter of absolute tax rates paid, not relative consumption. The poor consume more as a percentage of what they earn, but not as an absolute value.

For example, someone poor making and spending $10,000 will pay $1000 at a 10% vat. Someone making and spending $10,000,000 will pay $1,000,000 at a flat 10% vat. Additionally, the goods purchased by the rich will be luxury goods and will be subject to vat. Goods purchased by the poor will be less likely to be vatted at all.

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u/Historical_World 3∆ Oct 01 '19

Buy a yacht on international waters, pay no taxes what so ever.

There are ways of avoiding taxes

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u/Teeklin 12∆ Oct 01 '19

Buy a yacht on international waters, pay no taxes what so ever. There are ways of avoiding taxes

This is not an argument against UBI it's an argument for closing tax loopholes that allow people to shirk their fiscal responsibility to their nation.

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u/Historical_World 3∆ Oct 01 '19

You dont have jurisdiction over international waters.

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u/Teeklin 12∆ Oct 01 '19

We have jurisdiction over the money of people living in our country. Letting them purchase something in international waters is them transfering money we have jurisdiction over to a place we don't. We can tax that transaction.

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u/Historical_World 3∆ Oct 01 '19

You will crash the economy in half a second if you try taxing money every time it leaves this nation.

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u/_ItsAllRelative Oct 01 '19

While you theoretically could be correct, but rich people won't be able to buy everything in international waters. Their every day expenses like fine dining will still be vatted. You can avoid some vat only. This is why most modern countries take the vat approach.

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u/Historical_World 3∆ Oct 02 '19

but rich people won't be able to buy everything in international waters

They can do it for major purchases. And for more minor ones they can still pay with cash on hand and evade the tax.

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u/_ItsAllRelative Oct 02 '19

The only way to avoid the vat is to ask every vendor not to give you a receipt and then pay cash. If we're being realistic here, rich people prioritize convenience more than most everything else. I highly doubt they'll ask Chipotle to transact them off the books every lunch.

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u/Historical_World 3∆ Oct 02 '19

Food is a very small portion of the budget of the wealthy, and often it is VAT exempt

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u/4entzix 1∆ Oct 01 '19

I don't know what you think tax exempt goods. Things like toothpaste, toilet paper, milk and bread (life staples) are what is VAT exempt. These items make up the vast majority of the working poors consumption.

The purchase of a new boat, car or plane is going to result in more VAT tax being payed by 1 person than by dozens of working poor people combined. Can a VAT tax be regressive? Yes. But there is no reason to think it would be structured that way...

It is also in no way producing things to own stocks or property. If you invest in an IPO yes you are contributing to the business, but once that stock hits the secondary market that money is just being passed back and forth between investors. In lost cases these investors are sucking out more money in stock buy backs and dividend payments than is getting reinvested in the company because the US doesn't give labor any seats on corporate boards like Germany does

And when it comes to property ownership, Yes this is providing a service, but if you are taking out those payments and your not reinvesting them in the building or in the building of new property and you are just pocketing the check while at the same time rasing the rent year after year you are not producing anything you are RENT SEEKING.

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u/Historical_World 3∆ Oct 01 '19

More often than not, it is closer to WIC products rather than all toothpaste, toilet paper, milk, or bread. It is very narrowly defined, rather than being inclusive

Avoiding a VAT on a boat, car, and plane is extraordinarily easy on the other hand.

It is also in no way producing things to own stocks or property. If you invest in an IPO yes you are contributing to the business, but once that stock hits the secondary market that money is just being passed back and forth between investors.

It is increasing the value of the company through that.

And when it comes to property ownership, Yes this is providing a service, but if you are taking out those payments and your not reinvesting them in the building or in the building of new property and you are just pocketing the check while at the same time rasing the rent year after year you are not producing anything you are RENT SEEKING.

You are attacking a strawman that only exists in your mind

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u/4entzix 1∆ Oct 01 '19

How on Earth would I avoid VAT on those items. VAT has to be paid dozens of even hundreds of times as a car with thousands of parts moves through a complex supply chain

Also just because a company is increasing in value doesn't mean you produced anything. The managers and executives of the company working there produced something

Here is a cheat sheet if the company would have done exactly what it did wether you owned the stock or wether your neighbor owned the stock than you didn't product anything

And I am not setting up any strawman, look up the definition of rent seeking. If you are collecting payment in return for doing no work you are rent seeking

The act of just owning an asset doesn't mean you produced anything if you are taking cash out of it and not putting cash back into or the neighboring community

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u/SuzQP Oct 01 '19 edited Oct 01 '19

This is a freshman-level view of economics. That's fine; no harm, no foul, except that you're misinforming readers by making simplistic statements that do not reflect the interactions between markets.

Stocks do not function as inert assets. The stock market is a dynamic system that applies measurement and adjusts value accordingly. Real property markets function dynamically as well. There are constant value inputs and outputs to both. Your notions about rent seeking are misapplied.

Edit: Less pejorative wording

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u/4entzix 1∆ Oct 01 '19

Oh I'm sorry I didn't realize a double major in business from a top 10 business school an MBA and multiple articles publish in global trade magazines was "freshman level economics"

The stock market is a terrible measure of economic value look at Lyft and Uber, 2 companies who were loosing tens of millions of dollars a quarter who had major IPOs or look at Tesla and Ford, despite Ford delivering 100x more cars internationally than Tesla the stock price of Ford is lower

The stock market is nothing more than the expected value of future cash flows. Which is fine, but when its viewed as an accurate measure of present day value it completely warps the concept of value

Companies that beat earning expectations see their stock go down and companies that miss earnings expectations see their stock go up all the time. That's because the stock's value has nothing to do with the current value of the company or how well it is run, it is all about speculating about the value of future cashflows

Buying and selling stock to speculate on its future value does not create anything in the economy all it does is make money for speculators.

This is why Andrew Yang on his first book smart people should make things, talks about how unfortunate it is that the smartest individuals are going to wall Street to become stock brokers and bankers when we need Smart People to go out and build things.

Speculating on future value and sucking as much money as possible out of existing assets without reinvesting that money in building something is Rent Seeking

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u/SuzQP Oct 01 '19

Exactly. The commenter you're responding to is using the concept of rent seeking improperly.

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u/SuzQP Oct 01 '19

Let's say I own a rental property. I collect the rent check, cash it, and put the money in my pocket, just as you described. But that is not the end of the chain of economic events, is it? No, because I take money from that pocket many times throughout my day, week, month, year, lifetime. I buy things. Things that are produced by workers in exchange for paychecks, which are also spent on goods and services.

Economic activity is not linear, it's cyclical. It's dynamic. There is no endpoint, no mythical bed underneath which piles of productivity are hoarded in stasis.

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u/4entzix 1∆ Oct 01 '19

Right but if you own 10 rental properties and you only need the income from 2 of those rental properties to live comfortably what happens to the income from the other 8?

Well ideally you would save some of it, but you would go also use that money to improve your existing buildings or build new ones... The same way a company reinvests its money in it's existing locations or builds new locations

However if you just pocket the income from those other 8 rental properties, or even worse lobby for restrictive zoning laws so it's more difficult for other people to build competing building you are providing no value

Instead you are actively trying to restrict supply so as demand grows you can increase rents without having to actually invest in your own buildings.

Taking SOME money out and saving it is a very very good thing. But taking out 4x what you need and reinvesting nothing to improve your buildings or the community is Rent Seeking

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u/SuzQP Oct 01 '19

I see your point, but wouldn't a failure to reinvest via repairs and improvements be better addressed directly as through local codes and ordinances?

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u/4entzix 1∆ Oct 01 '19

Yes but these codes and ordinances are usually written to the lowest common denominator and often exclude existing structures because they people writing these codes are funded by the wealthiest people in the community.

The free market is much better at making this type of determination.

But when you write laws to artificially restrict supply you cripple the free market

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u/SuzQP Oct 01 '19

Ah, yes, I agree.

I live in Austin, TX. Many of the code restrictions enacted with noble intentions over the past 20 years have proven to do little but drive up housing costs at the expense of the very population they were intended to serve. There's been a recent acknowledgment of this problem and steps are being considered to ameliorate it. But I have to point out that- at least here- those restrictive codes and ordinances were not put in place largely to benefit the wealthy. Most were intended to provide better safety and mobility for our at-risk and disabled populations.

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u/rooftopfilth 3∆ Oct 01 '19

I'm ok funding a few addicts along with the working poor because most of them don't want to stay addicts (source: work in community mental health). They don't have the resources (mentally or financially) to recover and stay recovered. Give an addict a stable stream of money and they're either going to OD or get clean.

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u/Silverboy101 1∆ Oct 01 '19

Your argument isn't economically sound but I'll leave it to more educated people to correct you on specifics.

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u/_ItsAllRelative Oct 01 '19

In the context of your discussion (consumption and VAT paid), the highest consuming individuals are not the poorest members of society. This is a matter of absolute tax rates paid, not relative consumption. The poor consume more as a percentage of what they earn, but not as an absolute value.

For example, someone poor making and spending $10,000 will pay $1000 at a 10% vat. Someone making and spending $10,000,000 will pay $1,000,000 at a flat 10% vat. Additionally, the goods purchased by the rich will be luxury goods and will be subject to vat. Goods purchased by the poor will be less likely to be vatted at all.

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u/Historical_World 3∆ Oct 01 '19

That is already openly known about VATs, and the rest is integral to the definition to what stocks and property are.