Andrew Yang's UBI terrible on wealth inequalty, criminal justice

The robots are taking over! That is the ongoing issue that Democrat Andrew Yang is focusing on in his campaign for President. Basically, the problem is that increasing automation is taking away jobs and pushing down wages. His main proposed solution for this problem is Universal Basic Income (UBI) which would be a universal stipend which every American citizen would receive on a monthly basis. Under Yang’s plan everybody, no matter what income and wealth level, would receive $1,000 every month. Now, this all sounds great, except when one starts digging into the details of the potential economic outcomes of the policy. It turns out, instead of addressing wealth inequality, as Yang claims it will, it would actually exacerbate wealth inequality. Additionally, Yang’s UBI policy would be disproportionately detrimental to communities of color.

Regressive policy

One of the main problems with Yang’s proposed policy is the method which it would use to fund the UBI program. Yang proposes to use a Value-Added Tax (VAT) which would tax a product at each phase of the supply chain starting from production to purchase by the American consumer. Unfortunately, this method of funding the program would actually create even more wealth inequality. In other words, “it would probably be regressive—that is, it would be more burdensome for individuals and families with fewer economic resources than it would be for those with more resources. Because lower-income families generally consume a greater share of their income than higher-income families do, the distributional effects of a VAT would depend on its impact on consumer prices," according to the Congressional Budget Office. Essentially, the tax would be passed onto the consumer via higher prices, which is more detrimental to families who are already struggling.

Progressive VAT? Doubt that.

On the other hand, Yang counters this criticism of his policy by saying that under his proposal the VAT would be targeted more towards luxury goods items which are more commonly purchased by the wealthy. One problem with this aspect of his proposal is that enforcing the tax can be challenging since fraud is a common issue with other countries that have implemented a VAT system. “The stock-taking of the existing quantitative and theoretical literature with regard to VAT evasion and fraud, shows that VAT evasion is a well-recognized phenomenon, and the most recent estimates of the VAT gap put the revenue loss for EU countries to a (wide) range of some 2 to 30 percent of potential revenues, with an overall average of about 14 percent,” reported the International Center for Public Policy (ICPP) in a study released in 2012.

This means that there will be, on average, potentially 14 percent less revenue from taxing the wealthy than expected. In some cases the ICPP found that number to reach as high as 30 percent of loss tax revenue for social benefits. Even assuming the average of 14 percent, that is still more loss revenue than every single type of income tax with the exception of farm revenue currently being levied by the Internal Revenue Service (IRS), according to The Brookings Institute. In other words, even if the UBI concept can actually be implemented in a progressive fashion, the way Yang proposes to do it is not the most efficient taxation method available. Income tax is clearly a more progressive method of redistribution.

The one percent will fight back

Another problem with a VAT focused on luxury goods is that those who would be mostly affected by luxury goods taxation, the wealthy and large corporations invested in producing these goods, will definitely do whatever is in their power to rollback the luxury goods VAT. They will likely do this through a variety of means, including litigation as well as legislation. The meaning of what exact goods should be classified as “luxury” under Yang’s proposal will be attacked through the courts, just like conservatives have used the courts to attack the protections provided by the Affordable Care Act. Also, the wealthy and the large corporations, who are well-resourced, will lobby conservative politicians and lawmakers to introduce legislation to rollback the VAT aimed at luxury goods.

Blowing up the social safety net

It is important to note what Yang’s stated ultimate goal is for his UBI policy proposal, which is to completely eliminate the U.S. social safety net, which would disproportionately harm underprivileged communities. He made this point quite clear in his interview with right-wing talk show host Dave Rubin when he agreed with Rubin’s idea to “blow apart the social safety net.” This Libertarian-like tendency to want to eliminate social programs can also be seen in some of the specifics Yang has offered regarding his version of a UBI program.

One specific aspect of Yang’s proposal which illustrates this tendency is his plan to slowly eliminate Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) benefits. Yang’s plan would force those already receiving SSI and SSDI to choose between receiving the benefits they already need for various reasons, such as coming from a historically oppressed community or being disabled, and receiving the $1,000 monthly UBI benefits plus SSI. This basically affects just about every disabled individual receiving SSDI, since those people usually also receive SSI. The ultimate goal of this, as Yang says in the interview with Rubin, is to lure more and more people to opt out of these social safety net benefits and eventually eliminate these benefits altogether.

Opt-out is a cop out

The problem with forcing those already receiving SSI and SSDI, or any other social welfare benefit for that matter, to choose, is that opting out of those benefits in favor of UBI will not eliminate the original reasons that caused these people to need these social benefits in the first place. This means while everybody else who does not currently require these benefits automatically receives the UBI stipend, those who have to choose between UBI and SSI, no matter what their choice, will still have to deal with those originating societal disadvantages which required them to seek SSI or SSDI in the first place. Those disadvantages, being disabled or coming from a historically oppressed community, will continue to cost these individuals financially. These costs can come in the form of less economic opportunity due to growing up in an impoverished community or direct financial costs associated with paying for management of a disability via medical bills or other expenses related to being disabled. In many cases both of these factors are at play.

The problem with this is that while everybody else has $1,000 extra per month to spend on goods and services that they were not able to before, those less fortunate individuals having to choose whether or not to opt-in or opt-out of SSI will not have nearly as much extra buying power. The extra UBI benefits pumped into the system, creating more spending, will increase demand which exerts upward pressure on prices for consumers. However, those who had to choose between opt-in or opt-out will not have that extra $1,000 per month that everybody else does to make up for the increases in consumer prices, diminishing their comparative buying power and exacerbating wealth inequality.

Competition and consumer prices

Yang attempts to address this critique of his UBI policy that it will essentially cause inflation by simply stating on his website that “competition between firms will keep prices in check.” Although it is true in a basic economic sense that competition provides downward pressure on consumer prices, this has always been true. However, with the extra UBI money being pumped into the economy, it will require additional competition beyond what is out there in the market now, to provide the necessary downward pressure on prices to prevent inequality exacerbating inflation.

Unfortunately, Yang fails to provide any type of mechanism in his UBI policy to create this essential increase in competition. He just assumes that competition will increase, or maybe does not realize that competition must increase in order for his policy thesis to work. In any case, the current trend shows that wealth inequality and the rate of entrepreneurship are correlated. This means that with the current levels of wealth inequality at historic highs, there is very little reason to bet that rates of entrepreneurship will increase as long as wealth inequality, which will be exacerbated under Yang’s UBI, remains at these elevated levels.

Criminal justice and Yang’s UBI

One often forgotten aspect of Yang’s UBI proposal is how it intersects with the criminal justice system. It may also be the most regressive aspect of Yang’s policy proposal. In Yang’s UBI proposal, those who are incarcerated will not receive the $1,000 per month that everybody else does, according to Yang’s interview on the Joe Rogan Experience podcast. This results in the same dynamic described earlier with SSI and SSDI, in that those not receiving the UBI dividend will continue to fall behind the rest of society. With a justice system that disproportionately incarcerates people of color, Yang’s UBI proposal will dramatically exacerbate racial inequality by decreasing the comparative buying power and wealth of communities of color.

Although UBI as a concept may prove to be a worthwhile pursuit at some point, the way Yang has proposed to implement the program will only create a less equitable society and increased human suffering.