Universal Basic Income took front stage in Andrew Yang’s campaign. The $1200 COVID-19 relief check brought it back to the spotlight.
Universal Basic Income, or UBI, gives people money on a regular basis regardless of their income or earnings.
Yang’s specific plan, the Freedom Dividend, would give Americans $1,000 a month, or $12,000 a year.
In theory, it sounds great, right? After all, a little more money each month would probably help many Americans with bills. Yang wants to mostly use a VAT (Value-Added Tax) to fund his model. This tax increases at each stage of production.
Amazingly, Yang uses a Roosevelt Institute study to claim that UBI would cause a GDP increase of around 13 percent or 2.5 trillion dollars over 8 years.
The Problem with Universal Basic Income
However, the study has different funding models with varying results. The funding model with 13 percent of growth is deficit funded, not Value-Added Tax-funded like in Yang’s plan.
The Roosevelt study is also flawed, according to UPenn’s Wharton School of Business. Wharton added variables that were not considered in the Roosevelt study. Then, Wharton found results that starkly contrasted that of the Roosevelt study.
Interestingly, instead of GDP increase, the GDP actually decreased by 6.1% percent. Even worse, the federal debt increased by 63.5%. Working hours also dropped. Security revenue, which 16 million Americans get, dropped 7.1%.
Additionally, a VAT simply isn’t enough to fully fund a UBI. Hence, Yang added an opt-in/opt-out system and other taxes. Essentially, the system means that a person cannot get welfare and UBI at the same time. This reduces welfare costs, which will then fund UBI.
The Positives
Shockingly, CareerBuilder, an employment website, found that 78% of American workers live paycheck to paycheck. Therefore, UBI could help these people. As it is now, welfare does not reach as many Americans as it should.
Most social programs, at a maximum, only go to those slightly above the poverty line. In fact, TANF, a social program, only goes to about 22/100 families in poverty. UBI goes to everyone, whether poor or rich. Therefore, it could help those too “rich” for welfare.
Will this truly help the poor?
The Cato Institute found that the average value of welfare benefits is roughly $17,000 a year. In reality, poor Americans face a $5,000 drop in value. With that in mind, it’s unlikely that most poor Americans would opt for a UBI. In turn, welfare costs would not be lower.
Unfortunately, retirees are in the same boat. The average Social Security check is $1,413 per month, totaling $16,956 a year. This is a near $5,000 increase from a UBI. For the 19.6 percent of retirees who rely heavily on the payout, this is massive. Since UBI will cause Social Security revenue to drop, retirees get hurt no matter if they opt-in or opt-out.
Perhaps the $1200 check is necessary. However, UBI as a system, as it is now, simply won’t help the Americans who need it the most.