Andrew Yang's UBI problem

To his credit, Yang wants to impose a financial transactions tax on Wall Street, lift the income cap on payroll taxes, and other worthwhile measures that would cut the top of America’s wealth hierarchy down to size a bit. But his main mechanism for financing his Freedom Dividend is a value added tax of 10 percent.

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In brief, a value added tax (VAT) is a form of sales tax that’s applied to every step in the supply chain. Exactly how business models pass along the costs of the tax is debatable, but economic studies are pretty unanimous that most of the burden gets handed off to the end consumer. Since lower-income households spend more of their budgets on basic consumption, that makes a VAT regressive: it takes a bigger percentage of poor Americans’ income than of wealthier Americans’ income.

Yang says his VAT won’t apply to basic staples like groceries and clothing. But the research suggests these sorts of carve-outs don’t really help with the overall regressive impact. He also argues no lower-income person could ever buy so much that their VAT burden cancels out their UBI. Which is true, but besides the point. The point is, for poorer Americans who already rely on the safety net, Yang’s UBI results in no net increase in income to begin with. Therefore, any jump in their consumption costs will leave them worse off on net.

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