UBI Opposition

A $1000 a month for everyone? Guess who’s going to pay for that.

Diego Pedrido, Author

Universal Basic Income (UBI) has been brought into the political conversation after Andrew Yang, a Democratic candidate for the 2020 Presidential race, made it the headline for his campaign. Dubbed as the “Freedom Dividend,” he plans on being able to send $1,000 checks to every single American citizen over the age of 18, no matter what you make. It all sounds great until you take into account a couple of things.

Why give everyone $1,000? Yang has mentioned Milton Friedman and Martin Luther King on the Joe Rogan Podcast, to further push his idea: except their ideas are vastly different. Friedman, the influential Nobel-Prize-winning economist, mentioned a Negative Income Tax for citizens below the poverty threshold, while King suggested a guaranteed minimum income, specifically for the economically disadvantaged. Much of this would be funded on a Value Added Tax (VAT), which would make “companies pay their fair share” by paying a 10% tax along the production chain.

There are two problems with this idea. First, taxes are almost always passed down to the consumer. To make things clearer, if Donald Trump went ahead and placed tariffs (a trade tax) on China for their exports, iPhones would end up becoming much more expensive, directly affecting the consumer. Secondly, this idea is highly dependent on consumer consumption. UBI will only be able to work in a prospering economy because people will be more likely to buy a new phone, car, or any other product that Yang would like to place a VAT tax on. During a recession, funding for UBI is cut, as consumers will begin directing these funds towards rent, utility bills and debts, as opposed to a new laptop. A real life example of this is the Economic Stimulus Act of 2008, where a tax rebate was issued in an attempt to “stimulate the economy.” Only modest results came from this, because only one-third of consumers spent them. The rest of the rebates were saved. A mere recession can blow this idea up into pieces.

In the end, I would prefer exploring the idea of a Negative Income Tax proposed by Milton Friedman. As opposed to handing out money, we should provide incentives to climb up the ladder. I’ve only scratched the surface, but because I don’t want to deal with hyper-inflation and massive government debt, Andrew Yang’s UBI proposal isn’t going to do it for me.