Fact-checking Andrew Yang on Universal Basic Income

2018 July 22

I'm a budding fan of Sam Harris's podcast. I listened to one with presidential candidate Andrew Yang and was disappointed with Sam's lack of scrutiny on the affordability numbers for universal basic income. Here are my thoughts.

Cost

A Freedom Dividend of $1000 per adult between 18 and 64 would cost about $1.5 trillion. (54:08)

Per the Kaiser Family Foundation (these numbers rounded down):

   29.8 million adults aged 19 - 25
+ 39.7 million adults aged 26 - 34
+ 82.0 million adults aged 35 - 54
+ 41.3 million adults aged 55 - 64
= 192.8 million adults aged 19 - 64
* $1,000 per month
* 12 months per year
= $2.31 trillion per year

VAT revenue potential

A value-added tax at half the European level would get us $800 billion. (54:51)

It's unclear what he means by "half the European level" because there does not seem to be one European level, but a different level for each member country.

Who knows how he picked the number $800 billion? Does he cite this in the book?

Even if we take the median of 21%, that's a huge sales tax. People thinking today of what they could afford with $1000 / month will be greatly disappointed in an environment with a 21% VAT.

Existing tax system revenue potential

The revenue-to-GDP ratio of the US is about 25%. (55:13)

The St. Louis Federal Reserve: The revenue-to-GDP ratio has never exceeded 20%, despite trying many different tax schemes, even when marginal income tax rates were over 90% (up until 1961). It has generally hovered around 17%, and hasn't crossed 18% since 2001.

Economic growth

If you project the economy is going to grow by between $1 and $2 trillion, ... (55:03)

This ... will enable us to grow the economy by, according to the Roosevelt Institute, about $2.5 trillion per year in perpetuity. (55:56)

US GDP in 2017 was a little over $19.3 trillion. $1 - $2.5 trillion in growth would be between 5.1% and 12.9%. Even the low end would beat the highest growth rate seen since 1984, and it would be doing so while fighting against his enormous new value-added tax. How does he think UBI is going to unlock all this latent growth that somehow can't be harvested without redistribution?

The report from the Roosevelt Insitute that he likely cited says this:

The model finds that $1,000 for all adults annually expands the economy by 12.56% over the baseline after eight years. After eight years of enactment, the stimulative effects of the program dissipate and GDP growth returns to the baseline forecast, but the level of output remains permanently higher.

So that's $2.5 trillion additional output after eight years, not one, and it adds that output once, not repeatedly in perpetuity. A generous interpretation might say that Mr. Yang doesn't understand the difference between "permanent additional output" and "permanent additional growth", or that he misspoke.