Universal basic income advocates warn Yang's 'Freedom Dividend' would harm low-income Americans

Universal basic income advocates warn Yang's 'Freedom Dividend' would harm low-income Americans
© Greg Nash

Advocates of universal basic income (UBI) are cautioning against Democratic presidential candidate Andrew YangAndrew YangDoctor who allegedly assaulted Evelyn Yang arrested on federal charges The Hill's Campaign Report: Biden weighs in on police shootings | Who's moderating the debates | Trump trails in post-convention polls Buttigieg launches his own podcast MORE’s proposed “Freedom Dividend,” saying it would hurt low-income Americans.

In interviews with economists and organizations that promote UBI in the United States, experts said Yang’s version could do more harm than good because some Americans would need to choose between accepting $1,000 a month and receiving certain public assistance benefits.

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“While the Freedom Dividend has many characteristics that we support, forcing people to choose between current social programs and a basic income plays into this harmful scarcity mentality and would keep many struggling people in the same place,” said Jim Pugh, co-director of the Universal Income Project.

UBI has been the cornerstone of Yang’s campaign since he launched his long-shot White House bid in November 2017. The former tech executive has emphasized that UBI is a necessity because globalization and automation will continue to devastate manufacturing and low- income jobs from Americans.

Proponents of UBI, like Yang, say that granting a guaranteed income will reduce poverty and economic inequality. If there is a guaranteed income, Yang argues, people will have the resources to afford basic necessities if they are looking for work, caring for elderly or ill family relatives, going to school or trying to start a business.

Opponents, however, argue that a guaranteed income for everyone would be too costly and would deprive the poor of targeted support. The National Bureau of Economic Research estimated in a February report that paying for UBI would cost more than $3 trillion annually, which is more than three-fourths of the federal budget.

If UBI is implemented under Yang’s proposal, some economists argue that poverty and inequality will be exacerbated because money for government assistance programs, like food stamps and housing vouchers, will instead be converted to payments to people across the economic spectrum, meaning less money for programs that target poor Americans.

On his campaign website, Yang has proposed “consolidating some welfare programs” to pay for his Freedom Dividend, and that’s worrisome to people like Robert Reich, who served as Labor secretary during the Clinton administration.

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“I'm supportive of a universal basic subsistence income that keeps Americans out of poverty,” Reich, who's now a professor of public policy at the University of California at Berkeley, said in an email. “But, I worry about Yang's proposal in two respects. First, Yang would get rid of public assistance for people who accepted the $1,000 per month cash benefit -- meaning that no one would be better off than they are now.”

There are some exceptions, though. Social Security benefits would still be available, regardless of whether people accept the $1,000 a month.

Reich and Pugh both said UBI should supplement rather than replace social welfare programs.

Yang's campaign responded by saying recipients of social benefits would not lose them under the Freedom Dividend.

“Anyone would be free to keep their current benefits and the Freedom Dividend stacks on top of SSI, Medicare/Medicaid, as well as housing supplements,” campaign spokesman S.Y. Lee said in an email. “The Freedom Dividend is meant to be an alternative to means-tested welfare programs, most of which amount to less than $1000 a month. These programs often provide a disincentive to work or volunteer, and force people to spend time interacting with an unwieldy bureaucracy.”

Still, Yang's website says: "Current welfare and social program beneficiaries would be given a choice between their current benefits or $1,000 cash unconditionally – most would prefer cash with no restriction."

Yang has also proposed a 10 percent value added tax (VAT) to help pay for his Freedom Dividend. A VAT, which is the value added to a product in the supply chain, is added to the sales price when it reaches the retailer.

Pugh and Reich argued that a VAT would hurt consumers, especially low-income Americans.

“Because the Freedom Dividend is funded through a regressive Value Added Tax, costs will rise for low-income Americans, leaving some of the most vulnerable Americans worse off than before,” Pugh said.

Reich added that the poor would pay a higher percentage of their income under a VAT. Instead, Reich argued, UBI should be “financed through a wealth tax.”

Yang's campaign argued that a VAT at 10 percent forces massive tech companies like Amazon and Google to pay more in taxes, and consumers will not see a dramatic increase in prices for basic necessities like food.

Luxury goods, however, will be subject to “higher rates” Lee said.

The Committee for a Responsible Federal Budget published an article in June that challenged Yang’s claim that a VAT would cover a sizable portion of the bill for his guaranteed income proposal. In its analysis, the group determined that a 10 percent VAT would generate an estimated $600 billion in annual revenue, which would cover about one-fifth of the total cost of the Freedom Dividend.

The Brookings Institution in August published a paper co-authored by Melissa Kearney, an economics professor at the University of Maryland who argued that proposals like Yang’s would do very little to “reduce inequality of advance opportunity and social mobility.”

In an email, Kearney argued that the Freedom Dividend is a “poorly designed tool to reduce poverty and inequality in the United States.”

“But if we really were serious about reducing poverty and income inequality in America,” Kearney said. “We would devote a lot more resources to increasing the income and living standards of those in the bottom of the income distribution."

Yang has championed the idea that UBI will encourage people to find work, increase entrepreneurship, help people make smarter decisions, and improve labor market efficiency.

And he has some prominent supporters in his camp.

“A Freedom Dividend of $1,000 a month, for the first time in history, would put every citizen above the government established poverty level,” said Andy Stern, President of Emeritus of SEIU and Senior Fellow at The Economic Security Project. “It would provide economic stimulus for local communities and raise the Income floor for Americans.”

Kearney, however, said that she has found “no compelling evidence that leads me to believe that giving people money will generally lead to any appreciable increase in work or successful business creation.”