DANIEL VAUGHAN: Andrew Yang’s Freedom Dividend is too good to be true

August 19, 2019

Presidential hopeful Andrew Yang has gained a growing platform in the Democratic field by running effectively on one issue: the universal basic income, or the “Freedom Dividend,” as he calls it.

He aims to give every American $1,000 every month, no questions asked, as a means of providing a form of welfare to people slipping through the cracks. He also claims this project can be paid for through new taxes with little impact on the U.S. economy; meanwhile, we must merely “consolidate” the current welfare system.

If this seems too good to be true, that’s because it is. Let’s start with the overarching idea of the universal basic income. The idea first gained significant ground in the mid-20th century among conservative and libertarian economists like Milton Friedman, Charles Murray, and Friedrich Hayek.

If that surprises you — that people on the right would support such a position — it’s because they saw it as having a different purpose than Andrew Yang. The most prominent version of the conservative case for the universal basic income (UBI) comes from Charles Murray, who proposes every American gets $13,000 a year — but $3,000 of that has to go toward health insurance.

While Murray shares some of Yang’s concerns, the main thrust of Murray’s UBI is that it replaces the entire federal government’s welfare system. It’s simultaneously a move to guarantee a basic minimum income to every citizen while also shrinking the size of government in the process. As Murray says:

The UBI is to be financed by getting rid of Social Security, Medicare, Medicaid, food stamps, Supplemental Security Income, housing subsidies, welfare for single women and every other kind of welfare and social-services program, as well as agricultural subsidies and corporate welfare. As of 2014, the annual cost of a UBI would have been about $200 billion cheaper than the current system. By 2020, it would be nearly a trillion dollars cheaper.

The thought process behind this is that if your government is going to have a welfare system, it’s better to allow maximum liberty with that welfare rather than having the government dictate every part of a person’s life. It also dramatically reduces the federal budget and bureaucracy, with most agencies getting snapped out of existence.

Contrast this with Yang, who seeks to have both a welfare system and a universal basic income. Instead of trying to control costs or the size of government, Yang’s plan would explode the size of everything while granting a new entitlement to everyone that we’d never have the capability to reduce ever again.

Yang’s plan also creates an entirely new sales tax on all Americans. He refers to it as a VAT, or “Value-Added Tax (VAT) of 10%.”

If you’re in a state with a sales tax, include another 10% on top of every purchase and you’ll get the new sales tax. It’s similar to the way Social Security is sold; there’s a specific tax for it, and because of this, you’ll hear liberals claim that Social Security is revenue neutral.

But when you face the problem that fewer and fewer people are paying into Social Security, while more are taking out, you get the current situation: Social Security is facing shortfalls and is running out of money.

Yang’s UBI would unquestionably run into shortfalls, just as every federal government program has, and it creates a new way for the state to tax people on a national basis. “Consolidating welfare programs” sounds like an excellent promise, but over time, that consolidation will expand back out.

Both Yang and Murray’s UBI goes to everyone, rich and poor alike. That version of UBI makes them different from the other leading proponent of the UBI on the right, Milton Friedman. His plan is even more unusual, according to Reason:

Friedman advocated for a negative income tax, which replaces levies on low-income individuals with supplemental funds from the government. Friedman’s plan consequently ensures that everyone in society receives a guaranteed minimum income, but it doesn’t redistribute money to people who don’t need it.

This plan isn’t perfect either, because income tax is an inherently imperfect way of determining who is rich and poor in a society. Some wealthy people will continue to receive a payout. The Friedman plan also does little to constrain the size and scope of the federal government.

Perhaps the most crucial aspect of the UBI, which Murray admits and Yang does not, is that it would affect how people approached work. City Journal noted that “the UBI would undermine the link between work and self-reliance that has sustained the American social fabric.”

If you’re seeking to eliminate the entire welfare and entitlement state with UBI, the impact on culture might be worth it. You’re admitting that a government is stuck with some form of a welfare state; it’s just better for individuals to decide how to use that welfare instead of creating an ever-growing bureaucracy to administer it.

If you’re seeking to take Yang’s route, however, you’re just creating a new entitlement, with new taxes, and doing nothing to constrain the growth, reach, and power of government in people’s everyday lives.

Yang’s ideas may have some promise, but they would upend society in economic and cultural ways that would be difficult to reverse. The UBI has interest on the left and right because it seeks to reshape how the government approaches welfare — and that’s a conversation worth having.

But creating new entitlements and taxes all in the name of handing out free stuff, which is how Yang boils down his argument, is not a fruitful conversation. The Freedom Dividend is bad for America as currently constructed, and the media should press Yang on that point.

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Daniel Vaughan

Daniel Vaughan is a columnist for the Conservative Institute and lawyer in Nashville, Tennessee. He has degrees from Middle Tennessee State University and Regent University School of Law. His work can be found on the Conservative Institute's website, or you can receive his columns and free weekly newsletter at The Beltway Outsiders. Connect with him on Twitter at @dvaughanCI.