COVID-19 exposed structural inequalities in global economies. Millions of Americans were laid off, many struggling to pay for basic necessities like food and rent. All the while, the top 1% added more than $7 trillion to their wealth.

Governments did come to their citizens’ rescue, dishing out trillions of dollars in fiscal stimulus. These stimulus cheques have been extremely effective in helping those in financial distress.

So, should we make them permanent?

Universal Basic Income

Universal Basic Income (UBI) is the idea of giving every citizen a set amount of money every month. Before we continue, we have to briefly consider the characteristics of a Universal Basic Income.

There are many implementations of Universal Basic Income, each of them with their own characteristics, but broadly speaking, a Universal Basic Income should be:

  1. Universal: Every adult citizen is entitled to the grant, regardless of means.

  2. Individual: The grant is paid to individuals, and not to families or households, for instance.

  3. Paid in cash: The grant is to be disbursed in freely spendable money. Therefore, goods and vouchers are not counted (like food stamps, for instance).

  4. Periodic: The grant is to be distributed in regular payments (monthly, for instance).

  5. Unconditional: No conditions should be placed on the receiving of the grant, i.e. the recipient should not have to work, or demonstrate a willingness to work.

No doubt, a Universal Basic Income would be helpful for low and middle income earners, but probably not for the rich. Therefore, the most popular implementation of Universal Basic Income is to give every citizen an identical payment, then tax a higher proportion of it back from those with higher incomes.

Andrew Yang’s plan

Andrew Yang’s Universal Basic Income plan, dubbed the “Freedom Dividend”, would give every American adult $1000 a month ($12000 a year). Among other things, his plan aims to support Americans that will lose their jobs to automation. According to his 2020 Campaign website, his plan should reduce poverty, and grow the economy by 12.56 to 13.10 percent.

But, how much will this all cost? A lot.

There are about 250 million adults in the US. Giving each adult $12000 a year means a total yearly expenditure of about $3 trillion. Take into account the fact that the US’s federal budget for 2021 is $6.8 trillion, and we start to see the problem. The Freedom Dividend would cost almost half of the US's annual budget!

So, how does he plan to pay for all of this?

Yang plans to pay for his UBI mostly by implementing a Value Added Tax (VAT). A VAT is similar to a sales tax. But, while with a sales tax, the tax is collected when a consumer buys the product, with VAT, the tax is collected at the various stages of the production process. Another way he plans to fund it is by the dismantling or narrowing of social programs made redundant by the Freedom Dividend.

These measures, however, have been found to only cover half the cost of the Freedom Dividend.

Besides the cost, another criticism of Yang’s plan is that it may be a disincentive to work. Yang, however, says that $12000 a year would be too little to live on. Therefore, people would still need to find other jobs to supplement this income. Past and current experiments of Universal Basic Income around the world have not shown a significant reduction in employment.

So, what next?

There have been small-scale, localised versions of a Universal Basic Income in many countries around the world - US, Canada, Finland, Kenya, and Taiwan, among others. While no country has rolled out a country-wide Universal Basic Income, the stimulus cheques we saw during the COVID-19 pandemic may have been a first step.

What comes next waits to be seen.



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