Universal Basic Income: A Bipartisan Solution to COVID’s Economic Turmoil
By Gabrielle Pesantez
Former 2020 presidential candidate Andrew Yang has finally gotten his told-you-so moment. On June 8th, the National Bureau of Economic Research declared that the United States had officially entered into a recession. Following a peak in economic activity in February 2020, any potential for economic expansion, let alone stability, had been diminished by the global COVID-19 pandemic. As of June 2020, approximately 22 million Americans were receiving unemployment benefits. The Atlanta Fed’s mid-July estimates place real GDP growth in the second quarter of 2020 at negative 34.7 percent, with future predictions still unknown as experts continue to assess the pandemic’s devastating impacts. Amidst the U.S.’s economic chaos, Yang has continually advocated for the power of direct cash assistance, hoping that “Congress wakes up to this [potential solution] before it’s too late.” In April, his calls had begun to be answered when the Internal Revenue Service (IRS) issued 1200-dollar per person stimulus checks to assist financially-struggling citizens. Despite the government’s earlier intervention, the pandemic continues to threaten Americans’ economic security. Estimates from July 2020 place the virus’s effective reproduction number above the critical level in 45 U.S. states, leaving 95 percent of the U.S. economy vulnerable to a double-dip recession in the case that infections rise.
Given the country’s current economic vulnerability, universal basic income (UBI) proposals have been brought to the forefront of the debate over how the government can alleviate otherwise-insurmountable financial burdens brought on by the pandemic. Stimulus payments made to Americans in need mirror a temporary version of the UBI system proposed by Yang, bringing into question the value of direct cash assistance in such dire times. Yang’s UBI plan, labeled the “Freedom Dividend,” would have guaranteed 1000-dollar monthly payments to every American citizen over the age of 18. When Yang first announced this proposal, he was met with mixed reactions. Critics of the UBI doubted the plan’s financial plausibility, estimating that it would cost around 3 trillion dollars per year to sustain. However, this figure, which results from a simple calculation of multiplying the total number of eligible UBI recipients by 12,000 dollars, is misleading in its presentation as an overwhelming cost to society.
Yang’s Freedom Dividend was distinct in its implementation of a Value-Added Tax (VAT), a consumption tax on goods and services at each production stage. The VAT has the potential to successfully combat income inequality, redistributing some income away from the top 1 percent of earners. One annual 5,200 dollar payment per family plan examined by the Tax Policy Center (TPC) would increase the “after-tax income of the lowest-income 20 percent of households by 17 percent. [Additionally,] the tax burden for middle-income people would be unchanged while incomes of the top 1 percent of households would fall by 5.5 percent.” The TPC furthers that instituting “a 10 percent VAT would raise about $2.9 trillion over 10 years, or 1.1 percent of Gross Domestic Product, even after covering the cost of the UBI,” essentially claiming that the UBI would not only pay for itself but also raise additional funds. A 2017 Roosevelt Institute study modeling the macroeconomic effects of a UBI found that an immediate adoption of conditions similar to the Freedom Dividend would permanently grow the economy by 2.5 trillion dollars by 2025. However, the authors of this study varied the method through which the UBI would be financed. Instead of analyzing a VAT-financed UBI, the study’s authors proposed two routes: 1) increasing the federal debt and 2) enacting traditionally progressive forms of taxation, such as raising rates for those higher along the income distribution. Under both conditions, they predicted an increase in output, employment, prices, and wages.
A UBI clearly has the potential to introduce positive change in the realm of Americans’ individual and overall economic security. Jack Dorsey, C.E.O. of Twitter, recently committed 3 million dollars to help fund U.S. Mayors for Universal Basic Income pilot programs in 15 cities. These pilot programs test the tangible impacts of UBI payments within local communities, measuring UBI’s potential as an economic empowerment mechanism. The Mayors for Universal Basic Income coalition is led by Mayor Michael Tubbs of Stockton, who instituted a local UBI pilot program in his community in late 2018. Recent findings from the Stockton pilot program reveal that 40 percent of tracked monthly spending went to purchasing food, with participants investing their UBI funds in nutritious, high-quality food for their families. Beyond alleviating food insecurity, the Stockton UBI allowed participants to address and invest newfound time or money into their individualized, immediate needs.
Mayor Tubbs, noting that many Republican-leaning states “have the highest rates of economic insecurity and poverty [in the country,]” is confident that both parties will see value in supporting UBI proposals. The one point of contention standing in the way of this potentially transformative entitlement ultimately lies in the method of financing the UBI. Fortunately, Democratic and Republican politicians might be accepting of a plan like Yang’s: the VAT can serve as a form of progressive taxation when used to fund the UBI and somewhat similar taxes have previously been proposed by Republican Senators Ted Cruz and Rand Paul, along with former House Speaker Paul Ryan. Though critics of the VAT might argue that the tax is regressive, as lower-income consumers spend a greater proportion of their income purchasing goods compared to their higher-income counterparts, proposals such as Yang’s account for these concerns. Yang’s plan assured that not all goods, namely groceries and clothing, would be subject to the VAT. According to the Yang campaign’s estimates, a consumer would have to purchase at least 120,000 dollars worth of taxable goods before having spent a sum equivalent to their UBI payment.
In a time of immense political polarization, when Democrat-backed progressive forms of taxation are unlikely to win approval by the Republican-controlled Senate, a UBI promises both parties a chance to close the partisan divides while helping struggling Americans in dire times. Results from pilot programs and current UBI experimentation have already begun to reveal the immense personal value, comfort, and stability that a UBI can offer. Our lack of a substantial social safety net is clear. Social distancing requirements continue to impose limitations on the assistance that normally-operational social, health, and legal service providers can offer to vulnerable individuals. Right now, direct cash assistance is more important than ever, but temporary stimulus payments should not be the end of this debate. Amidst so much uncertainty, a UBI offers an opportunity for genuine collaboration in the movement to reimagine and revitalize social security. The U.S. should seize the opportunity to permanently plug the holes in the social safety net, finally offering its citizens a long-awaited, substantive form of economic empowerment.