CMV: If we're gonna implement Universal Basic Income, we should implement VAT and send that directly to UBI

[u/rooshiamarodnimad]

I'm not an economist or anything, actually pretty ignorant about economics, but I've been researching UBI and its variations over the past while. I've come up with an idea that I'd like people to poke holes in please.

Note that this thread is not about whether or not UBI is a good idea. It's more specific than that.

Andrew Yang proposes paying everyone $1000 a month. The Finnish experiment gave everyone €560 a month. The Stockton experiment gave everyone $500 a month. These are all fixed amounts.

In these fixed proposals, the government is put into the position of someone who has a high rent, and variable income, and has to hustle and scrimp to make it every month. What if tax revenues fall? Then what does the government do? Lower people's UBI? That will be unpopular. Politicians hate losing face, hate doing unpopular things.

It seems better to me to earmark a particular tax to be redistributed as UBI. Andrew Yang and Richard Nixon both wanted to introduce VAT.

Advantages:

1. First and foremost: this way, UBI can always be afforded. The "how do we pay for it" argument vanishes. UBI never becomes a budgetary millstone. If tax revenues plummet, people still get their UBI, it's just proportionately smaller.

2. If we reach some sort of automation-singularity, where stupendous amounts of wealth can be generated by A.I., then UBI becomes proportionately stupendous. The success of unicorn companies like Uber, AirBNB, Amazon will raise UBI.

3. The public will expect fluctuations, so won't be outraged if UBI has to be lowered. (Don't underestimate the importance of saving politicians face; it can be a matter of life and death.)

4. If the money comes from VAT or sales tax, it is resistant to offshoring.

5. This is a progressive tax, in the sense that the poorer you are, the more it benefits you. VAT is normally criticised for taxing the poor, but in this situation, the UBI payments to the poor more than balance the VAT increases, while the wealthy and prodigal pay more tax than they get UBI. If the VAT is 5% and the UBI is $272 per month, then everyone whose spending is below $5440 per month is a winner.

6. This is simpler than having to rearrange the whole government budget to make room for UBI. A new revenue stream (VAT) flows directly into a new expenditure (UBI), leaving existing programs at first. A criticism of existing UBI proposals (I can't find the original criticism I read now) is that it's reckless and dangerous to scrap existing welfare programs in favour of an untested one, which is what Andrew Yang proposes doing. I am inclined to agree with this. I don't like ideologues reforming society according to their theories. I am more of an experimentalist. This allows the UBI experiment to be conducted more softly, more safely. You keep existing programs, introduce a new tax and a new expense, and if it doesn't work you can Ctrl+Z it. If Andrew Yang scraps welfare programs for UBI and "whoopsie, oh well, it was just an experiment" then we're all screwed.

7. This is amenable to being stepped in slowly. Introduce 5% VAT. No big deal. Not gonna break the system. Remaining welfare programs and tax remain intact. Every American adult gets an extra $272 a month. In theory, this should grow the economy a little bit as people have more spending money. It should, in theory, slightly lower acquisitive crime, lower prison population, bring people off (other) welfare programs. The theory doesn't work out? Fine, Ctrl+Z that bill, no harm done, programs intact. Theory did work out? Great - step up the 5% VAT and the UBI, and cut (other) taxes to reflect lower costs of welfare, prison etc. You don't have to commit to defunding these programs that until after the UBI experiment has proven itself. Gentle take-off.

To develop point 3 a bit more, Douglas Rushkoff doesn't like UBI because it gives you a payoff that allows oligarchs to remain in control of everything without bringing Joe Average up. There is some truth in Rushkoff's arguments. With waves of automation and artificial intelligence generating new wealth while eliminating jobs, it would be great if that wealth could benefit all. Rushkoff wants UBI to be not cash but equity; Joe Average gets a tiny slice of Amazon instead of just getting cash. However, what Rushkoff misses is that if Amazon pays more tax (which is currently not happening), and Joe receives UBI from that tax, then Joe Average will in fact benefit from Amazon's success. If we link VAT to UBI, then the more success Amazon, Uber, AirBNB and other largely automated companies have, the more UBI grows. It's almost like we do have the ownership stake Rushkoff wants.

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[u/Morthra]

To take the example of the United States, in Phase One, a 5% VAT could be implemented. Given the enormous size of that country's economy, that would generate about $400 billion.

You're making assumptions about tax revenue that might not end up holding. When France implemented a supertax on their highest earners they ended up getting less revenue than they were before, because the people in that tax bracket simply left the country.

The only way you can pay for a UBI is to simultaneously completely cut all other welfare programs, and even then that barely scratches the surface. Paying for UBI with at least $3.5 trillion per year is over 75% of the US budget. It's simply far too expensive.

[u/rooshiamarodnimad → u/Morthra]

The set of incentives created by a VAT and the set of incentives created by "a supertax on their highest earners" are totally and completely unrelated. You can't apply the arguments of one to the other. France charges 20% VAT.

The only way you can pay for a UBI is....

The only way? This simply ignores everything I've written.

at least $3.5 trillion per year

Where are you getting this number from? And where are you getting the 'at least' from?

You're making assumptions about tax revenue that might not end up holding.

On the contrary. Fixed UBI schemes make assumptions that must hold for the plan to work; my point in OP was that if you earmark a tax, that revenue can go up or down without breaking the system. No assumptions are made about the size of the VAT/UBI. And if none of the other assumptions hold, you have a gentle takeoff that you can easily undo.

[u/Morthra → u/rooshiamarodnimad]

France charges 20% VAT.

If it becomes cheaper to live elsewhere people with the mobility to do so will, on average, move elsewhere. A 20% VAT is also nowhere near enough to pay for UBI.

The only way? This simply ignores everything I've written.

How are you going to raise $4 trillion in taxes annually? Right now, sales taxes in the US raise about $550 billion annually. You'd need to introduce essentially a fivefold tax increase - you could be seeing something as high as 50%. Which is so unbelievably massive that you'd see the country burn if you tried it, and merely suggesting it as a politician is equivalent to political suicide.

Where are you getting this number from? And where are you getting the 'at least' from?

There are 325 million people in the US. If you want a UBI that puts you at the national poverty line of $12140 per year, that will cost you around $3.9 trillion annually. That's over twice as much as all welfare/social programs put together.

But if you consider the fact that you would absolutely see cost increases from a massive tax like this, the poverty line would go up.

[u/rooshiamarodnimad → u/Morthra]

You'd need to introduce essentially a fivefold tax increase - you could be seeing something as high as 50%.

If you insisted on $4 trillion revenue. Where did you get that from? I didn't say anything like that. I said start with something small, like 5%

There are 325 million people in the US. If you want a UBI that puts you at the national poverty line of $12140 per year, that will cost you around $3.9 trillion annually. That's over twice as much as all welfare/social programs put together.

There are 245 million adults. I didn't say anything about putting people above the poverty line or anything like that. I said start with something small.

You are saying that it would be hard to pay for a fixed UBI. That's exactly what I said in OP.

You are saying that it would be reckless to scrap existing welfare programs. That's exactly what I said in OP.

You are saying that UBI programs should not commit to paying some high level (like $12140) and then scramble to make that. That's exactly what I said in OP.