Taxing The Rich, Helping The Poor

Political observers have consistently dismissed Andrew Yang’s chances of securing the Democratic nomination, and I’ve agreed with their assessment. Yang also agrees–he has terminated his campaign.

Policy folks and political pundits alike have also dismissed his signature proposal–a UBI, or Universal Basic Income. I don’t agree–and neither does the Brookings Institution.

Now, don’t get me wrong–no one who isn’t imbibing very strong drink thinks American lawmakers are likely to pass, or even consider, a UBI any time soon. But as I argued in my most recent book, Living Together, there is a high probability that  millions of jobs will be lost to automation within the next 15-20 years–presenting a challenge America’s current inadequate and bureaucratic social safety net is clearly unable to meet.

In my book, I laid out a number of reasons how–despite Americans’ deep cultural disdain for social welfare programs–a UBI would be both efficient and socially unifying. I also took a stab at explaining how we could pay for it. Nevertheless, some of the sources I identified would require ending fossil fuel and other subsidies and curtailing military expenditures–measures we should take in any event, but that would obviously be politically difficult.

So I was excited to come across an analysis by William Gale of the Brookings Institution that not only made a persuasive case for a UBI, but for his preferred mechanism to pay for it. Here’s the lede:

The Congressional Budget Office just projected a series of $1 trillion budget deficits—as far as the eye can see. Narrowing that deficit will require not only spending reductions and economic growth but also new taxes. One solution that I’ve laid out in a new Hamilton Project paper, “Raising Revenue with a Progressive Value-Added Tax,” is a 10 percent Value-Added Tax (VAT) combined with a universal basic income (UBI)—effectively a cash payment to every US household.

The plan would raise substantial net revenue, be very progressive, and be as conducive to economic growth as any other new tax. The VAT would complement, not replace, any new direct taxes on affluent households, such as a wealth tax or capital gains reforms.

A VAT is a national consumption tax—like a retail sales tax but collected in small bits at each stage of production. It raises a lot of revenue without distorting economic choices like saving, investment, or the organizational form of businesses. And it can be easier to administer than retail sales taxes.

Gale’s UBI proposal is similar to–but smaller than–Andrew Yang’s. The linked article gives the details of how the VAT that paid for it would be structured, and readers with a background in economics are encouraged to read and analyze those details.

The article also explains several of the virtues of the proposed combination of a VAT and a UBI.

The Tax Policy Center estimates that the VAT in conjunction with a UBI would be extremely progressive. It would increase after-tax income of the lowest-income 20 percent of households by 17 percent. 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.

It may seem counter-intuitive, but the VAT functions as a 10 percent tax on existing wealth because future consumption can be financed only with existing wealth or future wages. Unlike a tax imposed on accumulated assets, the VAT’s implicit wealth tax is very difficult to avoid or evade and does not require the valuation of assets.

Liberals have typically viewed VATs as regressive, but Gale points out that they can be quite progressive when combined with the UBI. He also notes that conservatives should support a VAT because the evidence suggests that VATs almost never increase overall government spending.

Assuming that Gale’s numbers are sound, a VAT would generate more than enough money to pay for a UBI.

Granted, under a UBI, all those caseworkers and number crunchers hired by government to decide who is worthy of support and who is not would lose their jobs. But they would have a UBI, so they wouldn’t starve…


The Next Generation

Amidst the gloom and doom that is today’s political environment, there are rays of hope.

I often tell people that I would turn the country over to my students in a heartbeat. They are inclusive, community-oriented and passionate about fairness and civic equality. (Granted, they have enrolled in a School of Public and Environmental Affairs, so they are arguably a self-selected group.)

In my graduate law and policy class, I give a take-home final. (This is an effort to make up for a difficult in-class midterm, a demanding group project and a 20-page research paper.) The final consists of three questions; students are to choose one of the three and write an essay addressing it.

Unlike that midterm, there are no right or wrong answers. I’m looking for thoughtful responses–answers that tell me that they have considered the strengths and weaknesses of American governance and have formed defensible policy positions.

Two of the questions on this year’s final elicited particularly interesting responses. Here’s one of them:

It is 2020, and you have been elected President of the United States. You are following an administration that has made significant—even monumental—changes to American public policies. Which of those changes would you accept and follow? Which would you change? (I am not looking for exhaustive lists; choose one or two areas to discuss and justify your decision to accept or reject the current administration’s approach.) For each policy you would retain or reverse, explain why it is or is not supportive of the common good and/or consistent with America’s Constitutional values.

The students who chose this question were uniformly critical of the current administration, and very specific in their critiques. They all faulted Trump on environmental policy. Several pointed out that the “Muslim ban” violated the First Amendment. Economic policy and the tax “reform” bill came in for considerable scorn, as did efforts to destroy the Affordable Care Act and failures to enact meaningful gun control or improve immigration policy.

I was particularly struck by essays from students addressing this question:

Earth has been destroyed in World War III. You and a few thousand others—representing a cross-section of Earth’s races, cultures and religions—are the only survivors. You have escaped to an earthlike planet and are preparing to establish a new society. You want to avoid the errors of the Earth governments that preceded you. What institutional choices do you make and why? Your essay should address:The type/structure of government you would create; the powers it will have; the limits on its powers, and how those limits will be enforced; how government officials will be chosen and policies enacted;the social and political values you intend to privilege, and the reasons for your choices.

When I’ve included a similar question in the past, most students have dutifully constructed a government patterned after that of the U.S. This year, there were more creative efforts, some borrowing from European and Canadian models, others proposing “from scratch” governance concepts. Three or four proposed to outlaw political parties, and all of them suggested mechanisms intended to prevent gridlock. A couple included stringent qualifications for holding public office.

All the responses included universal healthcare and other elements of a robust social safety net–including, in one case, a Universal Basic Income. All of them included mechanisms meant to eliminate or vastly reduce the role of money in politics. All of them provided for a rigorous civic education. All of them emphasized and protected the right to vote  (some made Election Day  a holiday, some allowed vote-by-mail and a couple made voting mandatory. One made vote suppression a felony.) All had laws protecting civil liberties and the environment.

All of them described legal systems protective of civic equality, and most suggested policies promoting respect for diversity.

The proposals weren’t uniformly practical, and there wasn’t a lot of space for details in any event, but virtually all of them showed that the writers had genuinely grappled with the question and considered the essential elements of a just society.

Needless to say, all of them came across as more thoughtful and informed than Donald Trump and his swamp.

If this country manages to survive the current administration, we’ll be in good hands.