A VAT is a regressive tax inasmuch as the poorest people would end up paying the largest share of their income to the VAT.
And yes, in Europe and other places where VAT is used the cost ends up being passed-along to consumers.
The other thing that concerns me is the mathematics of paying for UBI with this VAT: US consumer spending is at about $40 trillion annually. [1] That means the VAT raised would be approximately $4 trillion.
$4 trillion divided by $12,000 per individual pays for about 333 million people. While that is approximately the population of the US I'm afraid Mr. Yang has forgotten one of the most basic principles of economics: When you tax some behavior you get less of it. I'm afraid consumer spending will drop sharply if his tax plan is implemented, resulting in shortfalls of tax revenue for UBI. A sharp drop in consumer spending would also result in job losses and an economic slowdown that may harm the economy of the US more than any benefit gained from UBI. I'm also afraid that the cost to administer and distribute UBI will be huge and has not been accounted for by these numbers.
A VAT used solely to pay for UBI is actually progressive, as the UBI can be considered for the purposes of this calculation as a refundable tax credit.
Low income household:
Income: $30K
Spending on taxable goods: $10K
VAT Paid: $1K
UBI Received: $12K
Total Paid: $ -11K (-37% of income)
Higher Income Household:
Income: $120K
Spending on taxable goods: $70K
VAT Paid: $7K
UBI Received: $12K
Total Paid: $ -3K (-2.5% of income)
Very high income household:
Income: $300K
Spending on taxable goods: $150K
VAT Paid: $15K
UBI Received: $12K
Total Paid: $3K (1% of income)
Lower income people (who spend less by necessity) end up profiting very nicely relative to their income. The rich, i.e. anyone who spends more than $120K on taxable goods, however, would end up spending more than they receive, and are actually the only people funding the UBI.
The flaw with this analysis is that since the UBI is only claimable if you don’t claim any other welfare, and 1000 a month is significantly less than the average payout from programs like disability, many poor families will be unable to claim the UBI but will still pay the tax this making the whole system regressive at low incomes.
EDIT: looks like Yang's position on the stuff below changed. His website used to say it wouldn't stack with anything, now it says it stacks with some things, which makes more sense. I'm till not completely convinced though, since the combination of programs that it doesn't stack with can easily exceed the $1000/mo limit that make it regressive again. But there's a complicated analysis there that I'm not qualified to make.
> many poor families will be unable to claim the UBI but will still pay the tax this making the whole system regressive at low incomes
Disability is one thing (I think that it should stack with disability), but let's not look at the existing welfare system with overly-rosy lenses:
* TANF has been repeatedly cut back and now only 23% of households in poverty are receiving benefits. (universal programs like UBI are more resistant to cuts like this)
* Depending on your state, SNAP and TANF together still don't even get your family to the poverty line
* There are reporting requirements and other administrative hoops to jump through, aid is meant to be "temporary"
A UBI benefits way more people, and a VAT would end up falling more on the rich (even assuming 100% passthrough (in Europe it's ~50%) you'd have to spend more than $12k a month to offset the UBI).
> I'm afraid Mr. Yang has forgotten one of the most basic principles of economics: When you tax some behavior you get less of it
This is true, but if you subsidize some behavior, you also get more of it. And giving people $1000/month would certainly encourage consumer spending. It's not so simple as you are making it out to be: you're ignoring spillover benefits like an increase in entrepreneurial ventures that would create new jobs, as well as an increase in worker productivity that comes with better well-being as a result of UBI.
Also, I'm of the belief that the VAT will become more valuable (in the sense of tax $ earned) over time, as margins will certainly increase as automation becomes more widespread - and VAT is a tax only on the margin that consumer goods producers earn.
And yes, in Europe and other places where VAT is used the cost ends up being passed-along to consumers.
The other thing that concerns me is the mathematics of paying for UBI with this VAT: US consumer spending is at about $40 trillion annually. [1] That means the VAT raised would be approximately $4 trillion.
$4 trillion divided by $12,000 per individual pays for about 333 million people. While that is approximately the population of the US I'm afraid Mr. Yang has forgotten one of the most basic principles of economics: When you tax some behavior you get less of it. I'm afraid consumer spending will drop sharply if his tax plan is implemented, resulting in shortfalls of tax revenue for UBI. A sharp drop in consumer spending would also result in job losses and an economic slowdown that may harm the economy of the US more than any benefit gained from UBI. I'm also afraid that the cost to administer and distribute UBI will be huge and has not been accounted for by these numbers.
[1] https://tradingeconomics.com/united-states/consumer-spending