Freedom Dividend Math

The Freedom Dividend is a form of universal basic income (UBI), a type of social security that guarantees a certain amount of money to every citizen within a given governed population, without having to pass a test or fulfill a work requirement. Every UBI plan can be different in terms of amount or design. 

Andrew Yang is running for president as a Democrat in 2020 to implement a guaranteed income. This form of basic income that he is proposing for the United States is a set of guaranteed payments of $1,000 per month, or $12,000 per year, to all U.S. citizens over the age of 18. Yes, that means you and everyone you know would get $1,000/month every month from the U.S. government, no questions asked.

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Andrew Yang wants to implement the Freedom Dividend because we are experiencing the greatest technological shift the world has ever seen. By 2015, automation had already destroyed four million manufacturing jobs, and the smartest people in the world now predict that a third of all working Americans will lose their jobs to automation in the next 12 years. Our current policies are not equipped to handle this crisis. Even our most forward-thinking politicians are unprepared.

As technology improves, workers will be able to stop doing the most dangerous, repetitive, and boring jobs. This should excite us, but if Americans have no source of income—no ability to pay for groceries, buy homes, save for education, or start families with confidence—then the future could be very dark. Our labor participation rate now is only 62.7 percent – lower than it has been in decades, with 1 out of 5 working-age men currently out of the workforce. This will get much worse as self-driving cars and other technologies come online.

This basic income—funded by a simple Value Added Tax—would guarantee that all Americans benefit from automation, not just big companies. An additional $1,000 a month would provide money to cover the basics for Americans while enabling us to look for a better job, start a business, go back to school, take care of loved ones or work toward our next opportunity.

For more about why Andrew Yang believes so strongly in the Freedom Dividend, read his book “The War on Normal People”.

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Every U.S. citizen over the age of 18 would receive $1,000 a month, regardless of income or employment status, free and clear and no jumping through hoops. Yes, this means you and everyone you know would receive a check for $1,000 a month every month starting in January 2021.

What would you do with $1,000 a month on top of whatever you now make?  Let’s find out.

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It would be easier than you might think. Andrew proposes funding the Freedom Dividend by consolidating some welfare programs and implementing a Value Added Tax of 10 percent. Current welfare and social program beneficiaries would be given a choice between their current benefits or $1,000 cash unconditionally – most would prefer cash with no restriction.

A Value Added Tax (VAT) is a tax on the production of goods or services a business produces. It is a fair tax and it makes it much harder for large corporations, who are experts at hiding profits and income, to avoid paying their fair share. A VAT is nothing new. 160 out of 193 countries in the world already have a Value Added Tax or something similar, including all of Europe which has an average VAT of 20 percent.

The means to pay for the basic income will come from four sources:

1. Current spending: We currently spend between $500 and $600 billion a year on welfare programs, food stamps, disability and the like. This reduces the cost of the Freedom Dividend because people already receiving benefits would have a choice between keeping their current benefits and the $1,000, and would not receive both.

Additionally, we currently spend over 1 trillion dollars on health care, incarceration, homelessness services and the like. We would save $100 – 200+ billion as people would be able to take better care of themselves and avoid the emergency room, jail, and the street and would generally be more functional. The Freedom Dividend would pay for itself by helping people avoid our institutions, which is when our costs shoot up. Some studies have shown that $1 to a poor parent will result in as much as $7 in cost-savings and economic growth.

2. A VAT: Our economy is now incredibly vast at $19 trillion, up $4 trillion in the last 10 years alone. A VAT at half the European level would generate $800 billion in new revenue A VAT will become more and more important as technology improves because you cannot collect income tax from robots or software.

3. New revenue: Putting money into the hands of American consumers would grow the economy. The Roosevelt Institute projected that the economy will grow by approximately $2.5 trillion and create 4.6 million new jobs. This would generate approximately $800 – 900 billion in new revenue from economic growth.

4. Taxes on top earners and pollution: By removing the Social Security cap, implementing a financial transactions tax, and ending the favorable tax treatment for capital gains/carried interest, we can decrease financial speculation while also funding the Freedom Dividend. We can add to that a carbon fee that will be partially dedicated to funding the Freedom Dividend, making up the remaining balance required to cover the cost of this program.

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The Freedom Dividend would transform society in many positive ways and evidence shows this. Trials of various UBI plans have led to all kinds of benefits—some expected, some surprising. Here are just a few of them:

• UBI encourages people to find work. Many current welfare programs take away benefits when recipients find work, sometimes leaving them financially worse off than before they were employed. UBI is for all adults, regardless of employment status, so recipients are free to seek additional income, which most everyone does.
• UBI reduces bureaucracy. With no-strings-attached coverage, determining who is eligible is far simpler and the cost of administering benefits is greatly reduced.  
• UBI increases bargaining power for workers because a guaranteed, unconditional income gives them leverage to say no to exploitative wages and abusive working conditions. Employers can’t push workers around as much.  
• UBI increases entrepreneurship because it provides for basic needs in the early lean days of a company and acts as a safety net if the business fails. It also gives you more consumers to sell to because everyone has more disposable income. The Roosevelt Institute found that a UBI would create 4.6 million jobs and grow the economy by 12 percent continuously. UBI would be the greatest catalyst for new jobs, entrepreneurship, and creativity we have ever seen.  
• UBI improves the mental health of recipients because it reduces conditions of scarcity, poverty, and financial insecurity, which are major sources of stress for millions of people.
• UBI helps people make smarter decisions. Studies have shown that people in straits of economic insecurity have a reduced cognitive ability equal to 13 IQ points. UBI would provide the security people need to focus on important things like their families.
• UBI improves physical health. With increased economic security, people are less prone to stress, disease, and self-destructive behavior. A UBI experiment in Canada saw hospitalization rates go down 8.5 percent.
• UBI increases art production, nonprofit work and caring for loved ones because it provides a supplementary income for those interested in labor that isn’t supported by the market.  
• UBI improves labor market efficiency because fewer workers are stuck in jobs that are a bad fit. National productivity will improve because people will be able to seek work that is more rewarding which will promote higher job satisfaction.
• UBI improves relationships by reducing domestic violence, child abuse, financial stresses, and sources of conflict. It ensures that everyone has an optimistic sense of his or her own future and has the mobility to get out of abusive relationships.

It’s amazing what a steady source of money can do to transform people’s lives. We can experience it here in America if we adopt a universal basic income. We are the wealthiest and most technologically advanced society in human history; it’s time to invest in our people.

Imagine your life and the lives of everyone you know with an extra $1,000 per month – how would you spend it? How would things change?

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No.

First, not all goods will be subject to the VAT. Staples such as groceries and clothing will be excluded from the VAT.

Second, the assumption that the entire VAT would get passed on to consumers is incorrect. Consumers are price sensitive, and the demand for most goods is at least somewhat elastic. While prices will likely increase on many goods, the increase will, for the most part, be smaller than the VAT as producers find more efficient ways to produce goods and adjust prices to maximize profitability.

Finally, an individual would have to buy a lot of non-exempt items in order to “cancel out” the value of the UBI. Assuming all goods are subject to a VAT and the entire VAT is passed on to consumers, an individual would have to buy $120,000 worth of items before the extra costs associated with a VAT “use up” their UBI. As stated above, those two assumptions are wrong, and most people aren’t spending nearly that much money.

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Those who served our country and are facing a disability as a result will continue to receive their benefits on top of the $1,000 per month.

Social Security retirement benefits stack with UBI. Since it is a benefit that people pay into throughout their lives, that money is properly viewed as belonging to them, and they shouldn’t need to choose.

Social Security Disability Insurance (SSDI) is based on earned work credits. Supplemental Security Income (SSI) is a means-tested program. You can collect both SSDI and $1,000 a month. Most people who are legally disabled receive both SSDI and SSI. Under the universal basic income, those who are legally disabled would have a choice between collecting SSDI and the $1,000, or collecting SSDI and SSI, whichever is more generous.

Even some people who receive more than $1,000 a month in SSI would choose to take the Freedom Dividend because it has no preconditions. Basic income removes these requirements and guarantees an income, regardless of other factors.

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Experiments with unconditional cash benefits around the world have proven to be one of the most successful ways of reducing poverty. The fear that cash recipients would waste their money on drugs or alcohol, stop working, or have more kids have been disproven by the World Bank. Many of these behaviors were actually reduced.

Since 1998, there have been a total of 461 research papers published on the topic. You can view them all here.

In the last 50 years, there have been more than 30 cash transfer programs studied. Here are a few of our favorites:

• The “Mincome” Experiment, Manitoba, Canada (reduced hospitalization and no reduction in work hours)
• BIG Pilot Project, Namibia (reduced crime, reduced school dropouts, and improved health)
• Give Directly, Kenya (increased assets and nutrition, and no change in drugs or violence)
• View them all here.

The data is clear – giving people money enables them to live better lives. But put aside the data for a moment and just think about it for yourself. What would you do with an additional $1,000 each month? What about your family and friends?

The Freedom Dividend will transform our society for the better; we just need the courage and will to both care about and invest in our people.

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The idea of guaranteeing every citizen an income from the government was first recorded during the Renaissance. In America, it was picked up by founding father Thomas Paine, who referred to the payments as a “natural inheritance.”

UBI and similar cash programs began picking up steam in the mid 20th century during the industrial revolution as early as 1918. With developed countries producing more than ever, the idea resurfaced with intensity being backed by numerous Nobel Prize winning economists such as Milton Friedman and F.A. Hayek.

In the 1960s, Martin Luther King Jr. gave his support, alongside over 1,000 economists from over 125 universities who signed a letter to President Nixon requesting income guarantees.

The idea of a guaranteed income was pushed into a bill under President Nixon in 1970 where it passed the United States House of Representatives. It died in the Senate because Democrats sought a higher guaranteed income.

Today the idea has gained support from Mark Zuckerberg, Robert Reich, Elon Musk, Bill Gross, Richard Branson, Ta-Nehisi Coates, Noam Chomsky, and many others. Even more have expressed interest in studying the idea, from former President Obama to the libertarian Cato Institute. Universal basic income is not new – it is an old idea whose time has come.

Here are some of the people who have supported Universal Basic Income over the years:

Martin Luther King Jr., 1967: “I am now convinced that the simplest approach will prove to be the most effective — the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.”

Richard Nixon, August 1969: “What I am proposing is that the Federal Government build a foundation under the income of every American family . . . that cannot care for itself–and wherever in America that family may live.”

Milton Friedman (Nobel-winning economist), 1980: “We should replace the ragbag of specific welfare programs with a single comprehensive program of income supplements in cash — a negative income tax . . . which would do more efficiently and humanely what our present welfare system does so inefficiently and inhumanely.”

Bernie Sanders, May 2014: “In my view, every American is entitled to at least a minimum standard of living . . .There are different ways to get to that goal, but that’s the goal that we should strive to reach.”

Barack Obama, October 2016: “as AI gets further incorporated, and the society potentially gets wealthier, the link between production and distribution, how much you work and how much you make, gets further and further attenuated . . . we’ll be debating unconditional free money over the next 10 or 20 years.”

Elon Musk, February 2017: “I think we’ll end up doing universal basic income . . . It’s going to be necessary . . .There will be fewer and fewer jobs that a robot cannot do better. I want to be clear. These are not things I wish will happen; these are things I think probably will happen.”

Mark Zuckerberg, May 2017: “We should explore . . . universal basic income so that everyone has a cushion to try new ideas.”

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Since 2000, technology has replaced the jobs of four million American manufacturing workers and decimated communities throughout the Midwest. With new developments in technology, experts are predicting that one out of three Americans will lose their jobs to new technology in the next twelve years.

Truck driving alone is the most common job in 29 states with 3.5 million drivers – 94 percent of them male – and an additional 12 million workers supporting them in truck stops and motels across the country. What happens when the trucks start to drive themselves?

We are experiencing the greatest economic and technological shift in human history, and our institutions can’t keep up. Without the Freedom Dividend, we will see opportunities shrink as more and more work gets performed by software, AI, and robots. Markets don’t work well when people don’t have any money to spend. The Freedom Dividend is a vital step to helping society transform through the greatest automation wave in human history.

For a detailed account of why we need the Freedom Dividend, read Andrew’s book The War on Normal People. 

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The Roosevelt Institute found that adopting an annual $12,000 basic income for every adult U.S. citizen over the age of 18 would permanently grow the economy by 12.56-13.10 percent—or about $2.5 trillion by 2025—and it would increase the labor force by 4.5-4.7 million people.

This is because putting money in people’s hands grows the economy, particularly when those people need the money and will spend it. Imagine a small town in Missouri with 5,000 qualifying residents. A $12,000 Freedom Dividend would bring an extra $60 million of additional income into the community, most of which would be spent locally. Then imagine that playing out in every community in the country, big and small. Communities everywhere will have more vibrant local economies, creating more jobs and leading to new businesses. 

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