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Dissecting the Freedom Dividend

Lachlan Maddock
— 1 minute read

Andrew Yang is an outside candidate for the Democratic nomination, known primarily for his “Freedom Dividend” (FD). So what is it?

Mr Yang’s policies are many and varied – attacking dark money, combating climate change, legalising marijuana – but chief among them is the FD. It’s a cornerstone of his campaign, intended to protect an increasingly precarious workforce from economic displacement brought about by automation and wealth inequality, and the only one of his policies that has garnered serious attention in the American media. 

The FD is a form of universal basic income (UBI) where every American over the age of 18 would receive $1,000 a month. Americans on some form of welfare could opt to keep their welfare or use the FD, and it would be illegal to lend or borrow against the FD. 

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While the theory of UBI is fairly solid – people generally don’t stop working or spend the money on drugs, as many critics complain – the economics is a little hazy. 

According to the Tax Foundation, a Washington, DC-based think tank, funding for the FD would be provided by a 10 per cent value-added tax (VAT); a tax on financial transactions; taxing capital gains and carried interest at ordinary income rates; removing the wage cap on the Social Security payroll tax; and a US$40 per metric ton carbon tax. The gross cost of the FD would be $2.8 trillion each year – substantially more than the US currently spends on its military. 

Mr Yang holds that the dividend would increase the labour force by around 4.7 million people and permanently grow the American economy to 13.10 per cent by 2025. The Tax Foundation disputes this, saying it is unlikely that the dividend could produce significant and persistent growth, and that Mr Yang’s plan would only fund an FD of somewhere around $750 a month.                                                     

That alone casts the efficacy of the FD into doubt. 

There’s also the question of whether the FD would be enough to reverse the process it intends to. The FD works within the bounds of traditional capitalism, preserving many of the systems that Mr Yang believes have made it necessary to institute an FD, while gouging social welfare programs and instituting a VAT that could disproportionately impact low-income earners. 

And if Mr Yang is correct about the degree to which the workforce will be impacted by automation, $12,000 a year would do little to address the problem of widening wealth inequality; the FD is meant to supplement income, not replace it. 

However, Mr Yang is probably onto something. His explicit proposal of the FD as an outcropping of a functioning capitalist system means that it enjoys fairly broad appeal. Almost half of Americans now support some form of government stipend, and even the most ardent neoliberals now believe that capitalism needs to be reformed to some degree. Many have seized on the provision of UBI as the best way to do it. 

But the wonky maths involved – and Mr Yang’s inability to crack the Democratic top four – mean that the FD is unlikely to be the policy that takes UBI from the fringe to the mainstream.

 

Dissecting the Freedom Dividend
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