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Andrew Yang wants to give Americans $1,000 per month. Here’s how it would work

Democratic presidential candidate wants to send Americans $1,000 per month. He would use a value-added tax to make it happen.

Democratic presidential candidate and businessman Andrew Yang speaks at the New Hampshire state Democratic Party convention, Saturday, Sept. 7, 2019, in Manchester, N.H.
AP

Andrew Yang is still in the 2020 Democratic primary race.

Yang will be one of the 10 Democratic candidates onstage for the next round of debates in Houston.

And since the Democratic candidate has picked up more steam — from reports that the media ignores him to a big New York Times feature piece to literally riding a wave of support — it’s possible candidates might hit out at his “Freedom Dividend” plan, which promises Americans $1,000 per month to combat automation.

“The most direct and concrete way for the government to improve your life is to send you a check for $1,000 every month and let you spend it in whatever manner will benefit you the most,” according to Yang’s campaign website. “The government is not capable of a lot of things, but it is capable of sending large numbers of checks to large numbers of people promptly and reliably. We have plenty of resources, they’re just not being distributed to enough people right now.”

But how will he pay for it?

Yang will use a 10% value-added tax on goods and services. A VAT tax is like a sales tax, but it’s collected differently.

Normally, for a sales tax, when you buy a product, the tax will be collected. But “under a value-added tax, the tax is actually collected in stages along the production process,” Kyle Pomerlau, chief economist and vice president of economic analysis at the nonpartisan Tax Foundation, told the PBS NewsHour.

So how does it work? Here’s how PBS explained it:

To make a T-shirt, a clothing company would buy fabric from a supplier for $5, for example. The supplier charges the clothing company the 10 percent value-added tax, or 50 cents, for a total of $5.50. The supplier then sends that 50 cents to the federal government.

Once the T-shirt is made, a clothing company sells it to a department store for $10, plus $1 in VAT, for a total of $11. The clothing company then gets a rebate from the federal government for 50 cents because it already paid 50 cents to the fabric supplier.

A customer then comes into the department store and buys the shirt for $20. The department store charges the customer the 10 percent VAT, or $2, for a grand total of $22. The department store will then get a rebate of $1 from the federal government because it paid the other $1 to the clothing company in VAT.

Notice that the total of the federal VAT of 10 percent on the final sale of the T-shirt has been collected along the way. The federal government collected its $2 from the $20 purchase (50 cents from the fabric supplier, 50 cents from the clothing company and $1 from the department store).

Adam Michael, a tax policy and federal budget expert, told Time magazine that value-aded taxes don’t always work the way you think.

“Consumption taxes as a standalone concept are significantly less distortionary to the economy, so they’re a very efficient way to raise taxes,” he said. “From a conservative perspective, someone that is concerned about the size and scope of government, adding an additional highly efficient way to raise revenue into the U.S. tax system is incredibly problematic in that it would would unleash the already pent up desire to expand the size and scope of government making it easy for the government to collect revenue for any number of programs — whether that be the UBI or the Green New Deal or Medicare for all.”

All of that said, the proposal isn’t exactly unique. “In fact, it’s a policy that has been floated by politicians from various political parties and countries for decades: a universal basic income, regardless of work status,” according to Time magazine.

In fact, Martin Luther King Jr. wrote about such an idea in 1967. And Facebook CEO Mark Zuckerberg supported the idea of a universal basic income, too, according to Time.

“We should explore ideas like universal basic income to make sure that everyone has a cushion to try new ideas,” he said while speaking at Harvard’s commencement ceremony in 2017.