Would a 10% VAT Pay for a $1,000 per Month UBI?

During the first 2020 Democratic presidential primary debate, candidate Andrew Yang claimed that his Universal Basic Income (UBI) proposal of $1,000 per month per person per year could be paid for with a Value-Added Tax (VAT) at half the levels of the average European country. While a VAT of some level could certainly pay for a UBI, it appears it would need to be much higher than Yang claims, or else coupled with other tax and spending changes.

According to estimates from the Penn Wharton Budget Model, implementing a UBI in the U.S. at $6,000 would cost about $1.5 trillion annually, so a UBI at double that amount would likely cost about $3 trillion per year. This means that even if his VAT raised $800 billion, Yang's proposal would only be a little more than one-quarter paid for.

Given that the average European VAT is about 21 percent, half of that would be a 10 to 11 percent VAT. The Congressional Budget Office (CBO) has estimated that a 5 percent VAT on a broad tax base would raise about $300 billion per year, so a 10 percent VAT would likely raise somewhere in the range of $600 billion per year – less than Yang's $800 billion claim and only enough to cover about one-fifth of the total cost of Yang's proposed UBI.

Using estimates from the Tax Policy Center (TPC) of a much broader VAT, a rate of 10 percent would raise closer to $1.2 trillion per year – two fifths the cost of a $1,000 per month UBI. Estimates from the Tax Foundation are similar to TPC's, raising roughly $1.3 trillion per year based on doubling their estimate of a 5 percent VAT.

In no case does does it appear a VAT at half the average European country's level would be enough to cover a $1,000 per month UBI. Either the VAT would need to be much higher, the UBI much smaller, or other spending cuts and revenue sources would need to be identified.

While not mentioned in the debate, Yang has claimed a number of other policies and outcomes could help to close this gap. Specifically, he claims savings from "welfare overlap," economic growth, reduced poverty expenses, a carbon fee, and a financial transactions tax. Revenue from these elements is unlikely to cover the  additional cost, but we have not yet estimated the full effect.

Ruling: Likely False



This Fiscal FactCheck is a part of our US Budget Watch 2020 project, which will explain, score, and factcheck claims and policy proposals of the 2020 candidates during debates and on the campaign trail. If you think we missed an important claim and would like us to look into it, contact us at info@crfb.org and we'll do our best to look into it. Learn more about US Budget Watch 2020 here.

Note: Our original analysis overstated TPC's VAT estimate my relying on their "tax-inclusive" rate instead of the more comparable "tax-exclusive" rate.