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Does Andrew Yang’s “Freedom Dividend” Proposal Add Up?

8 min readBy: Kyle Pomerleau

During the first Democratic presidential debates, Andrew Yang said he wants to provide each American adult $1,000 per month in a universal basic income (UBI) he calls a “Freedom Dividend.” He argued that this proposal could be paid for with a value-added taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. at half the rate levied by European countries.

Many people, including myself, expressed skepticism that a 10 percent value-added tax (VAT) could fund a cash transfer this large. According to his website, however, there is more to the plan than a VAT. He argues that he could fund his Freedom Dividend with a combination of new revenue from a VAT, other taxes, spending cuts, and economic growth.

But even accounting for revenue from other sources and potentially lower government spending on current transfer payments, it’s very unlikely that his plan adds up.

We estimate that his plan, as described, could only fund a little less than half the Freedom Dividend at $1,000 a month.

A more realistic plan would require reducing the Freedom Dividend to $750 per month and raising the VAT to 22 percent.

Details of Yang’s Freedom Dividend

Yang’s proposal is to provide $1,000 per month ($12,000 a year) to each adult citizen. A core feature of the Freedom Dividend is that individuals would need to choose between their current government benefits and the Freedom Dividend. As such, some individuals may decline the Freedom Dividend if they determine that their current government benefits are more valuable.

The benefits that individuals would need to give up are Supplemental Nutritional Assistance Program (SNAP), Temporary Assistance for Needed Families (TANF), Supplemental Security Income (SSI), and SNAP for Women, Infants, and Child Program (WIC).

To cover the additional cost of the Freedom Dividend, Yang would raise revenue in five ways:

  • A 10 percent VAT
  • A tax on financial transactions
  • Taxing capital gains and carried interest at ordinary income rates
  • Remove the wage cap on the Social Security payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue.
  • A $40 per metric ton carbon taxA carbon tax is levied on the carbon content of fossil fuels. The term can also refer to taxing other types of greenhouse gas emissions, such as methane. A carbon tax puts a price on those emissions to encourage consumers, businesses, and governments to produce less of them.

The Budgetary Effect of the Freedom Dividend Plan

Calculating the gross cost of the Freedom Dividend is straightforward. According to an analysis of Yang’s Freedom Dividend by the UBI Center,1 an open source think tank researching universal basic income policies, there are about 236 million adult citizens in the United States. At $12,000 a piece, the total gross cost of the dividend would be $2.8 trillion each year.

Using the Tax Foundation model, we estimate that the five tax increases in his plan would raise $1.3 trillion each year on a conventional basis. Most of the revenue would come from the VAT. We estimate that a 10 percent VAT with a very broad base (about 66 percent of GDP) would raise $952 billion each year. Removing the cap on the Social Security payroll tax would raise an additional $133 billion. A carbon tax at $40 per metric ton would raise an additional $123 billion. A financial transactions tax would raise about $78 billion. Finally, taxing capital gains and dividends at ordinary income rates would raise $7 billion each year.

In addition to revenue from taxes, Yang would rely on two additional offsets to pay for the Freedom Dividend. First, the federal government would save money from individuals who decline the cash transfer in favor of their current benefits and from those who give up their current benefits if they opt for the cash benefit. According to the UBI Center, this effect is expected to offset $151 billion each year.

Second, Yang also argues that his Freedom Dividend would produce economic growth. This economic growth would broaden the existing tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. as individuals would earn more income. His website says that he expects between $800 billion and $900 billion per year in additional revenue from economic growth.

While it is possible that the UBI could produce a short-term increase in economic activity, it is very unlikely that it would be able to produce significant growth on a persistent basis.

It is more likely that his overall plan would reduce the long-run size of the economy and the tax base. The three major taxes in his plan (VAT, carbon tax, and payroll tax increase), while efficient sources of revenue, would tend to reduce labor force participation by reducing the after-tax returns to working.

Using the Tax Foundation Model, we estimate that the weighted average marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. on labor income would increase by about 8.6 percentage points. The resulting reduction in hours worked would ultimately reduce output by 3 percent. We estimate that Yang would lose about $124 billion each year in revenue due to the lower output.

Annual Budgetary Effect of Andrew Yang’s Tax Proposals and Freedom Dividend (Negative Number = Increase in Deficit)

Source: Tax Foundation General Equilibrium Model, April 2019; Congressional Budget Office; and UBI Center Analysis.

Proposal Annual Revenue (Billions of 2019 Dollars)

Cost of the Freedom Dividend


10 Percent Value-Added Tax


Financial Transactions Tax


Tax Capital Gains at Ordinary Income Tax Rates


Remove the Cap on Social Security Payroll Tax


Carbon Tax ($40 per Metric Ton)


Total Tax Revenue


Offset from Reduced Federal Spending/Welfare Overlap


Offset from Reduced Economic Activity


Total Effect of Non-Tax Offsets


Net Effect


Overall, we estimate that his proposal to provide a $12,000 unconditional cash transfer, paid for by tax increases and slightly lower federal spending on other programs, would end up increasing the budget deficit by about $1.5 trillion each year even after accounting for offsetting reductions in government spending and changes in economic output.

A Revenue Neutral Freedom Dividend

To make Yang’s Freedom Dividend revenue-neutral, he either needs to propose higher taxes or provide a smaller unconditional cash transfer.

One possible way to make the plan sustainable would be to raise the VAT. But to make sure the VAT doesn’t go far higher than the global norm, Yang could also reduce the generosity of the cash payment.

We estimate that a revenue-neutral version of the Freedom Dividend would reduce the value of the cash benefit by 25 percent ($9,000 per year instead of $12,000) and would need a broad-based VAT of 22 percent.

To make things simple, we assume that reducing the size of the cash benefit by 25 percent would reduce its cost in proportion. As such a $9,000 annual benefit would cost $2.1 trillion.

On the revenue side, we estimate that a 22 percent VAT would be sufficient to fund a $9,000 UBI. Increasing the VAT does a few things. First, the tax itself raises significantly more revenue ($1.9 trillion up from $952 billion). Second, the VAT reduces the potential revenue effects of the other tax proposals. This is because the VAT mechanically reduces the income and payroll tax base by reducing payments made to workers and owners of capital. Lastly, more than doubling the VAT increases the marginal tax rate on labor, increasing the negative offset from the smaller economy.

In addition, the reduced generosity of the cash transfer would mean that more people would opt to stay on current government benefits. According to the UBI Center, the offset would be $144 billion each year under a $9,000 per year UBI.

Annual Budgetary Effect of a Budget-Neutral Version of the Freedom Dividend (Negative Number = Increase in Deficit)

Source: Tax Foundation General Equilibrium Model, April 2019; Congressional Budget Office; and UBI Center Analysis.

Proposal Annual Revenue (Billions of 2019 Dollars)

Cost of the Freedom Dividend


22 Percent Value-Added Tax


Financial Transactions Tax


Tax Capital Gains at Ordinary Income Tax Rates


Remove the Cap on Social Security Payroll Tax


Carbon Tax ($40 per Metric Ton)


Total Tax Revenue


Offset from Reduced Federal Spending/Welfare Overlap


Offset from Reduced Economic Activity


Total Effect of Non-Tax Offsets


Net Effect (Negative = Increase in Deficit)



Andrew Yang’s central proposal for his campaign is a universal basic income (UBI) called the “Freedom Dividend.” His current proposal to offer a $12,000 cash transfer to each U.S. adult citizen would cost about $2.8 trillion each year. He would rely on several new taxes, including a 10 percent value-added tax (VAT), and other non-tax offsets to fund this proposal. We estimate that overall, his taxes and offsets would not be enough to cover the cost of his Freedom Dividend. We estimate that one option to make his proposal sustainable would be to raise the VAT rate to 22 percent and reduce the cash transfer to $9,000 per year.

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Modeling Notes

Unless otherwise noted, the estimates are produced using the Tax Foundation’s General Equilibrium Model. The model can produce both conventional and dynamic revenue estimates of tax policy. Conventional estimates hold the size of the economy constant and attempts to estimate potential behavioral effects of tax policy. Dynamic revenue estimates consider both behavioral and macroeconomic effects of tax policy on revenue. The model can also produce estimates of how policies impact measures of economic performance such as GDP, wages, employment, the capital stock, investment, consumption, saving, and the trade deficit. Lastly, it can produce estimates of how different tax policy impacts the distribution of the federal tax burden.

In modeling the VAT, we assumed a broad base that applies to all goods and services and a noncompliance rate of 15 percent, roughly the average compliance rate for the overall U.S. tax system. Higher levels on noncompliance would ultimately result in less revenue from the VAT.

Yang’s website specifies that he would enact a 0.1 percent financial transactions tax. However, it does not specify the base on which this tax would be levied. We assumed that the proposal would roughly match the option modeled by the CBO in its Options publication.

We assumed that Yang would enact a carbon tax at the same rate proposed by the Climate Leadership Council at $40 per metric ton. The CLC proposal would recycle the revenue into a “carbon dividend” similar to Yang’s. We assume that there would be no separate carbon dividend and that all the revenue would be used to fund the Freedom Dividend.

To simplify the analysis, we assumed that changes in economic output do not affect government spending.


We would like to thank Max Ghenis of the UBI Center for assistance on this analysis.