September 27, 2019


Yang vs. Warren: Who Has the Better Tax Plan? (N. Gregory Mankiw, Sept. 27, 2019, NY Times)

[W]hat Senator Warren's proposal enjoys in political appeal, it lacks in workability.

Mr. Yang has a very different approach. He proposes implementing a value-added tax and using the revenue to provide every American adult with a universal basic income of $1,000 per month, which he calls a "freedom dividend."

It's easy to see how the Yang proposal would work. Value-added taxes, which are essentially sales taxes, have proven remarkably efficient in many European countries. And the universality of the dividend would make it simple to administer.

The Yang proposal would not only be more workable than the Warren plan, but it would also target those who spend lavishly.

Consider two hypothetical C.E.O.s, each earning $10 million a year. Spendthrift Sam spends all his money living the high life. He drinks expensive wine, drives Ferraris and flies a private jet to extravagant vacations. Frugal Frank lives modestly, saving most of his earnings and accumulating a large nest egg. He plans to leave some of it to his children and grandchildren and the rest to charity.

Ask yourself: Who should pay higher taxes?

The Warren proposal hits the frugal executive hard but leaves the spendthrift without a scratch. The Yang proposal hits the spendthrift hard and takes a smaller bite from the frugal person who has saved his money. If you, like me, think that society could benefit from fewer spendthrifts and more savers, Mr. Yang's proposal makes much more sense than Senator Warren's.

And if the goal is to raise substantial revenue from rich taxpayers to strengthen the social safety net, Mr. Yang's plan is more likely to succeed.

Posted by at September 27, 2019 6:42 PM