An idea for debate - negative income tax

[velvetpage]

I'm not sure yet what I think about this, other than being intrigued by the idea. So I'd like the opinions of my friends list.

Here's the proposal, as a direct quote: A negative income tax would work something like this: a threshold level, say $30,000, is set. Above this level, income begins to be taxed. This is similar to our present system, except that we have graduated tax levels and therefore multiple income thresholds. Below the $30,000 threshold, instead of paying nothing, taxpayers would get a rebate. Set the negative rate at something like 50%, and someone with no income would get $15,000 from the government. This would be the minimum income of anyone in the country. As someone started to work, the beauty of the negative income tax is that even though the subsidy is reduced as income rises, a dollar of extra income always means more income to spend. Economic incentives are still distorted, but not nearly as much as they are with current welfare programs. If someone’s salary was $10,000, he would get a $10,000 check from the government, so his total income would actually be $20,000. Someone whose salary was $20,000 would actually get $25,000, and once the salary increased to $30,000, the subsidy would drop to zero and real income would be $30,000. Beyond this, the tax rate would become positive.

This is from http://www.globaljusticemovement.org/subpages_articles/nit.htm , to which I was linked by urban_homestead. My first instinct is that it fulfills all of my requirements for a social program, including the ones not met by the current socialist government in my country, in that it encourages people to work, at anything, while still providing for the poor, better than we're currently doing. I wasn't thrilled with some of the rhetoric further up in the article, and I believe there's still a place for a few much-reduced welfare programs - for example, subsidized housing in cities with a high cost of living. But overall, I think I could get behind this.

Comments

[anenomemama.livejournal.com]

I haven't read the linked documents. Refundable tax credits (GST, CCTB) essentially work like this.

[velvetpage.livejournal.com]

Yes, but they're not very much money - the CCTB is, at most, a few thousand dollars per year, isn't it? And with the Ontario government clawing that back from welfare recipients, there's still the disincentive problem to worry about.

[anenomemama.livejournal.com]

My point was that conceptually we are already fulfilling on this.

[paka.livejournal.com]

It doesn't sound so bad. It does seem to balance some ideas okay.

But it would never be feasible here. Abortion and gun control are the only things that Americans feel as strongly about as the idea that they might have to pay taxes to better the social safety net.

[velvetpage.livejournal.com]

The absolute most beautiful thing about this is that, done right, it shouldn't cost a cent. In fact, it would eliminate an awful lot of bureaucracy, placing the onus instead on the IRS, because it's a tax measure.

[paka.livejournal.com]

Doesn't matter. You're thinking about debating this as a hardnosed issue (where's the money moving to and from) and as something that might invite compromise or rejection. That's how reasonable human beings debate taxation, not Americans.

If someone proposed this one, you'd not be able to hear any actual debate for all the right-wing-funded screaming about welfare mothers and illegal immigrants mooching off the middle class. Remember, despite what they say, the Republicans aren't actually comitted to small government (unless it might enforce environmental regulations) or freeing up more money to benefit the domestic economy, so revamping things would be going against the tide of pork-barrel politics. And this might ping the rich harder, and lord knows no American politician is going to go along with that one.

Right-wingers don't have any actual real fiscal plans or accomplishments to present, but what they do have is plenty of media on hand to entrench their opinion and spew distraction when we could be thinking about money.

Er, really I didn't mean to sound this upset... do forgive me, please? It's been a damn hard seven years.

[velvetpage.livejournal.com]

I foresee most of the same problems in Canada, actually, even though we've already got a few programs that work on this principle, as anenomemama pointed out. People don't actually debate ideas, most of the time; they either love or hate the catch-phrases, and that's it.

[urban-homestead.livejournal.com]

Yes, the well-known communist Milton Friedman who developed this plan, and Nixon the well-known communist who tried to implement it, were repeatedly thwarted by right-wingers. It was tragic.

[danaeris.livejournal.com]

My only misgiving is the location of the threshold. In some places, $30,000 is a lot. In other places, $30,000 is not even close to enough. I'd really prefer to see the threshold be indexed to the cost of living. Hell, that would make a huge difference even without this idea!

[velvetpage.livejournal.com]

Keep in mind that this is tax-free, so it's a real salary amount of more than that in current terms.

[siobhan63.livejournal.com]

including the ones not met by the current socialist government in my country,

???

What socialist government in what country? Canada? The Conservatives? Wha...?

[velvetpage.livejournal.com]

In world terms, we live in a socialist democracy, and the conservative government is still far to the left of the major left-wing parties in some other nations I could name.

[siobhan63.livejournal.com]

Well, i'll disagree with that. I'm assuming you're referring to the US, and i'd put the Reformatories maybe a bit to the left of the Dems, but still right of centre (and political compass agrees with me).

Hell, the NDP isn't even properly socialist, as far as i'm concerned. Social democratic, yes, but not socialist.

[velvetpage.livejournal.com]

Given that the left-right scale is screwed up in a lot of ways to begin with, let's just decide not to quibble about the vocabulary. I'm too tired for it, and that isn't the point I wanted to debate.

[kesmun.livejournal.com]

What this ends up reminding me of is the Basic Living Stipend (or BLS) given to people in the People's Republic of Haven in the Honorverse (Honor Harrington books by David Weber, published by Baen, starting with On Basilisk Station and currently ending with book 11, At All Costs).

I'm not sure I could explain it without ending up breaking the comment character-limit, but basically, the term explains it. The PRH ends up having a large percentage of its population on the BLS, and it ends up so that there's a continual demand to raise it, and the PRH goes on a conquering campaign to absorb more worlds and their economies to prop up its own bloated, out-of-control economy. That the economy is so bad is due both to the sense of entitlement from the Dolists (anyone on the BLS is "on the dole") and the corruption of the government, a hereditary legislature.

The People's Republic of Haven is an example of how something like a Negative Income Tax can go horribly wrong – mainly due to the venialities of human nature.

[velvetpage.livejournal.com]

We already have a lot of that problem, both in Canada and the U.S., because welfare can net you more than an actual job, especially if you factor in things like subsidized housing, that you become ineligible for if you earn too much. This system is better because every dollar you earn nets you some increase in your actual take-home income. Nothing is ever "clawed back." (For example: on my current Employment Insurance, I can earn up to 25% of my weekly amount without penalty. If I go over that, every dollar I earn more than that is deducted from my benefits. But my EI, even with the extra 25%, is not a lot of money - well under 30K with the extra 25% factored in, and I'm in the highest category. One day of supply teaching would pay me half again what I'm allowed to earn. This system eliminates that clawback action - though benefits are reduced the more you earn, the actual dollar amount you take home increases.

If the basic amount were set at the same level as welfare rates, you'd get slightly fewer people taking that basic amount and never earning a dime, because the disincentives would be gone from the system.

There will always be people who set out to abuse whatever system is in place. One of the necessary realities of socialism is that you're agreeing to help even those who don't deserve it, on the grounds that far, far more people are going to use it the way it's intended to be used.

[kesmun.livejournal.com]

I tend a little bit more to the libertarian side of things naturally. Some of the books I read tend to reinforce that.

Like I said, though, the PRH shows the worst possible scenario. Which is something that needs to be kept in mind and guarded against, even while the greatest number of people are given the benefit of the doubt.

[kibbles.livejournal.com]

Reminds me a bit of the Earned Income Tax credit. But bigger.

[velvetpage.livejournal.com]

The article mentions that the EITC is a form of this.