Home > Uncategorized > Negative Income Tax

Negative Income Tax

A seldom discussed and attractive tax option is the “negative income tax”.

It’s attractive to both liberals and conservatives, and that’s very scary. The fact that such a thing could exist…

On the conservative side it uses a flat tax. If you make fifty thousand dollars or a million, you pay the same rate on that income. Everyone is the same, imposing a shocking amount of equity in taxation. Unlike the progressive tax schemes common today you are not financially penalized for making more money.

On the liberal side, a social safety net is maintained, in fact a guaranteed income. Even though the tax system is designed to remove other social welfare programs such as food stamps and other state assistance.

As a plus for both sides of the political spectrum, it is simple. Administrative costs are extremely low and major other expensive and complex programs go away in favor of direct assistance. To stay on food stamps, the program wouldn’t exist. Instead of granting a set amount of money for food, a fixed amount of money over a persons income is simply granted to them.

It works something like this:

Put the “deduction” at 40,000$, for simplicities sake. Any money made over 40,000$ is taxed at a fixed rate, call it 15%, it really doesn’t matter for the example.

If you made less than 40,000$, say 30,000$, you would be paid a percentage of the difference, 35% for example. Your income would now be 33,500$. If you made 20,000$ you would now make 27,000$, and so on.

Instead of tying state assistance to a particular thing, such as diapers or food you can account for individual needs. My grocery bill is less than 20$ a week typically. If I were very poor I would get several hundred dollars in food stamps each month, much of which I simply wouldn’t use. Not only does that tie up money on me that I wouldn’t use, it takes it away from others who would. It also encourages waste, if I can’t spend it on anything but food I would be very prone to over buy things, or buy things I just didn’t need, you see it all the time.

By giving me an extra 7,000$ that year on my 20,000$ income I could distribute that on things I actually need, or waste it, but that would be my fault. There is another thing that conservatives could get behind, personal accountability.

It’s not a perfect system. I would rather people looked to their community, churches and other non-profits for assistance in their penury, rather than compulsory funding from tax dollars to support people. Perhaps I’m an idealist in that regard.

On the liberal side I’m sure they would rather see the wealthier taxed higher than everyone else. For what reason I don’t know, I’ve never understood it.

To impose higher tax rates on higher income seems like a disincentive to aspire higher. To tax at a constant rate makes certain that a steady proportion of income comes in as taxes. It also makes it simple in the sense that taxes can be paid directly from payroll, not requiring complex tax returns and processing. Studies also indicate that flat tax systems tend to improve compliance, with few if any deductions or ways to cheat.

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Categories: Uncategorized
  1. 2011/02/25 at 08:26

    Interesting idea. I’ll return to your main idea in a minute, it has its merits, maybe. I’ll have to think on it.

    But as to this…

    Everyone is the same, imposing a shocking amount of equity in taxation. Unlike the progressive tax schemes common today you are not financially penalized for making more money…

    On the liberal side I’m sure they would rather see the wealthier taxed higher than everyone else. For what reason I don’t know, I’ve never understood it.

    It’s the relatively simple and logical notion that “equal” does not always equal “fair.”

    If you have a blind student and a sighted student, then handing them both a test written down on paper would be 100% equal. Same test for each student. Period.

    But obviously, giving a blind student a written test is not a fair or reasonable way of evaluating their learning.

    Equal does not always equal fair.

    Exacting 10% in taxes from a household that makes $10,000 is vastly different than exacting 10% in taxes from a household that makes $1 million. It’s an equal tax scheme, but it’s not a fair one. Why? Because it’s entirely possible to eke by on $900,000, but much more difficult to do so on $9,000.

    Apples and oranges.

    As Jesus noted, “From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.”

    Jesus obviously wasn’t speaking of taxation, but it’s a universal truism.

    There is a simple and logical conception of fair play and a totally flat tax does not pass muster with that basic decent measure. At least for many (I expect most) people.

  2. 2011/02/25 at 09:33

    Equal is fair. People are supposed to be considered equal in this country, regardless of station. How much money do you think is squandered on the administrative aspects of a complex tax and welfare system like we have?

    By the sounds of it, it really sounds like your intention is to punish. “They make more so they should pay more. No one needs more than X dollars! The tax rate should go up after X!!!” Not only do the rich pay much less than the 35% rate on top tier earnings, but they do it legally. I would hazard a guess that they pay less than I do on some occasions. Remember that more spending equals more deductions. Yet they still manage to carry a vastly disproportionate amount of the tax burden in my opinion.

    Is the goal really to punish? Or is the goal to fund the government? I have to ask because it’s not usually clear. It happens all the time at the state level, pass a tax on a certain group as a symbolic gesture, not as a fix for anything, like NJ’s failed “millionaires tax”. Merely symbolic and therefore highly unfair.

    I favor a system where there are no complex forms to fill out, no real advantage in lying about total income, no way to avoid what you are supposed to pay by deductions and other ways of limiting liability. It is what it is over a certain amount and below that…

    The people chip in to lift up our more unfortunate persons. Raising lower wages somewhat, without imposing measures that inflate labor costs such as minimum wage.

    Forget that a flat tax system would likely increase our countries revenues and tax compliance as well.

  3. 2011/02/25 at 09:44

    Another thing…

    When did people forget that raising taxes on ______ discourages it. Look at smoking, raise the tax, poof, less smokers. They say a flat tax would probably come in around 17% over 40,000$. If Bill Gates makes 100,000 times as much money as me, he’ll pay 100,000 times as much tax. No favoritism, no loopholes.

    Lets just forget that the amount we devote to figuring out what that right number is on your taxes is expected to be around 338….. billion, this year alone. Lets also not forget that the IRS employs more people than the FBI and CIA combined, all for the simple purpose of making sure people put the right magic number down and paid it. The IRS cost us almost 12 billion in the last fiscal year, much of that bureaucratic nightmare could be done away with under a flat tax.

  4. 2011/02/25 at 09:48

    And on your blind kid, the solution is what? Read the test to blind kid or give the kid that can see a much harder test? That’s what your talking about. The seeing kid is better off, he should give us more right?

    That will make it fair, just make one of their tests harder!

  5. 2011/02/25 at 10:06

    ? You’re not making sense, Nate.

    And on your blind kid, the solution is what? Read the test to blind kid or give the kid that can see a much harder test? That’s what your talking about. The seeing kid is better off, he should give us more right?

    To be fair, just and reasonable, with a student who is blind, you provide an oral test or some test she can actually take. You give the sighted student a written test. The material would be the same.

    The point is, TO BE EQUAL in that instance would be UNFAIR, UNJUST and UNREASONABLE.

    Do you disagree with that idea?

    That is, you don’t REALLY advocate giving a blind student a written test and shrug off complaints when he fails, do you? You want reasonable and just tests provided, don’t you?

    If so, then you can at least grasp the concept that equal does not always equal just, fair or rational.

  6. 2011/02/25 at 10:09

    Nate…

    Equal is fair…

    By the sounds of it, it really sounds like your intention is to punish.

    I said nothing of the sort. I think nothing of the sort.

    Do you agree or disagree with the truism, “To whom much has been given, much will be demanded.”?

    I agree with it. I think most reasonable people agree with it.

    I make much more than poverty level. I DO NOT WANT someone at poverty level to be taxed at the same rate as I am. That would not be just or rational. I WANT to pay more than the person above poverty rate who makes less than I do. That is reasonable and just.

    It has nothing to do with punishment.

    Do you think I want to see myself punished? Of course not.

  7. 2011/02/25 at 11:28

    I can’t stress this enough – the negative income tax only works as an alternative to the welfare state – not an addition to it.

  8. 2011/02/25 at 13:01

    Nate…

    I would rather people looked to their community, churches and other non-profits for assistance in their penury, rather than compulsory funding from tax dollars to support people. Perhaps I’m an idealist in that regard.

    This is one thing I tell more conservative types all the time: There is NOTHING stopping churches, community groups and families from stepping up RIGHT NOW and taking care of poverty issues. The church alone (setting aside all other non-profits) in this nation has more than enough resources to tend to the needs of ALL the impoverished in the US.

    If non-profits stepped up TOMORROW and began to fully take care of the poor, the mentally ill, the disabled, the orphans, the abused, the homeless, etc (no easy feat, of course) and effectively ENDED the neglect for those folk, there is not a thing that gov’t could do but smile and celebrate and check that item off their budgets.

    For my part, I believe that as a rule, non-profit social service agencies can do a better job than gov’t social service agencies (and I have enough friends in both areas to be fairly well informed) and would be GLAD to see the private sphere step up and take responsibility for the disadvantaged.

    I wait for that day and will rejoice when it happens. But, given the budgets we spend on our buildings, our padded pews, our staffs, etc, I don’t hold out much hope that it will happen any time soon.

  9. 2011/02/25 at 13:39

    A question: Would this “negative tax” scheme do away with sales taxes, too, in your mind? The poor tend to pay higher percentages of income on taxes because a larger percentage of their money (all of it, nearly) is needed to buy the “stuff” needed to survive (food, clothes, gas, etc).

    If you change the federal tax scheme but states still rely upon sales tax on basic essentials of life, then you’d be back to a regressive tax scheme, one which the poor pay a LARGER, not smaller, percentage of their moneys on taxes.

  10. 2011/02/25 at 13:48

    Michael said…

    I can’t stress this enough – the negative income tax only works as an alternative to the welfare state – not an addition to it.

    When you speak of “welfare state,” what exactly are you proposing doing away with?

    Will programs that assist homeless veterans, for instance, be removed?

    Will programs like Child Protective Services be ended?

    Will gov’t aid to the mentally ill and disabled be ended?

    If so, where would the safety net for these folk be? WHO will ensure that the basic needs of children are being met? Who will assist the homeless veterans, the mentally ill?

    One problem when speaking of “doing away with” the “welfare state,” is that there are programs in place to maintain a safety net – however flawed – fairly consistently across the nation. If those are removed, then there will be more dead and gravely ill children, mentally ill, disabled people than we currently have. I don’t think the majority of US citizens are comfortable leaving the “least of these” out to die and with having no consistent plan in place for aiding them.

    As I said already, if the private sector stepped up and nearly resolved these problems (to the extent they can be “resolved”), then gov’t would have little choice but to get out of the business. That would be my first proposal: Let the private sector step up and show they are there to BE the safety net, with some effective real world plan to make it so. Once that’s in place, it would be much easier to discuss any plans to do away with a “welfare state,” whatever is meant by that.

  11. 2011/02/25 at 15:08

    He means that the state income subsidies for those making less than the “deduction” replace other welfare programs, like I mentioned food stamps just as an example.

    Under a system like this additional deductions could be given for children or gravely ill ones etc, etc, with very little expense and complexity. This put the “safety net” in everyone pocket, you drop below that standard deduction you get a subsidy from the government.

    And actually the states have their own tax scheme. That’s their issue. Many states are already in a flat tax situation. Maine almost went to a 2 tiered “flat tax” system where there would have been an additional .35% if you made over a certain amount. But it was nothing like this.

    My recommendation would be to have the state tax collected by the federal government than paid out to the state. That would save a bit more money. Alternately (and preferably if you ask me) the states could collect and pay forward the federal flat tax.

    Perhaps in being a Catholic I have a skewed sense of church’s and their charity. I know that there are a tremendous amount of programs operated here in Maine by the catholic church. In or around my town they run a homeless shelter, soup kitchen and food pantry, a few rental assistance programs or the church owns housing and subsidizes the rent, so on and so forth. There is no reason that other non-profits could adopt the same “welfare” model, even federally chartered ones.

  12. 2011/02/25 at 15:29

    Nate…

    This put the “safety net” in everyone pocket, you drop below that standard deduction you get a subsidy from the government.

    I may or may not be understanding fully what you’re proposing. Let me give an example…

    My church works with and alongside the homeless and mentally ill, the poor and marginalized in many ways. I’m fairly familiar with many problems facing many different type of folk.

    For instance, the fella who has mental retardation issues. He has no family that can/will assist him any further. Without some oversight, he tends to end up on the street, begging for money, wetting himself in public, etc. “Giving” him an extra $7,000 or $70,000 is going to do him very little good if he has no one assisting him with some oversight.

    Where does he fit in to this new scheme?

    Another fella is a homeless veteran with mental illnesses as a result of his time at war. He cannot maintain a “normal” life or a job consistently due to these mental issues. He is better when he’s on his medication, but he’s also driven all his family away and manages to get off his medications.

    Or the uneducated single mother who has a child with cancer. The woman has a minimum wage job (no health insurance) and apartment, but anytime there’s much of a medical emergency or unexpected cost, she finds herself and her children at risk of being homeless. An extra $7000 might help her at normal times, but with the costs of cancer treatment and emergencies, not so much.

    Where do they fit in this scheme? Where’s the safety net?

  13. 2011/02/25 at 15:48

    https://congressshallmakenolaw.wordpress.com/2010/12/14/my-health-solution/

    We have to face the fact also that we can’t help everyone. Regardless of how large, expensive and intrusive a particular program is.

  14. 2011/02/25 at 16:07

    Of course, we can’t solve every problem.

    Nonetheless, I don’t believe Americans (by and large) or people of faith in our great nation wish to stand by while the “least of these” die on our streets. Beyond that, there is a societal cost (not only to our collective “soul,” but in pure dollars and cents) to NOT addressing these problems.

    For instance, study after study shows support for the notion that money invested in prisoner rehab SAVES tax dollars. If we pay for a “Big Gov’t” program that teaches literacy to inmates and that costs $1 million, it will SAVE $2 million by reducing recidivism. Now, we could call that $1 million “wasted” money “given” to the scum of society – and an example of BIG GOV’T spending – if we wish. BUT, if our concern is SAVING taxpayer dollars, then spending $1 million (as in my example) is actually the “small and responsible gov’t” way to go.

  15. 2011/02/25 at 16:49

    I just think there are things that government shouldn’t be involved in, regardless of the effectiveness.

    One of them is charity. I had a story at one point that illustrated the reasons for that at one point I’ll try and find it.

    Michael (hartwell), I think I had sent it to you at one point, the congressmen that was speaking to a constituent? Back in the early 1800’s sometime…

  16. 2011/02/25 at 16:52

    As it happens I had linked to it in that other post!

    http://fee.org/library/not-yours-to-give-2/

  17. 2011/02/25 at 16:57

    Nate…

    I just think there are things that government shouldn’t be involved in, regardless of the effectiveness.

    One of them is charity. I had a story at one point that illustrated the reasons for that at one point

    I’d be interested in reading it. I find it hard to argue against reasonable and real small gov’t investments and can’t imagine any especially compelling reasons.

    I mean, private enterprise COULD build roads, but we do it through gov’t for a variety of reasons, including effectiveness. I appreciate the honesty, at least (in saying you are opposed to some actions even IF they’re effective), it helps know where you’re coming from.

    Consider it this way: IF it’s gov’t taking action to, for instance, reduce recidivism by the “charity” of providing education to prisoners, then it’s not so much charity as it is self interest: WE DON’T WANT un-rehabilitated ex-cons back out on the street.

    I believe gov’t (ie, we the People) can legitimately act in the interests of the People, to create ACTUAL smaller gov’t, even if it requires an investment upfront.

  18. 2011/02/25 at 17:12

    The other issue is that by long standing tradition, government programs never go away!

    That investment upfront is as likely to become permanent as the Pope is likely to say mass today.

  19. 2011/02/25 at 20:32

    There’s also the issue of effectiveness not being the best indicator of what should be done.

    Look at the death penalty! 100% effective at preventing recidivism, not one single person has ever re-offended. :0)

    We probably shouldn’t put every criminal to death though.

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