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Negative Income Tax: would you support it? (Read 8193 times)
Auggie
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Negative Income Tax: would you support it?
Apr 19th, 2017 at 6:06pm
 
Milton Friedman pioneered the concept of the Negative Income Tax. For those who don't what it is, this is it:

First, let's assume that we implement a tax-free threshold of $40k, and a flat tax rate of 20%. Anyone who earns over $40k will pay 20% for each dollar over $40k. However, if you earn under $40k, say, $10k, then the taxpayer is entitled to a 'negative tax' (i.e. a payment from the government) according to the following principal: $10k - $40k = -$30k. 20% of $-30k is -$6000. This means that you would receive a payment of $6000 + $10k (your earnings) in a financial year. Basically, any amount earned below $40k would be subtracted by $40k and then the tax rate would be applied to that difference, resulting in a net payment to the taxpayer.

If a person earns nothing (i.e. $0) then he/she would be entitled to receive $8000 (20% of $40k).

The Negative Income Tax would replace most if not all welfare payments. Every person would have to file a tax return. Persons entitled to a negative tax would receive their payment periodically (in like manner as the government withholds tax every week/fortnight); this would provide a continual stream of payments.

The minimum amount $8000 is less than the full amount of Newstart Allowance of approx. $12k per annum.
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Re: Negative Income Tax: would you support it?
Reply #1 - Apr 19th, 2017 at 6:08pm
 
It would help with the high effective marginal tax rate faced by some people, which means they have little incentive to get off welfare. But it would mean that those who actually need more welfare don't get it. Other than that, it is just a different equation with the same answer.
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Re: Negative Income Tax: would you support it?
Reply #2 - Apr 19th, 2017 at 6:10pm
 
freediver wrote on Apr 19th, 2017 at 6:08pm:
It would help with the high effective marginal tax rate faced by some people, which means they have little incentive to get off welfare. But it would mean that those who actually need more welfare don't get it. Other than that, it is just a different equation with the same answer.


What do you mean? Can you elaborate? For e.g. when you say they will have little incentive to get off welfare, and that those who need more welfare won't get it?
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Re: Negative Income Tax: would you support it?
Reply #3 - Apr 19th, 2017 at 6:45pm
 
It depends on the details of your suggestion, which was pretty short on details.

I am saying that some people currently have little incentive to get off welfare.
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Re: Negative Income Tax: would you support it?
Reply #4 - Apr 19th, 2017 at 7:03pm
 
freediver wrote on Apr 19th, 2017 at 6:45pm:
It depends on the details of your suggestion, which was pretty short on details.

I am saying that some people currently have little incentive to get off welfare.


Correct, I don't thing that there can ever be an ideal policy that gives people an incentive to work. If a person doesn't want to work, then they won't even if it means a reduction in quality in life. Some people make that choice. If they make it due to a disability (mental or physical) then the government should help them, absolutely.
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Re: Negative Income Tax: would you support it?
Reply #5 - Apr 19th, 2017 at 7:04pm
 
freediver wrote on Apr 19th, 2017 at 6:45pm:
It depends on the details of your suggestion, which was pretty short on details.

I am saying that some people currently have little incentive to get off welfare.


The point is that this system would be cheaper and more efficient to administer, in my opinion, as opposed to the burdensome regulations of welfare currently.
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Re: Negative Income Tax: would you support it?
Reply #6 - Apr 19th, 2017 at 7:07pm
 
Isn't benefits and rebates greater than tax paid, negative income tax?
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Re: Negative Income Tax: would you support it?
Reply #7 - Apr 19th, 2017 at 7:14pm
 
lee wrote on Apr 19th, 2017 at 7:07pm:
Isn't benefits and rebates greater than tax paid, negative income tax?


The idea is that the measure would be implemented alongside current welfare policies, with the aim of phasing out the latter slowly. Of course, there would still be government support for persons with disabilities.
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Re: Negative Income Tax: would you support it?
Reply #8 - Apr 19th, 2017 at 7:24pm
 
$12,000 is not enough to live on - only $230 per week
so how would people live on $8,000 
- only $154 per week?

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Re: Negative Income Tax: would you support it?
Reply #9 - Apr 19th, 2017 at 7:40pm
 
Auggie wrote on Apr 19th, 2017 at 7:04pm:
freediver wrote on Apr 19th, 2017 at 6:45pm:
It depends on the details of your suggestion, which was pretty short on details.

I am saying that some people currently have little incentive to get off welfare.


The point is that this system would be cheaper and more efficient to administer, in my opinion, as opposed to the burdensome regulations of welfare currently.


We would still need all the exceptions. I also doubt it would come out at the nice straight line you imagine. It is a simple way of conceptualising the transition from welfare to full employment.

I suggest a way to take this even further, by replacing fixed, stepped changes in the marginal tax rate with a variable rate.

I originally imagined it as this (numbers used as an example only) for incomes below $30k pa, you pay no income tax. From $30k to 100k the marginal rate varies linearly from 10% to the maximum, eg 45%. Then flat at 45%.

However I see now it could be combined with your idea so it is a straight line that continues to go negative below $30k. That is, the marginal tax rate is a flat line from $0 pa annual income to $100k annual income.

The only adjustment I would make is to have a flat line where it crosses zero, so you don't have to do all the paperwork for plus or minus $50 worth of tax.

One of my reasons for this is that it is a bit of a psychological barrier to work hard to get a raise when you are about to get a big increase in your marginal tax rate.

Not sure if it would be possible to have a straight line or whether that would take away too much welfare.

Quote:
The idea is that the measure would be implemented alongside current welfare policies, with the aim of phasing out the latter slowly.


It should be phased out immediately to the point that it offsets the change, so that you minimise the immediate change in people's income. Any change beyond that is a different question for another time. It is enough of a battle overcoming people's instinctive opposition to change without adding real changes to people's take-home pay.
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Re: Negative Income Tax: would you support it?
Reply #10 - Apr 19th, 2017 at 7:53pm
 
Bobby. wrote on Apr 19th, 2017 at 7:24pm:
$12,000 is not enough to live on - only $230 per week
so how would people live on $8,000 
- only $154 per week?



I'm sure we all agree that the government can only provide a certain basic income that is economically sustainable. For e.g. no one would expect the government to pay $1000 p/w in payments to people. My point is that it's never going to be enough money from the government because then it becomes economically unsustainable to do so.
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Re: Negative Income Tax: would you support it?
Reply #11 - Apr 19th, 2017 at 7:56pm
 
freediver wrote on Apr 19th, 2017 at 7:40pm:
However I see now it could be combined with your idea so it is a straight line that continues to go negative below $30k. That is, the marginal tax rate is a flat line from $0 pa annual income to $100k annual income.

The only adjustment I would make is to have a flat line where it crosses zero, so you don't have to do all the paperwork for plus or minus $50 worth of tax.


I'm not sure what you mean by this. Can you elaborate?
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Re: Negative Income Tax: would you support it?
Reply #12 - Apr 19th, 2017 at 8:06pm
 
Extend your straight line up to $100k pa annual income.
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Re: Negative Income Tax: would you support it?
Reply #13 - Apr 19th, 2017 at 8:07pm
 
freediver wrote on Apr 19th, 2017 at 8:06pm:
Extend your straight line up to $100k pa annual income.


That would be unsustainable fiscally.
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Re: Negative Income Tax: would you support it?
Reply #14 - Apr 19th, 2017 at 8:09pm
 
Why? Are you suggesting a flat negative rate?
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