The negative income tax
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07-03-2014, 06:11 AM (This post was last modified: 07-03-2014 06:17 AM by Heywood Jahblome.)
The negative income tax
In the Supreme Dictator thread Stevil asked me this:

(07-03-2014 02:07 AM)Stevil Wrote:  I'm interested in your thoughts on negative income tax, haven't heard of it before.

I don't want to de-rail that thread so this one gets created.

The goal of a negative income tax is to replace the ragbag of government assistance programs. Food stamps, Housing assistance, Unemployment benefits, Social security payments, etc.....those programs and their administrative cost all go away.

It can work like this. A family of 2 gets a specified allowance or deductible.....Say $20,000. The family earns $10,000 leaving $10,000 of the income allowance unused. Because it earned less than $20,000 It pays no income or payroll taxes what so ever and instead gets some additional money in the form of a negative income tax.

Since there was $10,000 of income allowance that went unused, the family gets a check for 50%(or some other percentage) of that or $5000. Total income for the family:

$10,000 earned.
$5,000 in negative income tax.
$15,000 total.

If the family of 2 earned $18,000, their total income would be $19000.

$18,000 earned.
$1,000 in negative income tax.
$19,000 total.
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07-03-2014, 06:18 AM
RE: The negative income tax
(07-03-2014 06:11 AM)Heywood Jahblome Wrote:  In the Supreme Dictator thread Stevil asked me this:

(07-03-2014 02:07 AM)Stevil Wrote:  I'm interested in your thoughts on negative income tax, haven't heard of it before.

I don't want to de-rail that thread so this one gets created.

The goal of a negative income tax is to replace the ragbag of government assistance programs. Food stamps, Housing assistance, Unemployment benefits, Social security payments, etc.....those programs and their administrative cost all go away.

It can work like this. A family of 2 gets a specified allowance or deductible.....Say $20,000. The family earns $10,000 leaving $10,000 of the income allowance unused. Because it earned less than $20,000 It pays no income or payroll taxes what so ever and instead gets some money back in the form of a negative income tax.

Since there was $10,000 of income allowance that went unused, the family gets a check for 50%(or some other percentage) of that or $5000. Total income for the family:

$10,000 earned.
$5,000 in negative income tax.
$15,000 total.

If the family of 2 earned $18,000, their total income would be $19000.

$18,000 earned.
$1,000 in negative income tax.
$19,000 total.

Social Security is not an assistance program.

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07-03-2014, 06:27 AM
RE: The negative income tax
(07-03-2014 06:18 AM)Chas Wrote:  Social Security is not an assistance program.

Doesn't matter what label you put on it Chas. A negative income tax can still replace its need and get rid of all the administrative costs that go with it.
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07-03-2014, 07:15 AM
RE: The negative income tax
(07-03-2014 06:27 AM)Heywood Jahblome Wrote:  
(07-03-2014 06:18 AM)Chas Wrote:  Social Security is not an assistance program.

Doesn't matter what label you put on it Chas. A negative income tax can still replace its need and get rid of all the administrative costs that go with it.

People contribute according to income and receive benefits proportional to contributions. So, your scheme is not equivalent.

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07-03-2014, 07:29 AM
RE: The negative income tax
(07-03-2014 07:15 AM)Chas Wrote:  
(07-03-2014 06:27 AM)Heywood Jahblome Wrote:  Doesn't matter what label you put on it Chas. A negative income tax can still replace its need and get rid of all the administrative costs that go with it.

People contribute according to income and receive benefits proportional to contributions. So, your scheme is not equivalent.

When social security is eliminated to make whole the people who paid into it you give them a government bond equivalent to the present value of their social security "annuity".
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07-03-2014, 02:04 PM
RE: The negative income tax
(07-03-2014 06:11 AM)Heywood Jahblome Wrote:  The goal of a negative income tax is to replace the ragbag of government assistance programs. Food stamps, Housing assistance, Unemployment benefits, Social security payments, etc.....those programs and their administrative cost all go away.

It can work like this. A family of 2 gets a specified allowance or deductible.....Say $20,000. The family earns $10,000 leaving $10,000 of the income allowance unused. Because it earned less than $20,000 It pays no income or payroll taxes what so ever and instead gets some additional money in the form of a negative income tax.

Since there was $10,000 of income allowance that went unused, the family gets a check for 50%(or some other percentage) of that or $5000. Total income for the family:

$10,000 earned.
$5,000 in negative income tax.
$15,000 total.

If the family of 2 earned $18,000, their total income would be $19000.

$18,000 earned.
$1,000 in negative income tax.
$19,000 total.

OK, so we have an "expected income" set at X and the short come is multiplied by a percentage Y% and that money is given to the people by the government, presumably funded by taxes paid by people with incomes higher than the "expected income".

So there is a guaranteed minimum which is X times Y which is the situation where earned income = 0. So in your example the government gives away $10,000 which is 50% of $20,000.

In today's situation the wealthy people pay smart accountants to sort out their finances such that they don't pay any tax. They do this by making it appear on paper that their earned income is either 0 or negative.
In the Negative income tax situation, these wealthy people will be given $10,000 each by the government in order to "topup" their shortfall.

It seems to me that the middle class will be giving their money via taxes to both the poor and the wealthy.

A few questions for you:
What about people that don't have jobs?
Do they get paid the $10,000 topup?

What if they have babies or disabilities which come with high costs to support?
What if they need medical care?
What if they want to train to increase their earning potential?
Is school free?

Also do you think it is wise for a government to support failing businesses. e.g. they run the risk of creating multibillion dollar industries which rely on this topup. This could make the government bankrupt. It would certainly make the country wastefull and inefficiant and it would thus fall behind other more efficient countries.
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07-03-2014, 08:15 PM
RE: The negative income tax
Instead of negative income tax or other social welfare why don't we just quit steeling from one person and giving it to another?
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08-03-2014, 01:07 PM (This post was last modified: 08-03-2014 02:12 PM by frankksj.)
RE: The negative income tax
I still maintain tying taxation to income is stupid, stupid, stupid. And it's not helping poor people--it's trapping them.

In the US, for example, if you live below the poverty line and earn only $11,000/year, every $ you increase your income results in LESS money in your pocket each month as your benefits are phased out. As I recall, for someone making $11k/year, their income would have to nearly double to $20k/year before they would even break even and take home as much as at $11k. This system of welfare is insane since it's trapping people in poverty. If you make $11k/year, you're barely making enough to feed yourself, yet you CANNOT work any more since you'll have even LESS. This leads to a vicious cycle of dependency.

It is just plain dumb to reduce people's incentive to work hard, and even dumber to punish it like this.

I've explained many times why a property tax is so much better, and nobody seems willing to engage with me on this. It's just imprinted in everybody's mind there must be an income tax.

With a property tax you actually can have a welfare system that helps the less privileged and most importantly, helps them get out of poverty! For example, a progressive/negative property tax has no such bad incentives, and it provides real help and doesn't require an intrusive government. Say, in a given city, the median home price is $25k/person (ie the median price for a home for a family of 4 is $100k), with a basic formula to convert price->rent for renters. If you live in a home that is appraise at $20k-45k per person, the property tax rate is 1% of appraised value/year. $45k-100k it's 2%,>$100k it's 3%. If it's <$20k, it's -1% (meaning you get money back) and if it's <$10k it's -2%. The government doesn't need any confidential data, doesn't need to know what you do every day, you won't need to report any income. The tax is calculated based on public property records.

So, let's say you're a struggling family with 4 people living in a rented dumpy studio apartment. You will get living assistance in the negative property tax. You have no disincentive to work hard and get promoted, because you get to keep 100% of everything you earn, and doesn't reduce your benefit. Sure, there is a financial disincentive to move into a nicer, bigger home where the subsidy is less, HOWEVER, that's more than offset by innate human desire to have a more comfortable living arrangement with more space and more privacy.

The only argument I get against this is "What about the billionaire who lives full-time in a $500/month studio apartment and gets a subsidy?" Not only is it incredibly unlikely, and not only are there billionaires today who still pay no income tax, but even if that did happen it actually still benefits society. If you're a billionaire and you live THAT frugally it means you must be investing all your money since you won't be stuffing it in a mattress and you're not spending it. So if you're somebody like Warren Buffet who has billions and lives in a small, modest house and invests all your money in building businesses that create jobs, you are actually doing society a real favor, much more so than the a guy like Larry Ellison who spends zillions on jet fuel for his planes and yachts.

So they'll say, "Well it's unfair that one guy can make 10x what his neighbor does and pay the same tax." But this is assuming that whatever the guy does with his hands, the fruits of his labor, don't belong to him--they belong to society. That's slavery. But on top of it, if there are 2 guys who both make $1m/year, and one spends it all on luxury, and the other lives modestly and invests it in his local community why should they both pay the same tax??? Sure, their income is the same, but one is using all his income for his own gain, and the other is doing society a real service.

But most importantly, no guns or police are needed to enforce this; property tax is unavoidable. No strong-arm collection techniques--if you don't pay, it becomes a lien and accrues with interest and eventually you'll need to transfer the dead (even if it's not until you die) and then the tax collector gets it all with interest anyway. No intrusive big brother--whatever you do in the privacy of your home is your business alone. No tax returns. No IRS offering rewards to turn your neighbor over to the police if you catch him doing work and not reporting it.

And think about the morale. Right now, a hardworking laborer sees some guy pulling his Ferrari through the gates of his crazy mansion and has anger and jealousy knowing that guy probably pays a smaller tax % than he does. By tying taxation to property/consumption, it would change this whole way of thinking. If someone lives an extravagant life of luxury, you know they will definitely be paying more than their fair share. It encourages saving and investing, working hard, and earning more money, while still making sure the poor are well cared for. And the system has been tried in the real world and it WORKS. The most economically successful states in the US are those that have no income tax and rely on property/consumption taxes. And ditto at the country level.

Yet people won't consider it with an open mind. It's just pounded into everybody's head that we're all servants to a big brother who has the right to know everything everybody does every day and that the fruits of our labor are not our own but belong to big brother who will take what he wants and decide what we are left to live on and is able to exercise complete control.

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08-03-2014, 06:22 PM
RE: The negative income tax
(08-03-2014 01:07 PM)frankksj Wrote:  I still maintain tying taxation to income is stupid, stupid, stupid. And it's not helping poor people--it's trapping them.

In the US, for example, if you live below the poverty line and earn only $11,000/year, every $ you increase your income results in LESS money in your pocket each month as your benefits are phased out. As I recall, for someone making $11k/year, their income would have to nearly double to $20k/year before they would even break even and take home as much as at $11k. This system of welfare is insane since it's trapping people in poverty. If you make $11k/year, you're barely making enough to feed yourself, yet you CANNOT work any more since you'll have even LESS. This leads to a vicious cycle of dependency.

It is just plain dumb to reduce people's incentive to work hard, and even dumber to punish it like this.

Is this seriously how things work in America? Wow, you guys are so stupid!

In Britain there are tax bands and the more you earn the higher percentage you pay but you can never be worse off for making more money, it's simply impossible. Is your political system so fucked up that you haven't been able to achieve that yet?

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08-03-2014, 06:24 PM
RE: The negative income tax
(08-03-2014 06:22 PM)Hughsie Wrote:  
(08-03-2014 01:07 PM)frankksj Wrote:  I still maintain tying taxation to income is stupid, stupid, stupid. And it's not helping poor people--it's trapping them.

In the US, for example, if you live below the poverty line and earn only $11,000/year, every $ you increase your income results in LESS money in your pocket each month as your benefits are phased out. As I recall, for someone making $11k/year, their income would have to nearly double to $20k/year before they would even break even and take home as much as at $11k. This system of welfare is insane since it's trapping people in poverty. If you make $11k/year, you're barely making enough to feed yourself, yet you CANNOT work any more since you'll have even LESS. This leads to a vicious cycle of dependency.

It is just plain dumb to reduce people's incentive to work hard, and even dumber to punish it like this.

Is this seriously how things work in America? Wow, you guys are so stupid!

In Britain there are tax bands and the more you earn the higher percentage you pay but you can never be worse off for making more money, it's simply impossible. Is your political system so fucked up that you haven't been able to achieve that yet?

No, as usual, frankie is full of shit. More income is more income - you are never worse off making more money.

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