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Thursday, June 23, 2016

Negative Income Tax

Sometimes it is called a reverse income tax. The idea is to make sure everyone has enough to live on. It's kind of like welfare that way, but the amount doled out depends on how much you make. If you don't have a job and are not earning any money, you get the basic amount. If you get a job and start making a little money, the amount of your dole goes down, but the sum of the two, the earning from your job, and the amount doled out to you from the government is more than the base amount.
    As your income goes up the amount you get from the government goes down until you get to some point where the dole from the government goes to zero. If your income continues to go up, then you start paying taxes.
    I don't know if a scheme like this would actually work, meaning would civilization collapse? Would the government go broke? Would everyone quit working and we'd all starve to death? I don't know, but I don't think so. I think it might actually work. There are couple of points in this scheme's favor that even Republicans might like:
  • No more minimum wage laws. Everyone gets enough to live on, so any money you earn would just be gravy. A job that paid $1 an hour could still get you $40 a week, which is enough to keep you in beer or cigarettes. If you want beer AND cigarettes you are going to have to step up to the bar and look for a job that pays $2 an hour.
  • No more unemployment compensation taxes.
  • With everyone getting enough to live on, there would be a bigger demand for the everyday products that businesses are so good at producing.
It might also help with problem of people being homeless and with the skyrocketing cost of rent. If you have a guaranteed but limited income, you are going to look for a place you can afford to live. There are thousands of towns in middle America that are shrinking because there are no jobs. You can bet the rents in those places are going to be much lower than they are in the big cities. So this negative income tax might lead to a rebirth of small town America. If people start are leaving the big cities for the small towns we should see a reduction in traffic congestion in the big cities. Good news all around.

For the graph I just picked a couple of values I liked. I used a value of $12,000 a year ($1,000 a month, about what a minimum wage job pays) for a subsistence level and $25,000 a year as the cut-over point between getting assistance and paying taxes. The blue line indicates wages being paid. The area under the red line indicates how much you would be bringing home. The red area is what goes to and from the government. To the left of the 'Minimal' point the red area is the dole that comes from the government and to the right it indicates taxes paid to the government.

Another advantage of this scheme is that we could eliminate all those 'jobs programs'. No need start up some government scheme because of all the jobs it would provide. We could go back to trying to be efficient.

Now some people are lazy and don't like to work. Some people like to keep busy. Some people like to make things. If our automated factories that employ one person out of a thousand can produce everything we need, why do we all need to be working? When I was a kid our future was supposed to be a life of leisure. Production was booming and becoming ever more efficient. Maybe it's time to start reaping some of those rewards.

If the IRS is able to track down and squeeze some of those scofflaws who were revealed by that Panama bank hack, we shouldn't have any trouble making the weekly dole-roll.

Previous posts on Negative Income Tax.
New York Times article about the Panama bank hack.
Wikipedia's article about the Panama bank hack.

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