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Thursday, January 2, 2014

Reverse Income Tax


Given the current state of our economy, I'm thinking that a benefit system that paid you in inverse proportion to how much you made might be a good way to help the unemployed and help get our economy moving again. I'm thinking a good balance point would be $25,000 a year. Below that you would get underemployment benefits, above that you would pay income tax. I don't know how much you need to survive these days, but I'm pretty sure you can do it on $1,000 a month. So if you earn nothing all year, you would get $12,000. If you earned $50,000 you would pay $12,000 in taxes.
     Before you get on your high horse and start belly aching about welfare queens, I'd like to make a couple of points. One is that we are currently spending a trillion dollars a year on welfare. Someone (I've lost the link) worked it out that that comes to $20,000 per person, so a family of four would be getting $80,000 a year. I'm pretty sure that isn't happening. Most of it is eaten up by the bureaucracy that administers the umpteen zillion programs that disperse all this money.
    Secondly, this is supposed to be the age of leisure. We aren't supposed to have to work so much any more. I mean that's why we have been automating our manufacturing, so people wouldn't have to do those repetitive manual labor type jobs.
    Increased automation means that every job now has a much higher capital investment associated with it. Capitalists are not going to invest millions of dollars in a new factory that will employ at best a dozen people if it is not going to make a profit, and if they do they will probably do it in China, which won't do us any good.
    People need something to do. If they don't have something to do, they will find something, and some of those somethings are liable to be very destructive, and they will not necessarily be confined to the person doing the destruction. Any kind of job is better than leaving idle hands. Even a make-work job is better than sitting around and watching day-time TV.
    There are numerous small businesses that could benefit from paying low wages. Businesses that might be marginal would have a chance to prosper. Businesses that can't afford to invest millions of dollars in automation. I'm thinking small, family farms, for one, but I think there are any number of small businesses that would benefit. I'm talking really small businesses, businesses with maybe a dozen employees, not small businesses as defined by the SBA (Small Business Administration) which is anything with less than 500 employees.
    I think something like this could be a great benefit to our country. It would put more people to work and it would put more money in their pockets, which would mean that more money would be getting spent, which would be great for our economy.
    I doubt whether anything simple like this has a chance of being implemented. Even if you could get a bill introduced in Congress, the politicians would twist it into some convoluted mess that would be unlikely to benefit anyone except their constituent bureaucracies.
    I was talking to Jack about this the other day and he tells me that Milton Friedman suggested the same thing once upon a time (1968).

Wikipedia article on Negative Income Tax

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