What Could We Do Instead?: Negative Income Tax

My post from a couple of days ago was harsh towards a few UBI alternatives, but there is one which I feel might work well. In an earlier blog post we suggested that American economist Milton Friedman was a UBI supporter. Strictly speaking, that isn’t true, what he advocated for was Negative Income Tax (NIT).

A NIT is an income tax rate which is negative below a certain level. That is, if your income is below a living wage the government supplements it until you reach a pre-set liveable standard. As a person’s income rises the amount they receive decreases until they reach this threshold. However, in order to avoid disincentivising work, the drop in NIT is less than proportional to the rise in income. So basically you’re still getting more money when you work more.

In practice this works like a UBI because it establishes a basic income that everyone will have. Especially when you take into account the fact that most UBI plans increase income taxes, taxing back the UBI they pay to wealthy citizens.

However, the upfront cost is lower which makes it appear cheaper and it would involve a less significant overhaul of the welfare and social system. Making it, perhaps, a more widely palatable policy proposition.

It should be noted that this policy has a slightly different ideological bent to it, which might change how it is understood socially. Although it’s incorporated into the wider tax system, the negative tax is only applied to those with a low income so in effect it might be seen more like existing welfare with its associated stigma, rather than a UBI which would be a universal right for all citizens.

Do these ideological differences matter or is it more important that it’s the same in practice? Let us know what you think in the comments below!

JD

 

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