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Let's be honest, if the US did something like this, the ultra wealthy who are already not paying taxes would find ways to game more money out of the system.
But it could still help a lot of people.
Wouldn’t it make more sense to, like, have the first 12k dollars tax free and then increase the percentage for everything exceeding this threshold? The more money you earn, the more taxes you can afford to pay. Especially when you earn only little money this is important for you to survive, while $100k/yr managers could easily afford to pay 50k of those in taxes
Living on $50k/year is not easy. The federal poverty line for a family of 4 is $31,200, and many consider those numbers to be much too low.
There's absolutely no need to target normal American households with more taxes. Billionaires already don't pay their (too low) taxes and have far, far more than they need that they've taken from the labor of others. Actually taxing them appropriately would cover everything we could possibly need and then some.
We should be raising substantially the minimum income needed before you have to pay taxes. It's fucking stupid to be levying a bunch of tax on people who are struggling to make ends meet.
What? $50k is even in the richest European countries about as much as 2 people earn per year. €25k/year is the median, give or take 2k. Subtracted are about 5k in taxes.
Crazy how expensive the US is…
Yeah, European salaries across the board are generally lower than the US by quite a bit, but we also typically pay for a lot more services than Europeans do as generally a lot more is privatized (healthcare, etc.). $100k is typically what most middle class Americans are striving for in order to have a relatively "comfortable" life, buy a house, etc. (though honestly, the housing market today is so fucking insane that even that isn't really enough to buy a house in many places now). The median household income in 2023 was $80,610, for reference.
The system you are describing is what most countries use. This is basically just an extension of that intended for people who make so little they need extra assistance.
Actually, the US Earned Income Tax Credit is basically a version of negative income tax.
It is not. EITC is a tax reduction for the first few $1000s of employment income. NIT is a tax refund even if you pay no taxes.
A negative income that is better than that. It says, if you're working, but only making $12k, the state will give you money so you now have $20k. (Not real numbers.)
The idea is that it incentivizes participation in the work force, with hopes that the extra money helps you get stable and move up the payscale where you may stop needing the external support.
How does that incentivizes workforce participation? You're giving them money to not work, I think graduated taxes should just not have the NIT portion.
That's just equivalent to UBI, isn't it? If you pay out UBI and get the money for it from taxes, then there's an income level below which people net gain money and above which people net lose money.
No, negative income tax usually requires that you make some money and file taxes. UBI doesn't.
One has the intention of encouraging workforce participation. The other tries to help everyone.
It is UBI with a "clawback". Conservative (Friedman's NIT version) and left wing (called Guaranteed income) versions of UBI like to place an ultra high tax/clawback rate on the lowest income levels. It is same as UBI if lower tax brackets are not the first bracket after "personal UBI received is paid back in taxes"
How is it a negative income tax if they are taking money from the lowest bracket? That's the bracket where an NIT gives money instead of taking it.
A NIT of 50% up to $20k income is equivalent to UBI of $10k with 50% as the lowest tax bracket. Under both, you pay 0 net tax at exactly $20k income, and you get a $10k refund at 0 other income.
Either one is still a 50% marginal tax rate no matter the name. On every $ you earn you only keep 50cents.
This still doesn't make sense to me. The UBI clawback that starts small and grows with each bracket makes sense. At 0 earned you get 20,000. And it's not until you hit the poverty line that it starts gradually being taxed back. So a family of four would pay 5 or 10 percent back if they were in the 40k-50k bucket.
It seems to me you're not discussing a NIT which pays money to workers, but rather a national minimum wage through the tax system. In this case 10,000 dollars. An NIT doesn't need a clawback because it diminishes as you go up in tax brackets. A UBI uses it to remove administrative overhead from issuing it and to make it clear that every adult, employed or not, is eligible.
NIT is paid to workers and non workers alike. As is UBI. The maximum NIT refund you get is at 0 earned income. When you earn income, your refund is lowered. That starts at $1 of income. Even if it is called a negative tax, it is still a positive marginal tax rate that reduces your net income for every $ earned.
An NIT refund comes from the IRS, while UBI can come from IRS or another department. They are still highly related concepts. Other than the most famous NIT proposal has a 50% tax rate on the lower incomes, and frequenly left leaning politicians, instead of UBI propose Guaranteed Minimum Income, with tax rates of 50% to 100% on the lowest incomes.
Sensible UBI plans use normal tax rates with higher rates on upper incomes if needed.
When you say a tax rate of 50-100 percent, are you referring to the negative tax rate?
Guaranteed minimum income plans are either a 100% tax, when literally, all get a minimum income of say $20k, if you earned less than $20k, you don't keep any of those earnings. Practical, still left of center plans do change this to a more modest 50% clawback rate similar to welfare/EI. The most famous NIT proposal had a 50% tax rate on the lowest income. That is the exact same as the flawed GMI plans.
That sounds like a great way to do a poverty trap when you could simply add 20k-reported income to their account. It's entirely unnecessary to the concept of an NIT.
That
If you mean 50% tax bracket for the poor, yes it is a poverty trap. UBI is an improvement over welfare and employment insurance because it doesn't trap people into not working due to high clawbacks. There is also administration and annoyance savings from not policing/applying for benefits.
Also, in “things that will never happen in the US” we have universal healthcare
In the US it's called "tipping"
You say negative income tax, I hear business subsidies.
This gets proposed as a way to implement basic income (UBI). It is only equivalent when the lowest tax bracket is equal to the NIT.
ex: if NIT of 25% up to $40k, and 25% income tax rate up to $50k, then at $40k income, you would pay 0 net income tax. At 0 income, you would receive $10k, and at $50k income, you'd pay $2500. Every $10k of income results in $2500 extra taxes or less of a refund.
Milton Friedman's version of NIT was at 50% for low income ($20k), and then fairly low tax bracket rates (20%) above that. This means that the poorest people are taxed very high on income, and middle to high incomes pay a lower rate. Welfare and unemployment systems often use such a 50% clawback. It is a significant disincentive to work, unless you will make a lot during a year.
Refundable tax credits is a similar system of permitting net refunds to people even if they pay no income taxes.
As an example: this exists in Flanders (dutch speaking part of Belgium): https://www.brusselstimes.com/316484/job-bonus-for-730000-people-in-flanders-how-to-make-sure-you-get-yours
What are the upside of that vs plain minimum wage?
Very signficant benefits of UBI over minimum wage laws. if for example UBI is equal to typical minimum wage of 2000 hours/year. $14k/year in US. ($7/hour)
Minimum wage means it is illegal to hire you for less, even if you would be happy to work for less. Maybe you are happy to work a couple of hours per day at a nearby library, but would like to get beer money for doing so instead of "internship". UBI is equivalent to a $7/hour bonus on whatever wage your earn or don't earn. You have the freedom to say no to work, and so you might accept better pay offers than if you are under structural desperation to survive. That power we all have means that we don't need a minimum wage law. We all have enough fuck you money to not put up with excessive shit.
One of the key overlooked benefits of UBI is that it also encourages people to retire, move out of the workforce or drop back to part time sooner. Freeing up jobs for people to move into.
Once the house is paid off and the kids have moved out, etc. The "I dont NEED to do this" is real.
Why did you bring up UBI? UBI and NIT are nothing alike. UBI isn’t being discussed.
It reduces the onus on businesses and places it on the government (and this indirectly, taxpayers).
Better for small businesses to hire and thrive.
"But I don't want my taxes to go up!"
Maybe you just need more tax brackets. Where I live, for some reason, a specialized doctor making $250,000/yr is in the same tax bracket as some C-suit making $900,000.
I definitely need more tax brackets where I live.
Never understood the idea of tax brackets. Why isn't it just continuous? Computers are calculating the tax now anyway, not like it would be infeasible.
I mean to a degree it is continuous. To simplify things the first $10 you make isn't taxed. $11 to $15 is taxed at rate A, $16 to $20 is taxed at rate B, etc. This is what is meant by the progressive tax system. Obviously these numbers are much higher in reality.
People who can't understand this are the ones bragging that they turned down a raise because it would "change their tax bracket". With one exception at very low income, called the benefits cliff, the more money you are paid the more money you take home after taxes.
Does this make tax brackets less confusing? I want to help you and anyone else reading to understand.
I think what they're saying is that it shouldn't be in steps, the tax rate should increase as income increases.
So $11 would be taxed at A.2, $12 at A.4, $13 at A.6 and so on. And $11.50 at A.3.
As it is, it's more discrete than continuous (from a mathematical perspective). Another problem is that it usually stops. Like where I live, and it tops out at about $250,000.
Yeah I get what they mean but that's much more complex. I suppose that's what computers are for but it could make it even harder for people to understand and so many people do not understand the current system.
Definitely agree we need more brackets after the top one. Although this only goes so far, as the more wealthy a person is the more likely their income isn't classified as income anymore. I'd love to return to post WW2 tax rates on the rich but we need to do something to make them pay some kind of fair share. It's disgusting what they get away with.
Could totally do a sigmoid function and just integrate over the income. But the brackets are just discrete approximation of that.
You still have brackets, but they're at every $0.01
Tax brackets are there for progressive taxation. Progressive income taxation is the most fair form of taxation. The least fair is consumption tax - such as sales tax. Sales tax tax disproportionately burdens lower income households. Since most places have sales tax, an aggressive progression of income taxation is called for to balance the scales.
I'm not speaking against progressive taxation, I'm saying the brackets should be continuous so there aren't any sharp turns in taxation. Right now the brackets make the taxation discrete, but I feel it should be continuous.
Oh I see. Well, you gotta understand the public don’t take too kindly to math. Especially politicians.
this post was submitted on 29 Nov 2024
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