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LibertariCAN
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Negative Income Tax
Aug 16th, 2013 at 10:09am
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Now, before we all get our ideals in a twist let me just say this:

The obvious thing, that doesn't need to be re-mentioned, is the fact that indeed a system of negative income tax is still a somewhat a redistribution of wealth (like welfare). So, let's not turn this into a discussion of whether or not it is ideologically pure from a libertarian stand-point.

I want to come at this from an angle that asks:

Would a negative income tax be better than the current mess of the welfare system in the U.S.? Would it be more successful at helping the poor than the literally dozens of different aide programs? Would it also be relatively more economically sound than the current mess of welfare?

Is it similar to the school voucher system in a sense that it would be a good stepping stone towards fully reforming the welfare state?

A few questions there  Smiley

Thoughts?
  

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keauxbi
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Re: Negative Income Tax
Reply #1 - Aug 16th, 2013 at 10:45am
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The problem with any form of wealth redistribution, whether it is welfare or a NIT, is the administration of the program by politicians.  If your aim is to level the playing field between those living in poverty and the very wealthy, politicians will inevitably turn the playing field into a swamp and all will suffer as a result.  Some people will receive too much, some not enough, some very wealthy won't pay a dime and some upper middle class will pay way too much. 

Also, a NIT doesn't address those in poverty that don't earn an income, which a politician will.  Once the program is in place, a politician will expand it to buy votes and stay in office.  That is the way of political government.
  

Keauxbi
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LibertariCAN
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Re: Negative Income Tax
Reply #2 - Aug 16th, 2013 at 11:15am
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It would address those in poverty that don't earn an income. Let's say it was a 50% NIT.

Hypothetically, let's say the poverty line is $10,000. Then that person would receive $5000.
  

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Crystallas
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Re: Negative Income Tax
Reply #3 - Aug 16th, 2013 at 11:59am
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It would be much worse. I wish I could find a link to Milton pointing out the flaws with the Negative income tax. He spent most of his career in the spotlight advocating for it, then near the end of his life, he admitted it was a terrible idea.
  
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Liberalterian
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Re: Negative Income Tax
Reply #4 - Aug 16th, 2013 at 12:21pm
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I don't like the Negative Income Tax idea at all BUT I would advocate for an Income Tax reform that creates a flat tax BUT exempts a certain amount of everyone's income from the tax.

So let's say have a 10% flat tax on all income above 30 thousand dollars (just as an example).

This way most people won't need to worry about paying any income taxes and everyone would be paying less than they are now. The problem with the Negative Income tax is 1) it creates another needless bureaucracy to hand out billions of dollars to people and 2) It further discourages people increasing their incomes.

For the second point: Imagine if I earn 20 thousand dollars and if I get promoted and earn 30 thousand dollars I suddenly lose the 10 thousand dollar Negative Income Tax Benefit. This would mean that I earn the same amount of money BUT I have to work harder than previously. As a result it would be logical to instead not work harder (at least from a short term perspective). This is even worse if you end up making LESS money with the promotion. So let's say I go from 20 thousand to 30 thousand a year but I lose a 15 thousand dollar tax benefit/grant. In this case I would actually deny the promotion because I would be working more for LESS money.

This means that it discourages people from improving their situation and moving up in a career path. Not to mention the fact that people who DO pay taxes would need to pay more than they otherwise would need to if we didn't hand their money to those earning less.
  
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keauxbi
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Re: Negative Income Tax
Reply #5 - Aug 16th, 2013 at 1:33pm
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Liberalterian wrote on Aug 16th, 2013 at 12:21pm:
1) it creates another needless bureaucracy to hand out billions of dollars to people
You could expand the scope and power of the IRS to administer the program without creating a new bureaucracy.

Liberalterian wrote on Aug 16th, 2013 at 12:21pm:
2) It further discourages people increasing their incomes.

For the second point: Imagine if I earn 20 thousand dollars and if I get promoted and earn 30 thousand dollars I suddenly lose the 10 thousand dollar Negative Income Tax Benefit. This would mean that I earn the same amount of money BUT I have to work harder than previously. As a result it would be logical to instead not work harder (at least from a short term perspective). This is even worse if you end up making LESS money with the promotion. So let's say I go from 20 thousand to 30 thousand a year but I lose a 15 thousand dollar tax benefit/grant. In this case I would actually deny the promotion because I would be working more for LESS money.

This means that it discourages people from improving their situation and moving up in a career path. Not to mention the fact that people who DO pay taxes would need to pay more than they otherwise would need to if we didn't hand their money to those earning less.

I think any form of welfare based on income would discourage dependents from improving their status in life.  Once a person becomes psychologically dependent on government handouts they don't care about their overall situation improving so long as they get their money.

Quote:
Hypothetically, let's say the poverty line is $10,000. Then that person would receive $5000.


What if that person was a single parent vs a single individual? 

By establishing a 50% negative income tax and a poverty line at $10,000 you establish an adjusted poverty line of $15,000.  Once the bureaucrats adjust the line up to $15k then then new line jumps to $22,500.

It's bad enough that we have to fight to end the current welfare state but let's not try to invent a new equally bad system to replace it.
  

Keauxbi
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LibertariCAN
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Re: Negative Income Tax
Reply #6 - Aug 16th, 2013 at 2:54pm
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Crystallas wrote on Aug 16th, 2013 at 11:59am:
It would be much worse. I wish I could find a link to Milton pointing out the flaws with the Negative income tax. He spent most of his career in the spotlight advocating for it, then near the end of his life, he admitted it was a terrible idea.


I would love to see that video. I am still in the research phase of this idea.

Do you remember the reasons he gave for his turn around on the idea?
  

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Crystallas
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Re: Negative Income Tax
Reply #7 - Aug 16th, 2013 at 3:30pm
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LibertariCAN wrote on Aug 16th, 2013 at 2:54pm:
I would love to see that video. I am still in the research phase of this idea.

Do you remember the reasons he gave for his turn around on the idea?


I'm not sure if he did it in a video. He has mentioned in some later videos that he separated advocacy and theory with things like the negative income tax, central banks, ect. If I had to guess, I would say that his "flip-flop" occurred when he changed his mind, and felt a Federal Reserve was destructive. He also revised his Negative Income Tax proposal at later dates as well to be a central planned method to replacing all welfare programs(some attempt to salvage his academic work for an ideological usage).

Once Rothbard died, Milton didn't have that kind of academic rivalry. He changed from being a Republican-conservative(or an "economic liberal" as he suggested in discussion about free to choose, and free to choose with your own money), to becoming a "consiquentialist-libertarian" in the same time frame.

Speaking of which, I do know of some good Rothbard videos where he goes into basic details of the Negative Income Tax. Far from Rothbard's best lectures, but it just so happens that someone was able to record the audio and share it. Negative Income Tax talk starts around 12 minutes, but the whole clip is worth listening to.
http://www.youtube.com/watch?v=DD0g6Et2M8M

http://mises.org/daily/2406/
  
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Liberalterian
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Re: Negative Income Tax
Reply #8 - Aug 16th, 2013 at 3:36pm
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keauxbi wrote on Aug 16th, 2013 at 1:33pm:
You could expand the scope and power of the IRS to administer the program without creating a new bureaucracy.

I think any form of welfare based on income would discourage dependents from improving their status in life. Once a person becomes psychologically dependent on government handouts they don't care about their overall situation improving so long as they get their money.


What if that person was a single parent vs a single individual?

By establishing a 50% negative income tax and a poverty line at $10,000 you establish an adjusted poverty line of $15,000. Once the bureaucrats adjust the line up to $15k then then new line jumps to $22,500.

It's bad enough that we have to fight to end the current welfare state but let's not try to invent a new equally bad system to replace it.

True but I don't want to expand the scope of the IRS in any way.  Grin

As for the rest, I agree with you 100%. This proposal wouldn't really solve anything. We could try to theorize that it might be better than we have now but I doubt it would make a huge difference. Ultimately it's the same sorta thing as any welfare... doesn't really solve the problem, just changes the appearance of the fine details.
  
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keauxbi
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Re: Negative Income Tax
Reply #9 - Aug 16th, 2013 at 4:13pm
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Liberalterian wrote on Aug 16th, 2013 at 3:36pm:
True but I don't want to expand the scope of the IRS in any way. Grin

As for the rest, I agree with you 100%. This proposal wouldn't really solve anything. We could try to theorize that it might be better than we have now but I doubt it would make a huge difference. Ultimately it's the same sorta thing as any welfare... doesn't really solve the problem, just changes the appearance of the fine details.

It's like asking "Do you want me to cut your legs off or arms off first before I kill you?"
  

Keauxbi
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