5 ms·

Basic income is a special case of negative income tax. The current welfare system resembles a negative income tax that has a very high marginal tax rate on low

Basic income is a special case of negative income tax. The current welfare system resembles a negative income tax that has a very high marginal tax rate on low income earners (because welfare is means-tested). But because budgets have to balance, the current system has the advantage that it can have lower marginal tax rates on higher income earners. Whether it makes sense to impose an especially high marginal tax rate on poorer people (and a lower marginal tax rate on richer people) is a complex question. But to claim that basic income solves the problem of incentives is wrong. Basic income just moves the disincentive effect to a different segment of workers.

skybrian 11y ago
Maybe, but at what level does the disincentive effect become significant for high-income workers? It seems like at the highest levels of income, spending money is just a way of signalling and keeping score. Also, there are some taxes where the disincentive effect is beneficial. Basic income funded by a carbon tax seems like a good combination.
- google15 11y ago
  It's a complex issue. But it's something that needs to be made explicit in any discussion, not swept under the rug. I'm not saying I'm able to resolve this issue myself, but I think that basic income advocates need to be challenged whenever they use misleading argumentation, even if they are ultimately correct. At any income level you can make arguments why their work output would be more/less sensitive to taxation. We are talking about a difference in a difference (how much one group changes their work in response to tax, vs another) and not absolutes, which complicates matters. E.g. poor people need the money more, so maybe they are less responsive to marginal tax rates. Also, there are some taxes where the disincentive effect is beneficial. Basic income funded by a carbon tax seems like a good combination. Pollution taxes are a good idea for their own sake, but they will only cover a tiny percentage of basic income or welfare.
AnthonyMouse 11y ago
> But because budgets have to balance, the current system has the advantage that it can have lower marginal tax rates on higher income earners. That isn't a very strong argument. Assuming the basic income and associated taxation is calculated to approximate the same level of redistribution of wealth as the existing welfare system, the amount a person making a given level of income would have to have their taxes increased by in order to balance the budget is only equal to the amount they themselves would receive from the basic income but would not have qualified for in a means tested welfare system. For high income earners that amount is negligible because the basic income constitutes such a small proportion of their total income, and even then it has no effect on their effective tax rate (i.e. net transfers with the government; taxes paid less basic income), only that small change to the marginal rate needed to keep the effective rate the same. And in particular what is really happening is that the disincentive (which is created by any taxation for any purpose) is being spread more evenly throughout the population, which all else equal can be expected to have less effect on behaviour than concentrating the effect on a subgroup which will then be much more compelled to react to it. Moreover, how the taxes are collected is separate from the basic income. If we find that it is for some strange reason better to charge a higher marginal rate to lower income people than higher income people then we can have a basic income and yet still do that.
- google15 11y ago
  And in particular what is really happening is that the disincentive (which is created by any taxation for any purpose) is being spread more evenly throughout the population Agreed, which is why I object to your statement that: We already know how to design a program that won't discourage work. It's not that basic income discourages work more or less, but that it evens out the marginal tax rate. This might be a good or a bad thing, but your original post contains no argument either way. You run a very strong risk of the reader misinterpreting what you are saying, and believing that there will be a uniform improvement in incentives across the whole population. which all else equal can be expected to have less effect on behaviour than concentrating the effect on a subgroup which will then be much more compelled to react to it. I think the main argument behind the current system is that low income people need the money, and therefore are less affected by the marginal tax rate. Moreover, how the taxes are collected is separate from the basic income. If we find that it is for some strange reason better to charge a higher marginal rate to lower income people than higher income people then we can have a basic income and yet still do that. Either "basic income" should be used to denote a flat tax plus basic income, or a varying marginal tax plus basic income. Your first post implies the former to the exclusion of the latter. I think you are changing the definition because it's important to you that basic income "win", but really there are two separate issues, which are negative taxation vs welfare, and fixed vs varying effective marginal tax rates. Each of these issues should be decided independently on their own merits.

skybrian 11y ago

Maybe, but at what level does the disincentive effect become significant for high-income workers? It seems like at the highest levels of income, spending money is just a way of signalling and keeping score. Also, there are some taxes where the disincentive effect is beneficial. Basic income funded by a carbon tax seems like a good combination.

google15 11y ago
It's a complex issue. But it's something that needs to be made explicit in any discussion, not swept under the rug. I'm not saying I'm able to resolve this issue myself, but I think that basic income advocates need to be challenged whenever they use misleading argumentation, even if they are ultimately correct. At any income level you can make arguments why their work output would be more/less sensitive to taxation. We are talking about a difference in a difference (how much one group changes their work in response to tax, vs another) and not absolutes, which complicates matters. E.g. poor people need the money more, so maybe they are less responsive to marginal tax rates. Also, there are some taxes where the disincentive effect is beneficial. Basic income funded by a carbon tax seems like a good combination. Pollution taxes are a good idea for their own sake, but they will only cover a tiny percentage of basic income or welfare.

AnthonyMouse 11y ago

> But because budgets have to balance, the current system has the advantage that it can have lower marginal tax rates on higher income earners. That isn't a very strong argument. Assuming the basic income and associated taxation is calculated to approximate the same level of redistribution of wealth as the existing welfare system, the amount a person making a given level of income would have to have their taxes increased by in order to balance the budget is only equal to the amount they themselves would receive from the basic income but would not have qualified for in a means tested welfare system. For high income earners that amount is negligible because the basic income constitutes such a small proportion of their total income, and even then it has no effect on their effective tax rate (i.e. net transfers with the government; taxes paid less basic income), only that small change to the marginal rate needed to keep the effective rate the same. And in particular what is really happening is that the disincentive (which is created by any taxation for any purpose) is being spread more evenly throughout the population, which all else equal can be expected to have less effect on behaviour than concentrating the effect on a subgroup which will then be much more compelled to react to it. Moreover, how the taxes are collected is separate from the basic income. If we find that it is for some strange reason better to charge a higher marginal rate to lower income people than higher income people then we can have a basic income and yet still do that.

google15 11y ago
And in particular what is really happening is that the disincentive (which is created by any taxation for any purpose) is being spread more evenly throughout the population Agreed, which is why I object to your statement that: We already know how to design a program that won't discourage work. It's not that basic income discourages work more or less, but that it evens out the marginal tax rate. This might be a good or a bad thing, but your original post contains no argument either way. You run a very strong risk of the reader misinterpreting what you are saying, and believing that there will be a uniform improvement in incentives across the whole population. which all else equal can be expected to have less effect on behaviour than concentrating the effect on a subgroup which will then be much more compelled to react to it. I think the main argument behind the current system is that low income people need the money, and therefore are less affected by the marginal tax rate. Moreover, how the taxes are collected is separate from the basic income. If we find that it is for some strange reason better to charge a higher marginal rate to lower income people than higher income people then we can have a basic income and yet still do that. Either "basic income" should be used to denote a flat tax plus basic income, or a varying marginal tax plus basic income. Your first post implies the former to the exclusion of the latter. I think you are changing the definition because it's important to you that basic income "win", but really there are two separate issues, which are negative taxation vs welfare, and fixed vs varying effective marginal tax rates. Each of these issues should be decided independently on their own merits.