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I really don't understand why ideas like the Negative Income Tax aren't being considered before Universal Basic Income. In that scenario, the government just s

I really don't understand why ideas like the Negative Income Tax aren't being considered before Universal Basic Income. In that scenario, the government just sets an income floor and pays the difference (https://en.wikipedia.org/wiki/Negative_income_tax https://en.wikipedia.org/wiki/Negative_income_tax). UBI makes little sense whenever someone making 500K a year still gets it unconditionally. The marginal utility of that is nil, but its tax implications are massive (how do you even fund something like that in today's economy).

kmicklas 9y ago
The argument for UBI over NIT, as I understand it, is that if rich people but UBI too they'll be less likely to attempt to defund it. I don't find this especially convincing, since from a purely rational point of view decreasing UBI increases net income for the rich. But maybe there are complex psychological/political factors at play.
bryanlarsen 9y ago
Negative income tax is just Friedman's name for UBI. They're functionally identical.
- SirensOfTitan 9y ago
  UBI (at least in all the circles I've seen) refers to basic income wherein the government gives an unconditional sum of money to citizens. Negative income tax is not unconditional.
  - Kevin_S 9y ago
    As I've seen, all real discussion of UBI is essentially a negative income tax. UBI is just the term that stuck.
  - learc83 9y ago
    Every serious UBI proposal includes an progressive income tax increase. Everyone gets the UBI, but the more money you make, the more you're paying in additional taxes to support the UBI. At some threshold you're paying as much in additional taxes as your making in UBI payments. Past another threshold and you're paying more in additional taxes than you're taking in.
qntty 9y ago
My understanding is that NIT is a particular implementation of UBI. Alternatively, you could say that--even with non-NIT UBI--since we have a progressive tax structure, the net change in taxes for people above some income level will be exactly the same net change in taxes as NIT is proposing. The money has to come from somewhere after all.
scarmig 9y ago
The issue with negative income taxes is that they create steep effective marginal tax rates. Suppose you set the floor at 12k, and suppose someone has an existing job at 12k. They immediately lose all incentive to work, because they could make the same amount by not working at all. Your effective marginal tax rate is 100%. There are ways to make this effect less pronounced, but those ways end up morphing a negative income tax to be closer to a basic income. If you get rid of the effect altogether, you get... A basic income. Even if you make twice as much as the negative income tax floor, you're still facing really high marginal rates. Enough people would drop out of the market economy to make the negative income equivalent to a basic income in financial cost, but more inefficient both because low income jobs would be obliterated and because it'd be (a bit) more complicated to administer and more prone to fraud. Compare that to a basic income. There, as a first order effect there's no reason for the person to quit the 12k job, because they're now making 24k. It might seem silly to give someone making 500k 12k a year, but economically and fiscally it doesn't matter: they're taxed at a rate that covers their own basic income and plenty more.
- bryanlarsen 9y ago
  If you set the floor at 12K, that means that people with no income get a refund of r*12K where r is the tax rate, not that they get a refund of 12K.
  - scarmig 9y ago
    That's something fundamentally different from using a negative income tax to implement a guaranteed minimum income.
WalterBright 9y ago
> pays the difference Then there's no reason to work at the lower end of the wage scale, because you'd be working for free.
- SirensOfTitan 9y ago
  I think the idea is that automation makes many jobs obsolete at the lower end, at which point some form of guaranteed minimum income or basic income has some necessity.
marcosdumay 9y ago
Because it is a tax of 100% of the income for everybody making between 0 and the floor. So it causes poor people to not seek jobs, and stay poor.
JSDave 9y ago
UBI avoids the step function where there is no (economic) incentive up until the "income floor". Policies like UBI could ally people (politically) of low to mid income.

kmicklas 9y ago

The argument for UBI over NIT, as I understand it, is that if rich people but UBI too they'll be less likely to attempt to defund it. I don't find this especially convincing, since from a purely rational point of view decreasing UBI increases net income for the rich. But maybe there are complex psychological/political factors at play.

bryanlarsen 9y ago

Negative income tax is just Friedman's name for UBI. They're functionally identical.

SirensOfTitan 9y ago
UBI (at least in all the circles I've seen) refers to basic income wherein the government gives an unconditional sum of money to citizens. Negative income tax is not unconditional.
- Kevin_S 9y ago
  As I've seen, all real discussion of UBI is essentially a negative income tax. UBI is just the term that stuck.
- learc83 9y ago
  Every serious UBI proposal includes an progressive income tax increase. Everyone gets the UBI, but the more money you make, the more you're paying in additional taxes to support the UBI. At some threshold you're paying as much in additional taxes as your making in UBI payments. Past another threshold and you're paying more in additional taxes than you're taking in.

qntty 9y ago

My understanding is that NIT is a particular implementation of UBI. Alternatively, you could say that--even with non-NIT UBI--since we have a progressive tax structure, the net change in taxes for people above some income level will be exactly the same net change in taxes as NIT is proposing. The money has to come from somewhere after all.

scarmig 9y ago

The issue with negative income taxes is that they create steep effective marginal tax rates. Suppose you set the floor at 12k, and suppose someone has an existing job at 12k. They immediately lose all incentive to work, because they could make the same amount by not working at all. Your effective marginal tax rate is 100%. There are ways to make this effect less pronounced, but those ways end up morphing a negative income tax to be closer to a basic income. If you get rid of the effect altogether, you get... A basic income. Even if you make twice as much as the negative income tax floor, you're still facing really high marginal rates. Enough people would drop out of the market economy to make the negative income equivalent to a basic income in financial cost, but more inefficient both because low income jobs would be obliterated and because it'd be (a bit) more complicated to administer and more prone to fraud. Compare that to a basic income. There, as a first order effect there's no reason for the person to quit the 12k job, because they're now making 24k. It might seem silly to give someone making 500k 12k a year, but economically and fiscally it doesn't matter: they're taxed at a rate that covers their own basic income and plenty more.

bryanlarsen 9y ago
If you set the floor at 12K, that means that people with no income get a refund of r*12K where r is the tax rate, not that they get a refund of 12K.
- scarmig 9y ago
  That's something fundamentally different from using a negative income tax to implement a guaranteed minimum income.

WalterBright 9y ago

> pays the difference Then there's no reason to work at the lower end of the wage scale, because you'd be working for free.

SirensOfTitan 9y ago
I think the idea is that automation makes many jobs obsolete at the lower end, at which point some form of guaranteed minimum income or basic income has some necessity.

marcosdumay 9y ago

Because it is a tax of 100% of the income for everybody making between 0 and the floor. So it causes poor people to not seek jobs, and stay poor.

JSDave 9y ago

UBI avoids the step function where there is no (economic) incentive up until the "income floor". Policies like UBI could ally people (politically) of low to mid income.