3 ms·

Interesting questions, but I think GP used the shortened form of "negative income tax bracket".

mdoms 6y ago
No. A negative income tax is a well established principle. It can be implemented as a bracket, but it can also be implemented as a tax credit or in a fully progressive tax system. https://en.wikipedia.org/wiki/Negative_income_tax https://en.wikipedia.org/wiki/Negative_income_tax
- zaroth 6y ago
  So basically it's called a "negative income tax", but it's not actually implemented by multiplying income by a negative percentage. In the model proposed by Milton Friedman, you start with an exemption amount, and a specific proportion of any unused exemption is refundable. The first dollars you earn reduce your exemption, but at least they aren't taxed, until earnings equals the exemption amount, at which point you are getting no subsidy and your next earned dollar starts being taxed at the lowest rate. The effective tax rate on those early dollars would be equal to the subsidy rate. For example, an exemption amount of $20k and a subsidy rate of 40% would mean earning nothing would grant you a $8k credit ($20k * 40%). Earn $10k and you would get a $4k credit ((20 - 10) * 40%). Earn $20k and you would get no credit and pay no taxes. But effectively your tax rate on the first $20k earned is 40% -- because you earned $20k and only netted $12k in additional income. If instead you just give everyone $X, and just have the first dollar earned get taxed at whatever the lowest rate is, you don't have the same problem with regressive rates.
- techbio 6y ago
  Yes, I understand that. It is indeed far more common to hear the term negative income tax than with "bracket" at the end. I was giving an extra detail to distinguish the term from the truncated jargon the above poster appeared to misunderstand. (It is NOT a "negative income tax rate" but effectively a bracket that owes a negative tax liability thanks to the tax credit/UBI/call it mana if you want to.

No. A negative income tax is a well established principle. It can be implemented as a bracket, but it can also be implemented as a tax credit or in a fully progressive tax system. https://en.wikipedia.org/wiki/Negative_income_tax https://en.wikipedia.org/wiki/Negative_income_tax

zaroth 6y ago
So basically it's called a "negative income tax", but it's not actually implemented by multiplying income by a negative percentage. In the model proposed by Milton Friedman, you start with an exemption amount, and a specific proportion of any unused exemption is refundable. The first dollars you earn reduce your exemption, but at least they aren't taxed, until earnings equals the exemption amount, at which point you are getting no subsidy and your next earned dollar starts being taxed at the lowest rate. The effective tax rate on those early dollars would be equal to the subsidy rate. For example, an exemption amount of $20k and a subsidy rate of 40% would mean earning nothing would grant you a $8k credit ($20k * 40%). Earn $10k and you would get a $4k credit ((20 - 10) * 40%). Earn $20k and you would get no credit and pay no taxes. But effectively your tax rate on the first $20k earned is 40% -- because you earned $20k and only netted $12k in additional income. If instead you just give everyone $X, and just have the first dollar earned get taxed at whatever the lowest rate is, you don't have the same problem with regressive rates.
techbio 6y ago
Yes, I understand that. It is indeed far more common to hear the term negative income tax than with "bracket" at the end. I was giving an extra detail to distinguish the term from the truncated jargon the above poster appeared to misunderstand. (It is NOT a "negative income tax rate" but effectively a bracket that owes a negative tax liability thanks to the tax credit/UBI/call it mana if you want to.