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"The US economist Milton Friedman proposed an idea related to UBI called a negative income tax in 1962, in which those earning under a certain amount would rece
by bobthechef 6y ago
"The US economist Milton Friedman proposed an idea related to UBI called a negative income tax in 1962, in which those earning under a certain amount would receive supplemental funds from the government rather than paying tax."
The whole point of UBI is that it's universal. What Friedman is describing is essentially a social safety net, i.e., one that only those below a certain level of income receive.
"'If you can only qualify if your income is below this threshold, it creates a very strong disincentive for anybody to earn above that threshold because they would be losing their benefits,” she says. 'We call it a poverty trap.'"
Yes, and that's a major reason why poor Americans, perhaps especially the black community, is stuck in the poverty trap. Marriage rates among blacks were higher than rates among whites in the 1940s and we know that children with a father in the home tend to grow up to be better adjusted and less likely to engage in crime or remain/land in poverty. Twenty years later, government programs coupled with the social upheaval of the sexual revolution destroyed the black family. Now three quarters of black children are born out of wedlock (we see something similar among poor whites, but poverty afflicts blacks more than whites). Poor black women are discouraged from marrying because doing so could or would cause them to lose whatever benefits they receive.
- eru 6y agoYou are misunderstanding the negative income tax. Negative income tax is exactly equivalent to a UBI plus regular income tax. See eg https://en.wikipedia.org/wiki/Negative_income_tax https://en.wikipedia.org/wiki/Negative_income_tax for an explanation.
- chillacy 6y agoThe NIT ends up acting similarly to UBI + increased taxes, but it has to be phased out perfectly linearly to remove these incentive gaps. UBI seems more simple to administer and being universal would likely make it more resilient to cuts (as we know from other universal services).
- eru 6y agoA negative income tax is not phased out at all. You are probably familiar with income tax brackets. So for example in the US, your first $0 – $9,525 of income per year are taxed at 10%, the next $9,526 – $38,700 are taxed at 12%. And so on. That applies to billionaires just as much as it applies to dishwashers. The low brackets never get phased out. The billionaire just has most of her income fall into the higher taxed brackets. So her average tax rate is higher than the dishwasher's tax rate, but their first dollars are taxed exactly the same. A (refundable) negative income tax is just another somewhat special tax bracket placed in front of the normal progression. It never gets phased out. It just nets out at higher incomes. And because nothing is ever simple in taxes, here's a weird real life example to the contrary: The British have a weird system where they DO phase out their lowest tax bracket, called the 'Personal Allowance' at higher income. I don't know why they do that, instead of just raising the marginal rates. > On 22 April 2009, the then Chancellor Alistair Darling announced in the 2009 Budget statement that starting in April 2010, those with annual incomes over £100,000 would see their Personal allowance reduced by £1 for every £2 earned over £100,000, until the Personal allowance was reduced to zero, which (in 2010-11) would occur at an income of £112,950. This had the effect of creating an anomalous effective 60% marginal tax rate in the income band between £100,000 and £112,950, with the marginal tax rate returning to 40% above £112,950. As the Personal allowance has grown over the years, this has resulted in a corresponding increase in the size of the effective marginal 60% tax band. As of 2019-20, the effective 60% marginal tax rate now arises for incomes between £100,000 and £125,000. https://en.wikipedia.org/wiki/Personal_allowance#Personal_allowance_tapering https://en.wikipedia.org/wiki/Personal_allowance#Personal_al...
- chillacy 6y agoApologies, I think I'm describing something more like the EITC which is phased out. I remember reading something by Mankiew briefly describing their equivalence. http://gregmankiw.blogspot.com/2016/07/a-quick-note-on-univeral-basic-income.html http://gregmankiw.blogspot.com/2016/07/a-quick-note-on-unive...
- eru 6y agoNo worries. For something like an income tax, you can basically always describe any phase-ins and phase-outs equivalently in terms of marginal rates on different brackets without any phase-ins or outs. No matter whether you talk about EITC or negative income taxes. Even the British example I cited can be re-contextualised as just a 60% marginal rate for people with around 120k GBP of income, that then slides down again to a 45% marginal rate at a higher income. (Or something like that. You do the arithmetic.) Even though the law as written is formulated in terms of a phase-out. The blog post you linked talks about exactly that reframing. Many economists find it useful to talk in terms of the marginal rates instead of phase-in and phase-out. Mostly because the former lends itself more to a net perspective over all taxes and welfare programs. When those net marginal rates approach 100% or even go over for some people, you can immediately see that earning an extra dollar from work would make people worse off after taxes. That's less obvious in the other formulation.
- snidane 6y agoMilton Friedman also proposed Land Value Tax as the least worst tax. Only the second least worst was this negative income tax. Both mentioned in this short clip [3:33 mins] "Milton Friedman talks about property taxes". https://youtu.be/yS7Jb58hcsc https://youtu.be/yS7Jb58hcsc
- aegis4244 6y agoSo please explain to me why the same poverty trap doesn't work on whites ?