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You're always incentivized to make marginally more money with the negative income tax because it gives you a monotonically increasing effective income vs job in

You're always incentivized to make marginally more money with the negative income tax because it gives you a monotonically increasing effective income vs job income curve, whereas some welfare systems end up with disincentives at various points of income where you'd make overall less by exiting the income level where you're receiving the aid (the same curve gets a negative slope or a downward jump).

SV_BubbleTime 6y ago
I hate to ask, but can you dumb this down? I still don’t really get it. Are you saying that if you have no job that 100% of your income is tax funded, but if you have even a shitty job that you still get more benefit than the job alone but this is sliding scale down to some unknown point which you no longer receive any benefit at all?
- Turing_Machine 6y ago
  It's actually worse than that. There's often not any kind of sliding scale. Make $x and you get rental assistance, medical care for your kids, food aid, whatever. Make $x+1, and you get jack and shit. There's no reason for it to be that way, in a world with ubiquitous calculators and computers, but that's how it often is.
  - usrusr 6y ago
    This. If you go on and calculate an effective tax rate "after welfare benefits", that "+1" could easily appear being taxed at six-digit percentages. Wealth people sob dearly when they see only 50 cent from a dollar they earned, but every welfare system striving for need-based distribution ends up having income points where you can consider yourself lucky if you don't see a net negative for a dollar earned.
  - Spivak 6y ago
    The crucial bit is that there's a gap. Say financial assistance worth $12,000 is available for people who make <$20,000. * If you make $20,000 then your effective income is $32,000. * If you make $32,000 then your effective income is $32,000. * If you make $25,000 then you're effective income is $25,000. This creates a terrible incentive structure where you actually don't want to make more then $20,000 unless you're sure you can make more than $32,000. Well actually more because there's really no incentive to move up to $32,000 exactly. You have to make sure that when a person makes more money they are always better off for having done so. Having a hard cutoff for benefits doesn't work and neither does a back-off system that matches income (e.g. at $25,000 you get $7,000)
    - SV_BubbleTime 6y ago
      This makes sense, and I think it would be hard to argue against. For all the descriptions though, there is a key lack of how to easily describe it. It’s missing it’s catch phrase if you will.
- cylon13 6y ago
  Imagine a graph where the x-axis is how much you make at your job, and the y-axis is how much spending money ends up in your bank account after the government gets involved by either giving you welfare money or taxing you. So without the government you just have y = x. At zero income you have zero money, which is not ideal, so we'll try to come up with a system to give the destitute money so they don't die of starvation. As a first crack at it, let's just give everyone who makes less than say $10k per year a bundle of aid that amounts to the fixed value of $1000 per month. This perhaps an improvement because we aren't ignoring the needs of the poor, but it creates a problem, which is what a welfare trap is. Imagine the graph for this situation. If you're making over $10k per year it's y = x, but if you're making less it's y = x + ($1000/month). So at x = ($1000/month) there's a sharp drop in take-home money. So people who would perhaps like to make a little more money are disincetivized from doing so because they would stop taking home that $1k per month and be exchanging it for a much smaller raise. The negative income tax proposal attempts to solve this first by just providing cash to poor people instead of various goods that are hard to measure, and then by ensuring that the curve we're talking about never has a negative slope or drop. For instance imagine if you make zero dollars, you're given $1000/month, but then for every additional dollar you make independently, you receive 25 cents less aid. You'll always want to make more independently in this situation even if you don't keep it all.
- a1369209993 6y ago
  > I hate to ask, but can you dumb this down? Most actual examples are less blatant, but let's say our welfare system consists of a 12'000$ welfare for anyone who makes less than 12'000$ in income. If your job pays 11'000$, your take-home pay is 11+12 = 23'000$. If you do very well and get a 2000$ raise, your income is now 13'000$, so you don't get the welfare, and your take-home pay is now 13'000$, meaning you lost 23-13 = 10'000$ of effective income by getting a raise.
- imtringued 6y ago
  I don't know about negative income taxes but UBI just gives you a flat amount no matter how much you earn or whether you are unemployed. It's always on top of your existing salary.

SV_BubbleTime 6y ago

I hate to ask, but can you dumb this down? I still don’t really get it. Are you saying that if you have no job that 100% of your income is tax funded, but if you have even a shitty job that you still get more benefit than the job alone but this is sliding scale down to some unknown point which you no longer receive any benefit at all?

Turing_Machine 6y ago
It's actually worse than that. There's often not any kind of sliding scale. Make $x and you get rental assistance, medical care for your kids, food aid, whatever. Make $x+1, and you get jack and shit. There's no reason for it to be that way, in a world with ubiquitous calculators and computers, but that's how it often is.
- usrusr 6y ago
  This. If you go on and calculate an effective tax rate "after welfare benefits", that "+1" could easily appear being taxed at six-digit percentages. Wealth people sob dearly when they see only 50 cent from a dollar they earned, but every welfare system striving for need-based distribution ends up having income points where you can consider yourself lucky if you don't see a net negative for a dollar earned.
- Spivak 6y ago
  The crucial bit is that there's a gap. Say financial assistance worth $12,000 is available for people who make <$20,000. * If you make $20,000 then your effective income is $32,000. * If you make $32,000 then your effective income is $32,000. * If you make $25,000 then you're effective income is $25,000. This creates a terrible incentive structure where you actually don't want to make more then $20,000 unless you're sure you can make more than $32,000. Well actually more because there's really no incentive to move up to $32,000 exactly. You have to make sure that when a person makes more money they are always better off for having done so. Having a hard cutoff for benefits doesn't work and neither does a back-off system that matches income (e.g. at $25,000 you get $7,000)
  - SV_BubbleTime 6y ago
    This makes sense, and I think it would be hard to argue against. For all the descriptions though, there is a key lack of how to easily describe it. It’s missing it’s catch phrase if you will.
cylon13 6y ago
Imagine a graph where the x-axis is how much you make at your job, and the y-axis is how much spending money ends up in your bank account after the government gets involved by either giving you welfare money or taxing you. So without the government you just have y = x. At zero income you have zero money, which is not ideal, so we'll try to come up with a system to give the destitute money so they don't die of starvation. As a first crack at it, let's just give everyone who makes less than say $10k per year a bundle of aid that amounts to the fixed value of $1000 per month. This perhaps an improvement because we aren't ignoring the needs of the poor, but it creates a problem, which is what a welfare trap is. Imagine the graph for this situation. If you're making over $10k per year it's y = x, but if you're making less it's y = x + ($1000/month). So at x = ($1000/month) there's a sharp drop in take-home money. So people who would perhaps like to make a little more money are disincetivized from doing so because they would stop taking home that $1k per month and be exchanging it for a much smaller raise. The negative income tax proposal attempts to solve this first by just providing cash to poor people instead of various goods that are hard to measure, and then by ensuring that the curve we're talking about never has a negative slope or drop. For instance imagine if you make zero dollars, you're given $1000/month, but then for every additional dollar you make independently, you receive 25 cents less aid. You'll always want to make more independently in this situation even if you don't keep it all.
a1369209993 6y ago
> I hate to ask, but can you dumb this down? Most actual examples are less blatant, but let's say our welfare system consists of a 12'000$ welfare for anyone who makes less than 12'000$ in income. If your job pays 11'000$, your take-home pay is 11+12 = 23'000$. If you do very well and get a 2000$ raise, your income is now 13'000$, so you don't get the welfare, and your take-home pay is now 13'000$, meaning you lost 23-13 = 10'000$ of effective income by getting a raise.
imtringued 6y ago
I don't know about negative income taxes but UBI just gives you a flat amount no matter how much you earn or whether you are unemployed. It's always on top of your existing salary.