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It's good in that it's efficient (consumption = income-savings so it is good that it does not tax savings), but it's bad in that it's regressive. The easiest wa

by jvm 14y ago

It's good in that it's efficient (consumption = income-savings so it is good that it does not tax savings), but it's bad in that it's regressive. The easiest way to make it progressive is by offering a rebate check to residents for poverty-level spending (or 2x poverty perhaps). This makes it highly progressive: low income earners actually get money from it on net. The problem is that a rebate check provides a perverse incentive for people to claim residency in the state. Another way of saying this is that it's regressive because it's flat, but it's a better tax overall if you could unflatten it.

rdl 14y ago
I hadn't thought of the "residency arbitrage" problem at the state level. Presumably it would work a lot better at the federal level as a result; we already have lots of effort put into both becoming a citizen and determining who is and is not a citizen. The other benefit of a negative tax (negative consumption tax or negative income tax) is that we could then get rid of virtually all other benefits and entitlements -- just increase the base subsidy. There's no reason to administer a food stamp program if you just give everyone a $20-30k/yr income. Same thing with student aid; why give someone subsidized loans when you can just give them $20-30k/yr and tuition/etc. costs $10-40k/yr, so a feasible part-time job (or private scholarship) covers the cost of going to school at Harvard, and you can actually save money if you instead go somewhere cheaper. I'm not 100% in favor of giving everyone free stuff, but I'd far prefer to just give everyone free stuff vs. build an expensive bureaucracy to administer a program which incentivizes poverty and disability (a huge fraction of the SDI payments are to people who are basically employable and functional, but who can't get jobs; if they had an independent $20-30k income, there would be nothing to discourage them from doing $5-10k extra in legal work.) Obviously services other than pure transfer payments would still be needed, but the majority of welfare programs are about the transfer payments; counseling and other support could be charity, commercial, or funded separately.
- jvm 14y ago
  Nice to meet someone with my exact policy views! :-) There's another huge problem that it solves besides just administrative costs. Currently marginal tax rates near the poverty line are very high due to loss of access to need-based programs like foodstamps (exactly how high depends a lot on individual circumstances). It's a horrible burden on the working poor that nobody seems to understand. More discussion here: http://politicalcalculations.blogspot.com/2012/12/the-flat-tax-us-effectively-already-has.html http://politicalcalculations.blogspot.com/2012/12/the-flat-t...

by jvm 14y ago

rdl 14y ago

I hadn't thought of the "residency arbitrage" problem at the state level. Presumably it would work a lot better at the federal level as a result; we already have lots of effort put into both becoming a citizen and determining who is and is not a citizen. The other benefit of a negative tax (negative consumption tax or negative income tax) is that we could then get rid of virtually all other benefits and entitlements -- just increase the base subsidy. There's no reason to administer a food stamp program if you just give everyone a $20-30k/yr income. Same thing with student aid; why give someone subsidized loans when you can just give them $20-30k/yr and tuition/etc. costs $10-40k/yr, so a feasible part-time job (or private scholarship) covers the cost of going to school at Harvard, and you can actually save money if you instead go somewhere cheaper. I'm not 100% in favor of giving everyone free stuff, but I'd far prefer to just give everyone free stuff vs. build an expensive bureaucracy to administer a program which incentivizes poverty and disability (a huge fraction of the SDI payments are to people who are basically employable and functional, but who can't get jobs; if they had an independent $20-30k income, there would be nothing to discourage them from doing $5-10k extra in legal work.) Obviously services other than pure transfer payments would still be needed, but the majority of welfare programs are about the transfer payments; counseling and other support could be charity, commercial, or funded separately.

jvm 14y ago
Nice to meet someone with my exact policy views! :-) There's another huge problem that it solves besides just administrative costs. Currently marginal tax rates near the poverty line are very high due to loss of access to need-based programs like foodstamps (exactly how high depends a lot on individual circumstances). It's a horrible burden on the working poor that nobody seems to understand. More discussion here: http://politicalcalculations.blogspot.com/2012/12/the-flat-tax-us-effectively-already-has.html http://politicalcalculations.blogspot.com/2012/12/the-flat-t...