Nitpick, he would not pay $2000 in taxes, he would pay $500. Per the OP, no taxes on the first $15k of income.
Of course, every progressive tax system has the same issue. The more wages you earn, the less of each dollar you keep (up to a point). The real problem here is there is because you lose the credit, instead of slow steady decrease, you get a sharp dip and then rise. It would work better if everyone got the same tax credit and then paid taxes on every dollar earned. But that means their would be no motivation to work for any one who was content at the whatever the credit provides.
My biggest problem with this is that it would be a disaster for those on it. You want to replace monthly benefits with a yearly lump sum. Even if it was structured so every recipient received slightly more than under the current system it would mean a rash of homelessness every fall. You would need to make the payments monthly, if not bi-monthly.
Why would he necessarily be better off? The guy who worked 29 hours still has more money. At that point, it depends on which you value more: only working a certain number of hours, having a maximal rate of pay, or having a higher absolute income.
If you were earning $10 an hour, but over time paid $5.80, would you bother working over time?
Sure it would be nice to have an extra $100 per month, but the problem is you effectively have to work twice as long for that $100.
Assuming my math is correct, the negative income tax system means a person gets paid $10 an hour for the first 25, and then $5.80 for each hour after that. At some point working more isn’t worth the $5.80, since that’s below the minimum wage.
If you look at it another way, you get paid $63 per day Mon-Thur. Then Friday you get only $23.20. So you could either have an extra meal out or a day off. The cost of getting up and going to work negates the income earned.
It’s that threshold that tends to push people down towards the $13k salary, and discourages people in the $14-20k range.
Oddly enough it’s like having a massive progressive income tax on the lowest wage earners. The second guy has an effective tax of 48% on every hour after 25.
I have been in similar places. Fuck yes I would. In a heartbeat.
It’s no different from having a $10/hr assistant manager job in a fast food place, and deciding to also take a second job as an overnight stocker for Wal-Mart at $5.15 (which was the minimum wage when I did this exact thing).
Especially since working for that money is still actually paying me $10/hr, it’s just reducing my dependence on the free money government wheel–which means my employer notices I’m working, which means I might be making $11.50 next year or next job instead of $10 or $10.25.
The kind of people who are satisfied with the bare minimum will not be affected by this transition from existing welfare.
The kind of people who are not will have a smoother curve with no negative slopes (that is, even if the marginal rate changes, every dollar of income still means objectively more money) that will give them even more incentive to work past the humps, as contrasted with the current system where a marginal increase in hours/wages can incur a marked DECREASE in objective money if that increase pushes one over an eligibility threshold.
This is without getting into the benefits to overall government spending of a simpler, less onerous-to-maintain “welfare” system. No more eligibility tests, caseworkers, that kind of bullshit. Since it’s based on reported income, which the IRS is already collecting, we’ve just slashed the admin/overhead budget of HHS and lost nothing in terms of keeping the poor and working poor from starvation and abject poverty.
You are also forgetting the costs of working. If I make $100 a day for the first three days a week I work and $45 for each day after that but I have to pay $25 a day for day care, $5 a day for transportation and $3 a day extra for food (no fridge in the breakroom) it is more accurate to say my net goes from $67 to $12. If I had two kids and had to pay $50 a day for day care I lose money for each extra day I work..
Again, this is based on the notion that he/she earns $10.60 for the first 25 hours, and then $5.80 for each hour after that. There are many cases in which he/she would be better off staying home:
Cost of child care is worth it when making $10/hour but not if you’re only making $5.80.
It costs $2, plus an hour, to take the bus to work, then anther $2 + hour to get home. The extra four hour shift only nets $23.20 but costs $4 plus 2 hours lost time.
Typical wage labour means a 30 min unpaid lunch and two 15min breaks, so 5 hours of time spent at work just to make $23.20. Add in the two hour travel time and now it’s 7 hours at a rate of $3.13 per hour!
Car insurance tends to be very low for “casual drivers” but then jumps for people driving to work. So under 25 hours he might qualify as “casual” but going in 4 days per week makes it cost a lot more. Add in $5 for parking and he’s a lot worse off.
There is now a very strong incentive to work for cash (under the table) so that he can get the maximum for the first 25 hours, and then cash for the rest.
Essentially, take all of the arguments for having a minimum wage and apply them here. It actually cost money to go to work each day, and there is a point where an hourly wage is so low it’s not worth that little bit of extra cash. In reality our individual would be better off working the 25 hours then going to school for the rest of the week.
Again, the point here is to show that this sort of system will have a threshold or bandwidth within which people are disincentivized from working, resulting in a lot of clustering below that threshold.
Let’s remember, that you’re still getting $10/hour in your bank account for that work, you’re just only getting $5.80 above what you’d get for sitting on your tush. emacknight’s calculations omit that fact.
Oh my god, that means he’s only actually making $7.27 when he’s working the other hours. Entirely irrelevant (as is your point 4).
This incentive has not changed from now, where there is an incentive to work under the table so your reported income doesn’t go over the threshold for food stamps, subsidized housing, etc.
The point here is that the disincentive you’re pointing at is A) virtual, since the objective amount of actual money being earned always increases with every hour worked, and B) much less than the current massively negative non-virtual disincentives for boosting your labor over the thresholds for any threshold-based assistance program–food stamps, WIC, LIHEAP, Section 8 housing, etc.
Your entire argument appears to be “Low-income people are willing to work, but not if their government benefits taper off gradually as their income increases.” That’s basically nonsensical.
Unfortunately, it would probably be the exact opposite. Since there would be a tremendous increase in the amount of money available to those poor who have jobs, it would cause inflation in lower-end housing, and discount stores.
Don’t get me wrong, it would better the economy overall, since in the end more people would have more goods, all the moreso since more companies would move into that segment due to the increase in available cash for them to compete for, but prices would still rise so that the average person would still need to work a bit in order to avoid grinding poverty.
Yes, but your other source of income goes down. Who cares if you get an extra $200 a month in your pay check if you tax credit goes down $100 and you are out of pocket $120 a month extra? If you set on your tush you will be ahead by $20 dollars for the month, plus you get to spend more time with your kids.
That’d be the point of tweaking the parameters. No matter how we do that, though, I’m sure some smallish percentage of people (like the people with children who are working part-time $10/hr jobs, apparently?) are going to be slightly disincentivized at some critical points along the wage curve.
I note no one taking this tack has yet responded to the “are the disincentives to increasing your hours/income smaller or more discontinuous than the disincentives in the current system?”
It also occurs to me that (as this is primarily based on income tax), we could mitigate that by having a deduction from taxable income for daycare/transportation/whatever expenses undertaken in the course of employment. We already do this in the form of tax credits at the Federal level anyway.
These are all assumptions about a particular lifestyle, and a couple are contradictory, not cumulative: bus fare and car insurance, and assuming those extra 4 hours are a discrete shift rather than additions to the existing shifts and assuming the worker will be taking 60 minutes of break for 4 hours (typically it’s only 30 minutes for 4 hours).
But, hey, those are details, and hypothetical ones at that. I don’t doubt there are people who believe they have more to gain by working less; even at my own office, there are people happy to only work 35 hours a week because that extra hour a day is more important to them than the extra pay, and people who would rather not be promoted because they prefer a job with few responsibilities.
But I don’t think that the scenario you describe is going to necessarily be true for a significant portion of people. There are not going to be a lot of people who only have the option of tiptoeing up to that tax line and don’t have the option to jump clear over it. And if there are people for whom that’s a reality…well, so what? This plan involves allowing people the option to not work at all, and $10,500 for 0 hours of work trumps any other pay rate calculations. If your argument was that compelling, wouldn’t it be in everyone’s best interest not to work at all?
I never meant to imply that I was talking about a large number of people. What I was trying to highlight was the nature of that threshold, when a service is means tested.
So if you look at that very simplistic example I presented it shows a “hump” that people have to get over before working more pays off. In this case it was $10/hour going from 25 hours up to 29. What happens in these cases is that you get clustering below. I don’t know how many will end up there. And I don’t know yet how wide the bandwidth is. Obviously more money in your pocket is a good thing, so there is still plenty of incentive to make $15/hour for 40 hours per week.
And this isn’t a unique phenomenon, it is a very real problem that so many of the welfare systems in the US face. Consider Medicaid, it has hard cut offs based on income. Just as an example let’s pretend you qualify below $20k and are dropped if you stop over that line. Now let’s pretend that Medicaid is worth $1200 ($100 per month). A person making $20k that wants another $100 a month to afford a car first off loses the $100 per month benefit of Medicaid, and then has to pay out of pocket for health care (and/or insurance). So if you want an extra $100 per month you need to earn a lot more before you can afford a car.
A negative income tax is going to suffer from the same problem in the way it creates that sort of threshold. I’d love for this system to work, but I have yet to figure out how to avoid that little hiccup. And there is a Nobel Prize waiting for the guy that solves it. As it stands, you want the no-work-payment to be high enough to satisfy the point of welfare, otherwise what’s the point? Problem is that you then overlap with low income workers making the same or less than the no-worker.
My personal opinion is that the US has too many means tested social programs. Which is made worse by the fact that they all add up. Like I said a person making under $26k does way better than a person making $30k after that second person has to make up for all the social benefits lost.
It’s this reason why I think a society is way better off identifying beneficial social programs and then making them universally available. Health care as an obvious example, education as another. And both end up being provided in the US to low income earners, that have income cutoffs. The result is that it causes clustering below the cutoff.
And it’s that reason I suggested that the negative income tax be run through a handful of test cases to see what sort of thresholds pop up. It’s fine to say it needs tweaking, but ultimately as Zeriel’s last post highlighted, it ends up needing a pile-on of additional stopgap fixes to try and go back to address each case that pops up. So what was supposed to be a simplification of an overly complicate system now requires pages and pages of additional income tax deductions and credits. Each with their own complicated nuance that will each cause the same little hiccups.
If you are okay with these thresholds trapping people below the threshold than this will seem like a good idea. Likewise if you think it will only be a small number that yes, it’s a good idea. Wouldn’t be a bad idea to look at places that have income tax credits like Alberta, Alaska, and parts of the Middle East.
I’m sorry that I spoiled the fun by pointing out the potential for it to be a bad idea. If it would make you guys feel better I could blow smoke up your asses and take random pot shots at Republicans. Would that help?
If by “pages and pages of additional income tax deductions and credits” you mean “no changes, because those income tax deductions and credits pretty much already exist”, sure.
I note you STILL didn’t answer the question. Does it have fewer and shallower thresholds than the existing system in the US, and does it have fewer overhead requirements in terms of bureaucracy and social-services staff? For that matter, does it provide an adequate amount of benefits to the poor while costing the government far less money to implement?
I suspect that you are not answering because you know the answer to all those questions is “yes”.
Maybe they’ll find useful jobs instead.
As I said upthread, emacknight has admitted himself to be some kind of automatic devil’s advocate. He’s also got a lovely habit of letting the perfect get in the way of the good. Viewing his comments in that light is recommended.