Wednesday, April 17, 2019

On a Negative Income Tax

I'm updating this because Ed Dolan convinced me that what I describe is really not a Basic Income Guarantee (BIG) but Negative Income Tax (NIT).

People are contending that the Negative Income Tax (NIT) would cost more than the current system but if you design it as outlined below it would save money.

Each  adult US citizen would get $200/week. To lower the cost you would:

  • Raise the tax rate on lower income people to consume the BIG more rapidly, low earners currently pay no income taxes. Income up to $26,000/year tax rate would be taxed at a 40% rate. So at $26,000/year of earnings the net effect of the BIG on their income would be zero. The tax rates on income above $26,000/year would then drop to the current rate and rise as the current rate does from there. 
  • With the BIG you eliminate SS.There is Absolutely no need for SS with a BIG! Also you would eliminate the minimum wage.
  • And you replace Medicaid and Medicare with something like this:
The state would provide insurance to all Americans but the annual deductible would be equal to the family’s trailing year adjusted income minus the poverty line income (say $25,000 for a family of 4) + $300. So a family of 4 with a trailing year adjusted income of $30,000 would have a deductible of $5,300. A family of 4 with a trailing year adjusted income of $80,000 would have a deductible of $55,300. Middle class and rich people could fill the gap with private supplemental insurance but this should be full taxed. This would encourage the middle class and rich, who are generally capable people, to demand prices from medical providers and might force down costs. They could opt to pay for most health-care out of pocket while the poor often less capable would be protected.
It is not a perfect plan but it might help. Some deregulation of health-care would also help the poor gain access. The gauntlet that Doctors have to run these days to get to practice seems like an anachronism in today’s world. Let smart people get to practice medicine after on the job training. Let the medical businesses decide who is qualified to practice medicine. 12 years of training to tell if my child has an ear infection is overkill and reduces access to health-care for the poor.
Another benefit of my plan is that it would encourage capable Americans (the rich and middle class) to be a counter weight politically against the providers.
Of course our politicians are too corrupt to set up such a program but any discussion of a NIT is pure theory anyway.

All of our debt and inefficiency problems come from rationally ignorant voters and corrupt politicians. With rationally ignorant voters, politicians almost have to be corrupt of ignorant to get elected.

NOTE: You would still need programs for the very disabled. but they are few enough that the problem is manageable.

NOTE: US Democrats seem to think the Europeans have a better welfare system than we do, and that may be true, but ours and theirs seem unnecessarily inefficient. An NIT might give the USA the world's best welfare system.

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