Behold the progressive Flat Tax(negative income tax system)

The negative income tax works like a tax system that not only sets a line for who pays taxes, but provides a guaranteed minimum income for those making less than that income standard. Everyone pays their taxes the way they normally would, but with an added refundable credit.

for this first example I am going to set the flat tax rate at 30% with a credit of $10,000

the number on the very left represent's the individual's income, and then the system will subtract 30% of that income, and add a $10,000 credit. The number in parenthesis represents what the individual pays or receives in taxes

$_-_-_0 - 30% + $10,000 (receives $10,000)
$10,000 - 30% + $10,000 (receives $7,000)
$20,000 - 30% + $10,000 (receives $4,000)
$33,333 - 30% + $10,000 (receives/pays $0)

^^^$33K is the tax line, this is where individuals start to pay more than they receive from the tax system, as the incomes in the tax rate rise , the $10,000 credit becomes more and more meaningless

$_80,000 - 30% + $10,000 (pays $14,000)
$160,000 - 30% + $10,000 (pays $38,000)
$320,000 - 30% + $10,000 (pays $86,000)


now for this kind of tax format, if you wish to raise taxes, instead of increasing the top income's tax rates alone you increase all income tax rates PLUS the refundable credit. And with this the system works in a naturally progressive manner


I'm now going to use a second example, this time I'm going to set the tax rate at %50 of income, and I'll raise the tax line by increasing the refundable credit to $25,000, thus raising the tax line to $50,000 (meaning individuals do not become real tax payers until their income reaches $50,000 a year)

$_-__-_0 - 50% + $25,000 (receives $25,000)
$_10,000 - 50% + $25,000 (receives $20,000)
$_20,000 - 50% + $25,000 (receives $15,000)
$_40,000 - 50% + $25,000 (receives $5,000)
Tax line -> $50,000 (receives/pays $0)
$_80,000 - 50% + $25,000 (pays $15,000)
$160,000 - 50% + $25,000 (pays $55,000)
$320,000 - 50% + $25,000 (pays $135,000)



Now keep in mind that this is not an example of a balanced layout for the tax system, but merely an example of how it works. Separate rates/credits can be set for families and the elderly, and thus this negative income tax system is used to replace the federal welfare system/food stamps and the current social security system.

The problem with our current welfare system is people hit a level of income where they are cut off from the system, and thus are put in the situation of being better off unemployed. With the negative income tax system, no matter what, the individual is more secure with a higher income, and thus the incentive to work is increased, plus we set a safety net to avoid severe poverty. On top of that, you'll be able to tell when raising taxes is actually used to serve the poor

All 50 states' income tax rates, and welfare systems remain untouched (with the exception of what they receive from the federal system, that money instead goes to the individual citizens)


thoughts?

 

I support this too. Keys to it i think are tying the credit to the personal median income, treating all income the same, and removing all payroll taxes. It balances the budget at 20% of personal median income credit and 25% tax. That is a $5300 credit per person instead of 10k. 25k credit would bankrupt us fast and give a large percentage of the people no reason to work. They're are fine with that much. It should be lower and states can supplement where they want. All federal welfare would have to be repealed.

 

as mentioned in the OP this isn't a balanced layout, but just a mere example of how the NIT works

replacing the current welfare system with a basic income is the general idea of the negative income tax.. and with a basic income level set, having a minimum wage would then be unnecessary, so people would be able to work for whatever amount they choose to work, while still maintaining a minimum standard of living... but more importantly, it sets a minimum standard for all rather than merely setting a standard for the employed, and thus eliminating poverty

 

So require them to work, problem solved. Need any other problems solved?

 

that's not how a basic income/negative income tax system works... there's already an incentive to work, as you do not lose your benefits by making more money (in contrast to the current welfare system) thus the welfare trap scenario is eliminated

 

Incentive is weak. Use force. Incentive should only back force up.

 

there's always an incentive to make more money

 

No, you should use force.

 

Freedom schmeedom.

 

See? Don't come with solutions that don't involve force or control or the lefties will ridicule you.

 

Please, don't abandon force.

 

It seems like to me that it would be a better system if the first $X is considered tax free.

 

I like the OP, thanks.

It is a good idea. It should weed out the extremists.

 

So I can opt not to work officially and get $10,000 in the first example, sounds fine to me.

I work off the books and add to that and mo' money.

 

No, I think the simple way to defeat that idea is you have to actually have taxable income to receive a tax credit.

Even still, $10,000 as an example is still below the poverty line.

 

Okay I earn $500, report and pay taxes on it and get a $10k annual check. Any rule you add I can find a way to abuse the system. I do it now.

I do report my income now I just will work less that is maybe four days of work Busking on special events days over the year.

 

So, to be clear, you are advocating slavery here....?

 

well if you make $0 a year you'll be taxed nothing regardless of what the tax rate is, so you'll owe nothing but still receive a basic income

in the first example I showed a 30% rate, meaning if you make $10,000 a year you'll owe $3,000 in taxes.. however, when you include the $10k credit you'll actually be receiving $7,000 more than what is owed to the tax system... meaning your tax rate is actually BELOW 0% (hence the name "negative income tax")

the idea is to replace the current welfare system and install a basic minimum income for all

 

I think that is the point though... if you earn $500, you are in poverty.

The system is fantastic, I think it needs provisions.

Hypothetical proposal:

For 2013, the poverty line is set at $11,500 for 1 person, and $15,500 for two. The complete chart is found here.

So, you set the tax credit at $11,500 per person. You peg it to the CPI. A "household" files jointly, so a two parent marriage gets a maximum credit of $23,000. In order to receive the credit, you must be the head of a household. Therefore, working teens will pay taxes but not receive the credit since it counts toward the household. Start with a 40% tax rate. Examples using modern tax rates:

$0: 0
$9,075: (receives $7870)
$15,080: (receives $5,468 ) - minimum wage, 40 hours per week.
$28,750: (pays $0, negative income tax threshold)
$36,900: (pays $3,260) 8.8%
$89,350: (pays $15,305) 17.1%
$186,350: (pays $63,040) 33.8%
$405,100: (pays $150,540) 37.2%
$1 million: (pays $388,500) 38.9%

The same tax deductions should apply (home interest, student loan interest, tax deferred retirement and health insurance, etc.)

The key is to make the poverty line (thus tax credit) low enough to insure the BARE minimum livelihood, since it is guaranteed under this system. Cannot reduce the incentive for work.

 

You know this is a libertarian idea right? The people you call extremists every other day? Who knows, maybe we can just have all the ideas from the right posted by someone on the left and you will agree to them all. Maybe it is a branding not a product issue. Hmmm......

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You cant peg it to the poverty level because if the nation becomes poorer it will have out of control spending through the credit. You have to base it on a measure like personal median income, this way it will rise and fall as the nation shifts. There will always be the same amount over and under.

 

That is fine. Cant beat all the tax cheats. The point is though you wouldnt get any other federal benefits, and it would have to be about half that.

 

Now for the economic implications of such a system.

There are approximately 225 million individuals 18 or over in the USA as of 2010. If every person is awarded 11,500, it would cost the nation 2.6 trillion / year to sustain that system.

As for the revenues...

I still need to figure that out. Anyone have the info on how many USD were taxable last year?

 

$5,000 is probably too low for a basic income (IMO)

the NIT/BIG systems that have been proposed in the past have included persons 21 and over.. I don't know what numbers would be feasible for this to work, again this is just an example of how it works and not an example of a balanced layout

 

Interesting. How would they come up with an adequate median income?

 

For what state? Ideally, states would pick up the difference. That is a per person credit too, not per household. I would like to see it coupled with vouchers at te state level or allow them to experiment with their own solutions. In the economic forum we ran the numbers. Once you begin to climb past a number where the median earner pays no tax and gets credit back we go into deep debt fast. The middle class needs a little skin in the game to make it work.