Negative income tax

The Negative Income Tax is the model of a state transfer performance that covers the subsistence and all citizens with little or no income. The amount of this transfer performance decreases when the citizens made their own income (but not to the same extent ). The model provides an alternative to a demand-driven basic benefits such as unemployment benefit II dar.

Example

In a control system with a single tax rate ( flat tax ), you must define two parameters for the application of the negative income tax: the tax rate and the basic allowance. The values are chosen so that low-income benefit stronger or weaker. Then you can control the debt and the net income after following formulas (see picture):

The blue line represents the initial situation without control system, the green line is caused by the negative income tax. At a low income you receive transfer payments, with a high income you pay taxes. The U.S. economist Milton Friedman explains in his book opportunities that I mean - Free to Choose the example with 50 % tax rate and basic allowance $ 7,200:

Where the income of a family $ 8000, this $ 400 would have to pay taxes (50 % × ( $ 8000 $ -7200 ) = 1/2 × $ 800 = $ 400 ).
But if a family only $ 7,200 earned no income tax would be payable (50 % x ( $ 7200 $ -7200 ) = 0 $).
The negative income tax only comes into play if the income is lower than the basic personal allowance.
Deserves a Family per year $ 6,000, they would get $ 600 (50 % * ( $ 6000 - $ 7200 ) = 1/2 × $ -1200 = - $ 600 → $ 600 negative income tax ).
If the family has exactly zero income, they would receive $ 3,600 (50 % × (0 - $ 7,200 ) = $ -3,600 → $ 3,600 ).

Friedman added, that one can stagger the negative income tax depending on marital status, for example, a family could receive a higher allowance than a single person, what would also make social system.

Another example of the former Democratic presidential candidate Senator George McGovern in 1972:

Tax rate of 33.3 % and basic allowance $ 15,000.

With an annual income of $ 90,000 then $ 25,000 taxes would be payable,
With an income of $ 15,000 per year, the tax liability would be zero.
With an income of $ 6,000 a year, the household would receive transfer payments in the amount of $ 3,000 from the state.
With an income of $ 0 per year, however, would get the budget transfers in the amount of $ 5,000.

Compared to the state by August 2004, a discharge of 5,000 € / year would be in this example in Germany, with the income of 90,000 € / year is given, of € 15,000 / year of 739 € / year. Taking the social assistance rule set about of Berlin (2003 ) of 296 € / month as a basis ( head of household, single), so does this without rent subsidies or other one-time payments already on € 3,552 / year.

History

The idea of a negative income tax was expressed in the 1940s by Juliet Rhys- Williams, in the 1960s it was brought into the discussion again of Milton Friedman.

U.S. President Lyndon B. Johnson in 1967 directed a commission that dealt with the impact of the introduction of a negative income tax. It was during this period large-scale pilot projects in the U.S. and Canada, which putting into effect the negative income tax (eg, the MINCOME in Dauphin, Canada). Results of the part up to now incompletely analyzed studies showed that a feared decline of the labor supply took place only to a very limited extent.

The existing in the United States since 1973 Earned Income Tax Credit ( EITC ) is similar, however, the more secure the basic income by a combined wage. Although he is paid by the tax authorities, they will be charged separately. In addition, be pursued with the EITC social policy objectives. To receive the grant only one who works. The subsidy increases with increasing earnings at first, since it is linked to the percentage of income. Up to an annual income of $ 9380 it is 40%. Up to an annual income of $ 12,275, the grant remains constant and then decreases with each additional dollar earned.

In Germany, the FDP is pursuing a model of a negative income tax. Citizens with higher incomes pay taxes accordingly, low-income earners get the so-called citizen's income as a negative income tax paid. It is bound to a work commitment.

In October 2007, the state convention of the Alliance 90/The Greens in Baden- Württemberg ( Germany ) decided a basic income in the form of a negative income tax, but in contrast to the model of the FDP unconditionally (ie without obligation to work or needs test ) and as an individual claim ( no joint assessment of married couples, etc.). The height is limited to 420 € / month, which corresponds to the amount to increase demand on the social organizations the rule set of ALG II; for children, a negative income tax of 300 € / month is provided instead of child support. The current basic allowance, child allowance and various other allowances and Absetzmöglichkeiten omitted. Any additional services, such as housing allowances should be possible according to needs test as in the previous system. The National Union of Greens Schleswig-Holstein took early November 2007, a nearly identical decision; However, in late November 2007 rejected a federal delegate conference this concept from a small majority.

Implementation

The type of implementation of the negative control is crucial for the cost of their collection. The easiest are the payments of both a positive control as well as a negative control in Einstufentarifen ( unit tax). Each income tax payer receives the determined with the marginal tax rate tax on the exempt amount. ( Payment can be made spread over one year on monthly installments. ) On the other hand all income is taxed immediately at the source with the marginal tax rate. This means that an income recipients without positive taxed income tax gets to the allowance as basic income. A positive taxed income in the amount of the allowance exactly leads to an average tax rate of 0%, because in this case, the withholding tax and the negative tax raise against each other. Higher positive taxable income lead to a progressively increasing average tax rate. Even top earners get the negative control. However, they pay so many positive taxes that the negative control no longer affects significantly lowering tax. That is why the average tax to the marginal tax rate approaches to the case of very high incomes.

All things being equal parameters has a Einstufentarif with negative control a higher tax progression as a Einstufentarif in which the average tax the taxpayer must not be negative. To ensure that the average tax must not be negative, is reflected in the tax formula as an additional operation ( a cap ) and consequently increases the cost of tax collection.

An assessment of the taxation needs data. Quantitatively, such as when using any kind of tax formula, an evaluation of a given if desired redistribution effect by comparing the inequality indicators (eg Gini coefficient, Theil index, etc. ) for which to be examined income distribution before and after taxation take place. The allocation of savings in terms of tax collection costs against revenue losses that occur due to negative average taxes, only needs the data of concrete implementations before ratings can be made.

Discussion

Milton Friedman defended the thesis: Free markets promote a liberal -oriented society. In Friedman's model an unconditional basic income is integrated as a basis for negotiation over job content and working conditions - as a prerequisite for a liberal -oriented society.

As an advantage, it is argued that although a low-wage sector may arise, people with low incomes, however, received government grants. As such, the negative income tax could bring benefits for both the citizen and for the economy.

The negative income tax eliminates a large part of the transaction costs, as bureaucracy, for example in the form of a means test will largely be eliminated.

In particular, an incentive to stay composed, also work at a low wage and not only when income exceeds the level of social benefits. Each additional euro earned thus has a direct positive in contrast to the previous system on the income from.

Proponents of this tax they think is fair since it relieves as a tool for redistribution low income earners. There will be a redistribution from the rich by the arm. The underlying formula for calculating the tax amount in this case acts as a sort of " rocker" that compensates for the diminishing marginal utility of income increases, as a euro for a low-income earners a greater perceived value than for a top earner.

Critics stumble at the one-sided orientation on income and fear that freeloaders would become mere recipients, so the system would take advantage of.

Juliet Rhys-Williams Child tax credit Theil-Index

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