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Why The Negative Income Tax Is The Future

01/08/2017 11:55
Tim Teebken via Getty Images

Too often, the debate over how we can provide everyone in this country with a suitable income for living is shirked. Last week, journalist Abi Wilkinson injected new vigour in to this topic by suggesting, under the aptly titled "Utopian Thinking" in The Guardian, that we implement a 100% Inheritance Tax to fund the welfare state.

Now if, like me, you feel slightly uncomfortable with an ideological drive calling for government to raid the dead for all they've got, but are still keen on helping all that live in this rich country lead a comfortable life, there is another solution.

The Negative Income Tax (NIT) is a concept that was first concocted by former Liberal MP Juliet Rhys-Williams in the 1940s before being popularised by classical liberal economist Milton Friedman.

Essentially, NIT is a means of replacing most welfare payments with a single government subsidy that should grant everybody a decent standard of living.

Let's propose that the Personal allowance was raised to £30,000 a year, and both the income tax and the NIT withdrawal rate were at 50%. That would mean, under this model, that those earning nothing would receive £15,000 a year from the government.

People earning £30,000 a year would receive no subsidy from government but would also pay no tax, whereas those earning say £60,000 a year would pay £15,000 in tax a year.

The premise of setting a withdrawal rate is hinged on the idea that NIT incentives work, so people are always better off with a job, but are still not destitute without one.

It's worth bearing in mind that I am not an economist, these numbers are hypothetical and purely used to illustrate my point - but I digress.

Whilst this concept has only gone as far as trialled implementation in North America, it is crucial that politicians on this side of the pond now seriously consider NIT as a means for sharing the nation's prosperity in as fair a way as possible.

The trials, which take place between the 1960s and 1980s in Seattle, Denver, Gary, Iowa, North Carolina, New Jersey and Manitoba, drew remarkable conclusions.

Whilst, they did find that worker effort decreased modestly, and more so, under the more generous withdrawal rates in Seattle and Denver. However, it also found that the reduction in the need for younger people to work allowed them to refocus their attentions on education.

As well as this, the widespread concerns that families partaking in the 1976 Gary trials would work less and spend frivolously on luxury material goods failed to materialise. Instead, the study found that families spent their subsidies on housing, a key issue in the city at the time, and the small-scale Manitoba experiment managed to lift over 1,000 families out of poverty altogether.

So whilst there is a heap of evidence to suggest that NIT would ensure a basic standard of living for all people, it would also drastically streamline the gargantuan complexities of the UK's tax system and the costly administration that accompanies it.

The Adam Smith Institute, whilst not only endorsing this system as a means of welfare which incentivises work, also estimates that it would save British taxpayers up to £6bn in administration costs if it became government policy.

It works, it's fair. It gives people freedom, it gives them stability. It saves the government money, it saves people's lives. What is not to like?

As Winston Churchill once said; "Socialism seeks to pull down wealth; Liberalism seeks to raise up poverty". So whilst, Abi Wilkinson's call for picking at rich carcasses was probably well-intentioned - it isn't the best route out of endemic poverty in the United Kingdom - the Negative Income Tax is.

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