Negative income tax

Negative tax is a redirect to this article. For the so-called reimbursement of social security contributions in Austria, see social security reimbursement amount .

The Negative income tax is a financial policy and social policy control concept in which a determined monetary amount either directly to the income tax liability is charged or pre-paid to the taxpayer (negative control amount), which leads to a reduction in the number of paying to the government effective control. If the tax liability is lower than this amount without offsetting against the monetary amount to be determined, this corresponds to a payment to the taxpayer after offsetting both (negative tax liability).

Variants of the negative income tax are the basis of different models of a citizen's benefit - especially an unconditional basic income . The focus of the debate is on the economic analysis of the incentive effects on low-income recipients and the modalities of financing the basic income .

The basic idea was first developed by Juliet Rhys-Williams in the 1940s . Milton Friedman's version of negative income tax in the 1960s suggested that the state set a threshold for earned income above which taxes are payable and below which there is a right to a subsidy. This would secure a (narrow) livelihood for the less well-off, while incentives would be created to escape the “poverty trap” through their own efforts. Anyone who worked should be given tax advantages. Friedman suggested that the negative income tax should replace all existing welfare programs.

In this model, every citizen, regardless of income and need, receives a state transfer payment which - depending on the basic type of NES - covers the subsistence level . This transfer payment replaces - depending on the model - some or all previous needs-based transfers and social insurance . This eliminates a needs test for transfer payments, which (so the expectation) leads to lower administrative costs. By paying the grant (“basic income”), there is no need for a tax allowance, so that the income tax rate applies immediately to low incomes. Mathematically, this subsidy or this basic income corresponds to an advance payment of part of the tax exemption and subsequent offset against the tax liability. The subsidy is a negative tax amount as part of the total tax liability, which was initially positive before offsetting.

Demand-oriented transfers are often fully offset against additional income, which in fact corresponds to a tax rate of 100%. The negative income tax lowers the tax rate and therefore offers an incentive to start working on a smaller scale.

A calculation example

Most models of negative income tax assume a constant tax rate ( flat tax ). The tariff curve is thus fully defined by the two parameters tax rate and basic income . The figure shows the rate profile for a single person and a monthly basic income of € 1000 and a tax rate of 50% and exemplarily explained at five points - the tax formula with these values ​​is tax liability = 50% market income - € 1000 :

Basic income	Market income	Income tax	Tax liability	disposable income	effective tax rate
1000	0	0	−1000	1000	−∞
1000	1000	500	−500	1500	−50%
1000	2000	1000	0	2000	0%
1000	3000	1500	500	2500	17%
1000	25,000	12,500	11,500	13,500	46%

Due to the basic income as a constant negative tax amount in the tax liability, the negative income tax with flat tax is a progressive tax rate. As market income rises, the effective tax rate approaches the marginal flat tax rate.

In the 1970s, economist Milton Friedman and presidential candidate George McGovern proposed divergent parameters that are now irrelevant to growth and inflation.

The at- risk-of-poverty threshold for a 1-person household in Germany in 2013 was € 892, so that the “€ 1000 for everyone” demanded by Götz Werner , among others, is a conceivable value for this concept. The tax rate of 50% selected in the calculation example would result in all incomes below € 2000 receiving a net transfer.

parameter

Sample calculation single:
tax payment = 0.5 market income - basic income

Sample calculation single:
Net income = 0.5 market income + 1000 €

Sample calculation single:
Indirect progression of the NES: Flat tax with basic income is a progressive income tax rate.

Three basic parameters determine the characteristics of the NES: tax rate , minimum income and transfer limit . There is a “deterministic triangular relationship” between the three - if two values ​​are fixed, the third will result automatically.

Transfer limit

The transfer limit or critical income is the level of income at which the direct tax component on income and transfer payments cancel each other out. At this point the tax liability beats to go from positive (to be paid) to negative (to receive). The effective tax rate is zero at this point, the income after tax payment is equal to the income before tax payment ("net = gross", if social security contributions are included).

tax rate

In principle, non-constant tax rate functions can be used as NES, but implementation models of the NES predominantly use one, rarely two, fixed tax rates for all income levels ( flat tax ). If two rates are used, the tax rate changes at the transfer limit, for example with the Ulm transfer limit model . Rhys-Williams and Friedman use a single tax rate in their models. Although the constant tax rate suggests a linear course of the tax liability, the exemption or the negative basic income indirectly creates a progression of the effective tax rate. The NES with Flat Tax is a progressive tax rate.

The effective tax rate is negative below the transfer limit, zero at the transfer limit, and positive above the transfer limit.

Minimum income or allowance

Depending on the basic type of NES, one of the two sizes is determined. In the Rhys-Williams social dividend type , often called credit income tax , the tax exemption is a negative tax allowance in the tax liability and represents the basic income itself. In the Friedman poverty gap type ( negative income tax ), the tax exemption is an income tax allowance and is reduced the taxable income (zvE) - the amount of the basic income only arises indirectly as a negative tax liability with market income 0 and is lower than the tax exemption with the factor of the tax rate. The social dividend type and poverty gap type are mathematically and analytically identical; they differ nominally in the amount of the basic income and semantically in the weighting of the basic income as social security or as a work incentive through the poverty gap between minimum income and allowance in the area of ​​the poverty line, i.e. in terms of social policy or employment policy .

social dividend type

according to Rhys-Williams ("credit income tax")

${\displaystyle {\text{Steuerschuld}}={\text{Steuersatz}}\cdot {\text{Einkommen}}-{\text{Grundeinkommen}}}$

poverty gap type

according to M. Friedman ("negative income tax")

${\displaystyle {\text{Steuerschuld}}={\text{Steuersatz}}\cdot ({\text{Einkommen}}-{\text{Freibetrag}})}$

Deterministic triangular relationship

If two parameters have been defined, the third one arises automatically:

${\displaystyle {\text{Transfergrenze}}={\frac {\text{Grundeinkommen}}{\text{Steuersatz}}}}$

${\displaystyle \Leftrightarrow {\text{Steuersatz}}={\frac {\text{Grundeinkommen}}{\text{Transfergrenze}}}}$

${\displaystyle \Leftrightarrow {\text{Grundeinkommen}}={\text{Steuersatz}}\cdot {\text{Transfergrenze}}}$

This ratio shows that with the same minimum income, the increase in the tax rate goes hand in hand with a lowering of the transfer limit - despite higher tax revenues, fewer people receive a net transfer or the resulting basic income. The state has a tax surplus. And vice versa. If the tax rate falls below a certain threshold, more people receive a net transfer and the basic income is underfunded if the tax revenue falls - the state has to contribute to financing from other sources of income or new debt. At a certain tax rate, the sum of all positive income tax amounts exactly covers the sum of all negative income tax amounts - the state has neither a tax surplus nor a shortfall in basic income from income tax (with tax rate = basic income / per capita income ).

Experiments

A series of negative income tax experiments were conducted in the US in the 1970s. Another experiment with minimum wages near the poverty line took place in Dauphin, Canada from 1975 to 1978. (see Mincome )

Period	place	Attendees		parameter		Group selection (E: income, AG: poverty line)
		at the beginning (final)	failure	Min. Income % of the poverty line	Tax rates ${\displaystyle \textstyle \left[{\frac {1}{100\,\%}}\right]}$
1968-1972	USA, New Jersey / Pennsylvania	1216 (983) pers.	19%	50, 75, 100, 125	0.30 0.50 0.70	urban, 2-parent house, E <1.5 AG
1970-1972	USA, Iowa / N.Carolina	809 (729) Haush.	9.8%	50, 75, 100	0.30 0.50 0.70	rural, 2-parent house u. single mothers, E <1.5 AG
1971-1974	United States, Indiana, Gary	1799 (967) Haush.	46%	75, 100	0.40 0.60	black houses, mostly single mothers, E <2.4 AG
1970-1976	USA, Seattle / Denver	4800 pers.	?	75, 126, 148	0.50 0.70 0.80	at least one financially dependent family member, low E.
1975-1988	Canada, Dauphin / Winnipeg	all ≈ 10,000 inhabitants. Sample: 1300 pers.		≈ 100	0.35 0.50 0.75	whole city. Sample: families of 4, low E.

One of the consistent results of the American studies was that households reduced the number of jobs they offered to a greater or lesser extent. The reduction effect was greatest among single mothers and adolescents and was over 10%. The overall average decline was 5%. The number of different minimum income levels and the further subdivision into up to seven different tax rates reduced each group of participants with the same parameters and thereby reduced the statistical reliability of the results for each. The participants were representative of the selected group characteristics, they were not representative of the population. The most selective group characteristics were the restriction to low and lowest incomes, as well as the majority of black households and households with only one parent, predominantly single women as head of household.

Implementation attempts (selection)

In the early 1970s, a Friedman-style negative income tax was at the heart of US President Richard Nixon's program to reform the welfare system . The negative income tax was put to the vote in the congress, in the end the congress only passed a guaranteed basic income for old and disabled people, the Supplemental Security Income (SSI) , in German for example: the “supplementary security income ”.

Earned Income Tax Credit , introduced in the USA in 1973, is similar to the negative income tax model, but requires employment.

The model of citizen money represented by the FDP in the 1990s is not a negative income tax because a means test is to be carried out.

Some state associations of Bündnis 90 / Die Grünen in Baden-Württemberg proposed the introduction of a negative income tax in 2007. At the end of November 2007, however, a federal delegates' conference rejected this concept with a narrow majority.

In 2006 Dieter Althaus presented his concept of “ solidarity citizens' money ”. This concept was then further developed by a CDU commission under the leadership of Althaus and presented on November 1, 2010. It provides for a negative income tax of € 600, from which € 200 should be deducted for a health care allowance. The fundability of the concept has been scientifically proven.

A negative income tax was introduced in Israel in 2007 for a specific group of low incomes.

literature

• Josef van Almsick: The negative income tax: finance-theoretical structure, effects on labor supply and socio-political conception. Duncker & Humblot, 1981, ISBN 3-428-04831-8 .
• Michael J. Boskin: The Negative Income Tax and the Supply of Work Effort. In: National Tax Journal. 4/1967.
• Gary Burtless, Jerry A Hausman: The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment. In: Journal of Political Economy. 6/1978, pp. 1103-1130.
• John Creedy: Negative Income Taxes and Income Redistribution. In: Oxford Bulletin of Economics and Statistics. 4/1978, pp. 363-369.
• Helga Hackenberg, Stefan Sell: The "negative income tax" as an employment policy instrument. In: Social Progress. 1997, pp. 86-89.
• Mark R. Killingsworth: Must a Negative Income Tax Reduce Labor Supply? A Study of the Family's Allocation of Time. In: Journal of Human Resources. 3/1976, pp. 354-365.
• Gerold Krause-Junk: Bürgergeld - The Negative Income Tax. In: Yearbooks for Economics and Statistics. 1997, pp. 549-560.
• Hans-Georg Petersen: Pros and cons of a negative income tax . (= Contributions to the financial scientific discussion. 2). University of Potsdam, 1995. (full text)
• Philip K. Robins: A comparison of the labor supply findings from the four negative income tax experiments. In: Journal of Human Resources. 4/1985, pp. 567-582.
• Wolfgang Scherf: The negative income tax: A problematic concept of tax and social policy. In: Economic Service. 3/1994, pp. 114-118.
• Basic income: cash, nothing else . In: Die Zeit , No. 16/2007 (Friedman concept)

Web links

• Alban Knecht: Citizen Benefit and Social Integration. (PDF; 151 kB)
• Low-Wage Sector USA: The Earned Income Tax Credit is intended to alleviate poverty at work. (PDF; 211 kB) The negative income tax in the USA
• Institute for labor market and occupational research : publications on negative income tax
• The negative income tax: reform option for Switzerland? ( Memento from July 21, 2011 in the Internet Archive )

Individual evidence

1. ^ ^{A b} Evelyn L Forget: Advocating negative income taxes: Juliet Rhys-Williams and Milton Friedman. (PDF)
2. ↑ Michael Shindler: Replace Welfare With a Negative Income Tax . The Manhattan Institute for Policy Research. Retrieved October 10, 2015.
3. ↑ Milton Friedman: Capitalism and Freedom : Fortieth Anniversary Edition . University of Chicago Press, 2002, ISBN 0-226-26421-1 , pp. 192-194.
4. ↑ Milton & Rose Friedman: Free to Choose: A Personal Statement . Harcourt Trade Publishers, 1980, ISBN 978-0-15-633460-0 , pp. 120-126.
5. ^ Milton Friedman, Kurt Leube: The Case for the Negative Income Tax . In: Hoover Institution Press (Ed.): The Essence of Friedman . 1987, pp. 57-68.
6. ↑ van Almsick (1980)
7. ^ Killingsworth (1976)
8. ^ Thomas Apolte : Negative income tax transfer system. Economic Faculty of the Institute for Economic Education, Westfälische Wilhelms-Universität Münster, 2004, p. 8. Report for the Parliamentary Advisory and Expert Service of the State Parliament of North Rhine-Westphalia, Information 13/1089 of August 31, 2004
9. ^ Josef van Almsick: The negative income tax. 1980, pp. 70-73.
10. ↑ Statistical Yearbook 2015 (PDF) Federal Statistical Office , p. 180.
11. ↑ G. Werner, A. Goehler: 1000 € for each. Freedom, equality, basic income. Econ, Berlin 2010, ISBN 978-3-430-20108-7 .
12. ^ Thomas Apolte : Negative income tax transfer system . Ed .: Faculty of Economics, Institute for Economic Education, Westfälische Wilhelms-Universität Münster. Information 13/1089. Parliamentary advisory and expert service of the State Parliament of North Rhine-Westphalia, 2004, p. 6 .
13. ^ Thomas Apolte : Negative income tax transfer system . Ed .: Faculty of Economics, Institute for Economic Education, Westfälische Wilhelms-Universität Münster. Information 13/1089. Parliamentary advisory and expert service of the State Parliament of North Rhine-Westphalia, 2004, p. 9 ff .
14. ^ Thomas Apolte : Negative income tax transfer system . Ed .: Faculty of Economics, Institute for Economic Education, Westfälische Wilhelms-Universität Münster. Information 13/1089. Parliamentary advisory and expert service of the State Parliament of North Rhine-Westphalia, 2004, p. 7 .
15. ^ ^{A b} Robins: A comparison ... 1985, p. 569.
16. ↑ ^{a b} K. Widerquist: What (if anything) Can we Learn From the Negative Income Tax Experiments? (PDF) Review in: Journal of Socio-Economics (JSE) , 2004, pp. 4–9.
17. ↑ K. Widerquist: What (if anything) Can we Learn From the Negative Income Tax Experiments? (PDF) Review in: Journal of Socio-Economics (JSE) , 2004, p. 13.
18. ↑ K. Widerquist: What (if anything) Can we Learn From the Negative Income Tax Experiments? (PDF) Review in: Journal of Socio-Economics (JSE) , 2004, p. 9.
19. ^ Miller Center: Richard Nixon: Domestic Affairs. In: millercenter.org. Retrieved May 21, 2016 : “The centerpiece of Nixon's welfare reform was the replacement of much of the welfare system with a negative income tax, a favorite proposal of conservative economist Milton Friedman. The purpose of the negative income tax was to provide both a safety net for the poor and a financial incentive for welfare recipients to work. " 
20. ↑ Fight poverty, improve education, open up opportunities; The way to a green basic income - creating a future based on solidarity and freedom. ( Memento of the original from December 22, 2015 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF) Resolution of the 22nd state delegates conference of ALLIANCE 90 / THE GREENS Baden-Württemberg from October 12-14, 2007. Heidelberg, 2007. 
21. ↑ The GREEN basic income: individual, securing livelihood, unconditional. For a new social cohesion . lohengrin-verlag.de, accessed April 30, 2017
22. ↑ Zvi Zrahiya: Knesset approves negative income tax in preliminary reading. In: Haaretz.com , January 10, 2007.

Remarks

1. ↑ Various sources give different times, the data collection probably did not take place over the entire period of the experiment.