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Negative income tax

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Malone
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Post: #1
Negative income tax

Some economists plead for the implementation of a negative income tax to establish more tax equity und to reduce the effort of imposition.

"Having a negative income tax without poverty test and enforcement to work, we can save some government departments!" thinks Viola Sechser, lecturer for economy at a University of Applied Sciences. "The cost of living is subtracted from one half of the income, and this amount is paid by every citizen, or it is paid to him if it is negative. Thus, a higher incentive persists which is not given by the welfare systems that are in competition to earned income."

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Einige Wirtschaftswissenschaftler plädieren für die Einführung einer Negativen Einkommenssteuer, um mehr Steuergerechtigkeit zu schaffen und den Erhebungsaufwand zu senken.

"Mit einer negativen Einkommenssteuer, die auf Bedürftigkeitsprüfung und Arbeitszwang verzichtet, sparen wir uns ganze Ministerien!" glaubt Viola Sechser, Dozentin für Wirtschaftswissenschaften an einer Fachhochschule. "Von der Hälfte des Einkommens ist ein Betrag in der Höhe der Lebenshaltungskosten abzuziehen, und das Ergebnis wird von jedem Bürger bezahlt, oder wenn es negativ ausfällt, an ihn ausgezahlt. So bleibt weiterhin ein hoher Leistungsanreiz bestehen, der bei den Wohlfahrtssystemen, die in Konkurrenz zum Arbeitseinkommen stehen, nicht gegeben ist."


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07.07.2008 22:30
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greenleafbear
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Post: #2
RE: Negative income tax

I launched the Negative Income Tax reform 2 quarters ago but I still have an acquistion tax rate and a welfare amount that is less than the cost of living.

The reform outcome was "Due to the new negative income tax, the Welfare Department is eliminated and poor or unemployed people only recieve government support equal to the cost of living."

I'm confused now.

27.04.2010 06:08
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Vninect
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Post: #3
RE: Negative income tax

I had never heard of this. I understand it works like this:

Say the cost of living is €40.

John earns €100 per month. So, he has to pay taxes of half his income, €50, minus cost of living, €40 = €10. He is left with €90.

Sara earns €60. Half of that is €30, less than the cost of living, so she gets paid €10. (30-40=-10). She has €70 to spend.

Very rich people would have to pay close to half their income in taxes. A person with no income would end up with €40 a month.

On my calculations, if the cost of living is around a quarter of the national average income, about 50% of people will start to receive money from the tax office.

The cost of living figure obviously has to be high enough to eliminate poverty and starvation, though some argue that the effectiveness of the policy backfires if the level is too high, because people will stop working - though I don't know how this works in the game.

Another criticism with basic guaranteed income systems - and means-tested systems such as this in particular - is that it incentivizes businesses to lower worker salaries, which makes the policy a business subsidy under the guise of egalitarianism. Bigger businesses, with a larger proportion of low paid workers benefit most.

A historic example of this type of system can be found here: http://en.wikipedia.org/wiki/Speenhamland_system
It was a catastrophe that "has been seen to aggravate the underlying causes of poverty in any particular parish", though on the other hand, "more recent research has shown that it helped prevent chronic poverty and malnutrition", so it's not completely evil.

I find this a difficult issue to take a position on.

21.07.2012 16:52
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Rising Phoenix
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Post: #4
RE: Negative income tax

Originally I was supportive of this, but maybe an Unconditional Basic Income is a better idea after all. Less bureacratic issues, more benefits overall.

22.07.2012 07:30
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Helsworth
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Post: #5
RE: Negative income tax

So long as the acquisition tax rate is low, it doesn't matter Wink


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22.07.2012 07:36
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Vninect
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Post: #6
RE: Negative income tax

Helsworth Wrote:
So long as the acquisition tax rate is low, it doesn't matter Wink

How do you mean?

ETA: How exactly does acquisition tax work: it is only one figure. How does it relate to negative tax, progressive taxation, and other systems of tax. Is it a flat tax figure?

This post was last modified: 22.07.2012 18:17 by Vninect.

22.07.2012 18:07
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Helsworth
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Post: #7
RE: Negative income tax

Vninect Wrote:

Helsworth Wrote:
So long as the acquisition tax rate is low, it doesn't matter Wink

How do you mean?

ETA: How exactly does acquisition tax work: it is only one figure. How does it relate to negative tax, progressive taxation, and other systems of tax. Is it a flat tax figure?

Hover you mouse pointer over the question marks and you'll see. Acquisition tax means income tax plus obligatory insurances. The acquisition tax rate can be modified like any of the others in the budget tab. Regardless of what tax reform you initiate, you can increase it or lower by doing budget changes.
In this game, the flat income tax lowers bureaucracy and increases gross investment on long term, but also increases the GINI coefficient, while the negative income tax lowers bureaucracy, increases consumption (it can have a boom effect if the MS is over GDP) and it reduces the GINI. Though regardless of the reform's description you're still going to have welfare and the unemployed and poor will still require that the welfare pcm keep a relative touch with the living cost.
PS: Vninect, you've chosen the columbia template state. It's the most "buggy" of all the other templates and its economic behavior can be quite paradoxical or counterintuitive. Ergo it can cause frustration. Since you are a new player, my advice to you is to delete your present state and create a new one, this time choose an other template state, the USA is the easiest to manage, while the GDR is the hardest debt wise.


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This post was last modified: 22.07.2012 19:06 by Helsworth.

22.07.2012 19:01
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Vninect
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Post: #8
RE: Negative income tax

Helsworth Wrote:

Vninect Wrote:

Helsworth Wrote:
So long as the acquisition tax rate is low, it doesn't matter Wink

How do you mean?

ETA: How exactly does acquisition tax work: it is only one figure. How does it relate to negative tax, progressive taxation, and other systems of tax. Is it a flat tax figure?

Hover you mouse pointer over the question marks and you'll see. Acquisition tax means income tax plus obligatory insurances. The acquisition tax rate can be modified like any of the others in the budget tab. Regardless of what tax reform you initiate, you can increase it or lower by doing budget changes. In this game, the flat income tax lowers bureaucracy and increases gross investment on long term, but also increases the GINI coefficient, while the negative income tax lowers bureaucracy, increases consumption (it can have a boom effect if the MS is over GDP) and it reduces the GINI. Though regardless of the reform's description you're still going to have welfare and the unemployed and poor will still require that the welfare pcm keep a relative touch with the living cost.

Thanks for that answer, but my question goes quite a bit deeper than that. I wonder about the fact that it is only one number in the budget. In any progressive tax system, I would expect to see a difference between various income brackets, and the ability to adjust those. Possibly, that is integrated into the type of tax system I adopt, so that's my question in a nutshell: Is it?

I see that at least in the description of the negative income tax (NIT) reform, there is a maximum tax rate near 50% for the richest folk. Why not 75% or any other number? A higher number there would directly affect both tax revenue (up) and gini (down). It's the same effect if you raise taxes on the top income brackets in any other non-flat tax systems. When gini goes down, while tax goes up, the cost of labour remains roughly the same, because you raise taxes asymmetrically. In the case of NIT, the difference of a maximum level of 75% versus 50% can easily mean a 45% drop in after-tax income for the highest incomes, and no difference at all for those with low or no incomes. And that can be a significant tax revenue increase without making labour significantly more expensive.

Demand therefore would stay at roughly the same level - certainly for the majority of essential goods which everybody needs. What's more: We all know that those with disproportionally high incomes do not have an equivalent stake in driving demand - they prefer to keep it in the bank or in speculation or such; or they buy very expensive items that provide very few jobs. So while it is ideologically nice to be able to earn infinite income (resulting in a high Gini), it is increasingly bad for the whole economy the more disproportionate the differences in salary.

A similar problem can be raised about excise tax. In many countries, VAT distinguishes between essential goods and luxury goods. But in the budget it is only one number. And again, the same difference applies as above: if rich people stop buying diamonds because with taxes the price becomes too high, it has virtually no effect on the economy - a few jewellers will go out of business. If people stop buying apples or breads, unemployment and production will be seriously affected.

So my question in long form: Is the effect of raising taxes with this single number in the budget the same for nations that have a progressive tax system and a lower gini, as for those who have flat taxes and/or higher gini? Because it seems also from what you describe that the effects of the reforms are pretty much independent of the effects of raising and lowering taxes. It seems the reforms simply affect bureaucracy and the gini, as independent aesthetic factors that do not influence the labour market and the economy in the way acq. taxes do. And therefore, raising taxes in a flat tax system would have the exact same effect as raising them in a progressive tax system - while that is not the reality as I've tried to show above. Gini, taxes, and the type of tax system are all related in the real world.

For clarity: I'm just wondering whether that is factored in, in game, because I am genuinely curious about how deep the game's mechanics go. Any of this shouldn't be read as a criticism.

Quote:
PS: Vninect, you've chosen the columbia template state. It's the most "buggy" of all the other templates and its economic behavior can be quite paradoxical or counterintuitive. Ergo it can cause frustration. Since you are a new player, my advice to you is to delete your present state and create a new one, this time choose an other template state, the USA is the easiest to manage, while the GDR is the hardest debt wise.

Thanks for the warning. Buggy behaviour doesn't worry me at all. In fact, should I really trust a simulator that simulates economies and politics in an intuitive and easy manner? Wink

23.07.2012 02:42
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Helsworth
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Post: #9
RE: Negative income tax

Obviously that would be to cumbersome of micromanagement to be introduced by the devs. There is a single value only, and it's enough to give the player power over how high taxation in those ares are. Via reforms and tax options you get to change those parameters. For instance if you reach a 0% acquisition tax, it's like having no income tax, regardless if you implemented flat or negative IT. Overall it simulates macroeffects and the older your state becomes, the less realistic it becomes, because lets face it, we don't know how a real life Germany, or USA economy will look like in 2050. Also don't be influenced by task options descriptions, nor by reforms. The computed result might be completely different. In this game it does matter how your economy/society is handled before implementing radical reforms, such as planned economy, liberalism, totalitarism et all. If you planned poorly for such changes it will anger your people and you can get ousted or assassinated.


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23.07.2012 07:16
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171942
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Post: #10
RE: Negative income tax

Habe in meinem Staat IAA, mal die Reform eingeführt und es wurde die Kapitalsteuer extrem erhöht, meine schon sehr niedrige Einkommensteuer wurde nur gering gesenkt. Dadurch hab ich kurz höhere einnahmen zu verzeichnen aber langfristig hat die Reform mein Staat zerhauen. Ich würde die Reform nicht mehr bei schon sehr niedriger Einkommensteuer einführen.


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29.11.2019 18:39
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