Question

Write a briefing note on the Negative Income Tax. Use the bottom headers as guidelines for the breifing note.

ISSUE

WHY IS THIS AN ISSUE?

BACKGROUND

RISKS AND CONSIDERATIONS

RECOMMENDATION

OTHER OPTIONS CONSIDERED

Answer 1

ISSUE - Negative Income tax is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government.

WHY THIS IS AN ISSUE - this is an issue because such a system has been duscussed by the economist but has never been implemented.

BACKGROUND - the issue of negative income tax was described by the British politician Juliet Rhys Williams in the 1940s and later by the United States free-market economist Milton Friedman. From 1968 to 1982, the US and canadian governments conducted a total of five negative income tax experiments. they were the major science experiments in the world. The first experiment was the New Jersey Income maintenance experiment, proposed by MIT Economics graduate student Heather Ross in 1967 in a proposal to the US office of economic opportunity.

RISKS AND CONSIDERATIONS - Negative income taxes had the risk of increasing the economic risks that workers take in the labor market. Also NIT opponents applying labor-supply economic theories worried that negative income taxes (NIT)'s promise of a threshold income guarantee would cause the working poor to work less or quit entirely to substitute in leisure activities sinces wages might reduce but may not exceed the guarantee, particularly after the payroll and state and local income taxes are taken out. If too many of the owrking people succumbed to this income effect and this substitution effect, the swelling number of needy with income below the threshold and eligible for NIT refundable credits would make total negative income tax costs untenable.

RECOMMENDATIONS - the implementation of NIT has never been feasible. this is partly because of the very complex and entrenched nature of the most countries current tax laws.they would have to rewritten under any NIT system.

OTHER OPTIONS CONSIDERED - Universal basic income