Forget Negative Income Tax. Basic Income is Better.
They’re both good ideas, but Basic Income comes out clearly on top.
Some people are quite positive toward the idea of having a Basic Income, but take the view that a Negative Income Tax (NIT) system would be better. I don’t think that’s true, but that’s mainly because a Negative Income Tax and Basic Income are a lot more similar than many people appreciate.
In fact, a NIT system and a Basic Income system can be designed to have exactly the same outcome in terms of how much disposable income each individual ends up with.
Suppose, for example, you had a Basic Income set at $10,000 per year and Income Tax set at a flat 25%. The equivalent Negative Income Tax system would work like this:
- You would pay 25% Income Tax on any money you earned over $40,000 per year.
- But if your earnings were below $40,000, you would be paid 25% of that shortfall as a Negative Income Tax.
To see how similar the two systems would be, consider these examples:
Example 1: You earn nothing.
Under the Basic Income system, you would be paid $10,000 in Basic Income. So, your total ‘disposable’ income would be $10,000.
