negative income tax

As I have made clear on this blog, I am not in favor of redistribution of wealth, however, I am a supporter of Milton Friedman’s’ ideas. He developed the idea of the negative income tax, such a tax works by first imposing a flat tax, which I believe would be a much better option than our current progressive tax. This flat tax however does not give a personal allowance; a person’s entire income is taxed. Instead of a personal allowance, a certain amount is given to each person regardless of his or her income. If we imagine that this amount is £4000 (less than the current personal allowance), and a person is earning £5,000 then they are taxed on the £5,000 that they earn, lets say at 25%, so that’s £1250, then they receive the £4000 personal allowance, so their total income is £7750, in comparison, on the current system, they would have been given a personal allowance of £4895, and they would have been taxed on the remaining £105 at the starting rate of 10%, and then £28.6 on national insurance so that they would receive £4960.9 for the year. With the negative income tax there is also an easily calculable break-even wage, where tax liability equals the amount given out, this should equal the average wage in order to be fair, under the above amount, this would be £16,000. This system is not a guaranteed minimum wage, as the amount would change as the amount collected in tax would change, however, if wealth distribution is going to be accepted as a necessary evil, then this system seems the best option for a couple of reasons.

Firstly, the system is relatively fair, the flat tax allows easy calculation of tax and a proper incentive to earn more and to reinvest profits, while the amount given to each person is done so equally and does not contain any bias.

Secondly, the system does not need a huge bureaucracy in order to work. The system is self regulating, as a persons income falls, they automatically receive more benefit, as it rises they receive less, people falling on hard times automatically gain this income without having to fill in forms, and having to waste money on employing an official to sign them.