Letter: The positive alternatives to negative income tax welfare schemes

Professor James Meade
Friday 12 February 1993 00:02 GMT
Comments

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

Sir: In your leading article 'Benefits for the neediest' (10 February), you describe a 'negative income tax' scheme in which each taxpayer makes a single return of income to a single authority and either pays tax on all income above an agreed minimum level, or receives a subsidy from the state sufficient to bring an inadequate income up to the agreed minimum level.

Apart from important administrative differences, this has the same effect as paying to each citizen a tax-free social benefit or Citizen's Income at the agreed minimum level and then charging a marginal rate of tax of 100 per cent on whatever other income the citizen receives up to the level of the original tax-free Citizen's Income.

You later criticise, as causing disincentive to work, the present system of paying a social benefit and then in some cases charging what is in effect a marginal rate of tax at 90 per cent on the first slice of the taxpayer's other income. Should not your negative income tax have been criticised even more severely for the disincentive effects of what amounts to a marginal rate of tax of 100 per cent?

As an alternative, each citizen might receive a tax-free social benefit or Citizen's Income at the appropriate minimum level and then, on the first slice of his or her other income, pay an additional Withdrawal Tax, which would raise the marginal rate of tax on that first slice of income to an exceptionally high level, though not necessarily as high as 90 per cent. The level of the Citizen's Income, the rate of Withdrawal Tax, and the range of other income over which the Withdrawal Tax will operate, would be set to achieve the best political balance between relief of poverty, avoidance of disincentive effects and economy of net cost. The system would have the two basic merits of ensuring that no citizen was left below the minimum level and that there was a single integrated administration of tax and subsidy.

Moreover, fortunate citizens such as Polly Toynbee and myself could calm their consciences by realising that, as a result of the Withdrawal Tax, they were not receiving any unrequited, unneeded subsidy.

Yours faithfully,

J. E. MEADE

Little Shelford, Cambridge

11 February

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in