Letter: The positive alternatives to negative income tax welfare schemes

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