The welfare system should be replaced with a negative income-tax model
The current welfare system employed in the UK and other countries around the world disincentivizes hard work and makes it difficult to get off benefits without losing out. A negative income tax system would mean there is a sliding scale which is fair to the worst off, but doesn't penalise people if they work harder. However there are some problems in implementation and policing.
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It would be much simpler and fairer
Currently if a person receives unemployment benefits they will often be better off by not working because the more they earn then the less benefit they get and they may earn less than they would do had they not worked at all. This means that even people who are not lazy find it better to simply receive benefits than enter the workplace. There are also numerous benefits which have to be means tested, incurring extra costs. A proposed formula for a negative income tax is receiving half of the difference between a person or household's income and the minimum tax bracket. For example, if the minimum tax bracket is £10,000 and someone earns £10,500, they will only pay tax on the £500 over. At £10,000 they will pay nothing and at £9,500 they will receive a subsidy of £250.
There simply isn't enough money in the treasury to pay people who don't have work and people who find work. Work should be an incentive in itself. The vast majority of people on benefits have no desire to stay on them. It leaves very little to live on, and it carries a social stigma that people want to avoid. There is no need to further incentivize work.
The benefits system is necessarily complex because people have different needs, such as incapacity benefit, child benefit and unemployment benefit. If we reduced this to a single flat rate, then some people would lose out.
It would encourage low income earners to work.
Any system which attempts to promote equality by giving low income people money will necessarily create a disincentive to work. The negative income tax reduces that disincentive because there is a reward to work on the margins. Suppose that the negative tax rate is 40%; for every dollar that a low income person earns within the negative tax bracket they will take home 60c (the remaining 40c is deducted from the supplementary income payment, as the 'No' argument correctly identifies). Under a system with an unemployment benefit however the incentives are far worse; as the benefit is removed or substantially reduced if any work is taken up. This means that in order for the incentive to take a job to exist the incomes have to be substantially higher than the unemployment benefit (i.e. you actually LOSE money if you take up a part time job); which is unlikely as the vast majority of people on the unemployment benefit lack the skills to earn high incomes.
It would provide a disincentive to those on low incomes to work as the higher the income the smaller the supplementary payment form the state.
Eliminate expensive administrative costs
Most social welfare programs are paternalistically administrated by an army of public servants. Most programs have strict eligibility requirements and rules on spending welfare money - to ensure that public dollars are not wasted. Every dollar of benefit has to be accounted for to ensure that they are wisely spent on individuals' needs, rather than more sinister ways.
While this is a noble objective, greater accountability requirements demand greater administrative resources. More social workers need to be hired to look over the shoulder of benefactors; more administrators are needed to ensure eligibility requirements are met; and more administrators are needed to administer the additional public servants. This adds layers after layers of bureaucracy and layers after layers of costs. In some countries, 40 per cent of government spending is on the wages and salaries of public servants.
A negative income tax system would eliminate the unnecessary administrative burden, allowing governments to spend additional money on welfare or on other priorities. While this would inevitably invite corrupt spending of taxpayers money, certain studies have said that the benefit (greater resources from the eliminated bureaucracy to be reprioritized) outweighs the cost (the money that is unwisely wasted by certain individuals on, for example, drugs and alcohol).
For the negative income tax implementation we can use the 50% of the median wage.
For instance, if 50% of the median wage is €200, then choose the wage determination level of €100. Now, suppose that some person earns in a month €50; however he/she had no power to achieve a level of €100. We pay following Milton Friedamn'i NIT-negative income tax model, a half of €50, ie. € 25. Total personal payroll would be € 75. Milton Friedman do not obligate the payroll €75 for taxation. But, if we strip the exemption and do not make any changes in income tax rules at all¾we leave the rules old way, calculating all old subsidies into payroll¾then the solution is something else, look at http://www.datalaundering.com/download/txdesign.pdf
It would be too complex and radical to instate
The welfare system as it stands is currently quite wide reaching and complex. The negative income tax system would only work if all other benefits are removed or if they are set against the subsidy that people receive. In this transition, some people will inevitably lose out or be lost in the cracks of the system. It will also require an enormous amount of bureaucracy to check that everyone is receiving the correct amount of money.
A conservative government is the best time to implement such a policy. Yes, it does require a revolution in thinking and it will mean that the existing system is almost completely wiped away. This is a good thing. It means that we will have a new system that works for our time, built from the ground up based on experience in order to meet peoples needs.
It would increase tax fraud
Income tax fraud is already a big problem for the state's revenue collection department and this is only to avoid paying income tax. Imagine how widespread the fraud would be if people could also illegitimately claim subsidies without being detected.
Fraud is already quite prevalent in the tax system. Unemployment and incapacity benefit fraud is a major problem for the government. A system where it is not necessary to meet any conditions to receive the subsidy would mean that there is less incentive for fraud, since low income people will receive the money anyway.
It would abandon the worst off
Unless I have misunderstood, this means the state would top up incomes below certain amounts on a percentage basis. This would mean people with no income whatsoever would receive no money at all and would be left to fend for themselves.
There would have to be a different system for people with no income, otherwise they'd have to divide by zero.
Income is not necessarily proportional to 'hard work'
It is frequently argued by right-wing thinkers that "if you work hard, you will earn more", and while this is true in the sense that working longer hours will result in a larger pay-cheque, it seems to imply a level playing field for everyone to begin with. Quite simply, this is not the case. Incomes and employment are affected by a whole range of factors such as education, contacts, social stigmas not to mention simple geographical location, while everyone knows it is easier to establish a successful business if one has investment and financial stability to begin with.
A negative income tax which rewards 'hard workers' will more often than not reward people who earn higher incomes based on a range of factors which are often out of their control. Similarly, it will penalize people who might work 'hard', but work in industries, regions or businesses with relatively low incomes. The existing benfit system, while imperfect, at least supoprts people on low incomes, regardless of extraneous factors.
Higher salary does not equals harder work. Some of the hardest jobs implicate lower salary. Most of the high payed persons in the companies are having easy working places that beside good position often gives additional benefits and bonuses.
Capitalism is a system where "hard work" is not in proportion with "high salary" and therefore the negative income tax-model will not penalize the hard working persons, but under contrary it will put balance between hard-working people with lower salary, and persons who are receiving their income on "easy" way, trough company profits, shares and other benefits.
What do you think?