Welfare is by far the most troublesome element of our government, and it is one that could be easily improved. We are slowly growing broke, and, as a country, we need to discern the truly needy from the abusers because we cannot afford to subsidize both of them. Due to ultra-liberal guidelines in administering the welfare programs, we are reaching a point of critical mass in which the welfare class is growing beyond the tax paying class. This will inevitably result in a collapse of the system because there will simply be no money left to fund it.
A negative income tax is a viable alternative to the current welfare programs. It allows people earning below a certain amount of income to receive supplemental pay from the government instead of paying taxes to the government. It would be used in conjunction with our current progressive income tax system, and it is important to note that the negative income tax only works if we eliminate all of the existing welfare programs. The negative income tax system is designed to be a one-stop-shop for welfare-esque benefits. A negative income tax, in conjunction with the current income tax system, would allow for the government to collect their taxes to provide services to the public while also ensuring a minimum level of income for all citizens.
So how would it work? With a negative income tax, there would be a threshold at which a citizen earning below that amount would pay no taxes, just like in today’s society. For simplicity, let’s assume that amount is $10,000 (it would need to be higher in real-life application). If an individual were to earn exactly $10,000 or less in a single year, they would pay no taxes. Only when they exceed that amount would they begin to pay income taxes. Now here’s where the negative aspect comes in. If a citizen makes less than that amount, let’s say $4,000 in a year’s time, they would qualify for $6,000 in incentives from the government ($10,000-$4,000=$6,000).
Now, $6,000 of incentives will not translate to a $6,000 check from the government, and it shouldn’t. Instead, they would only receive a fraction of it. The late, great Milton Friedman proposed a rate of 50%. Under his plan, that unused tax allowance of $6,000 would be subjected to his 50% rate, effectively making the eligible supplemental income $3,000. That means the individual making $4,000 a year would not only get to keep all of his income, tax free, but would also receive a supplemental check of $3,000 to bring his total income to $7,000 ($4,000+$3,000=$7,000).
Likewise, somebody that didn’t earn a single dime throughout the year would have an unused tax allowance of $10,000 ($10,000-$0=$10,000). Applying Friedman’s 50% rate, they would receive a supplemental check of $5,000. However, this amount would be considerably lower than the amount they currently receive under the welfare programs they are on now. The amount they receive should be enough only for essential necessities for a temporary amount of time. The tax-payer should not be subsidizing steak dinners for people receiving 100% of their income from the government. The whole purpose is to provide basic support, while encouraging productive activity.
If an individual in today’s society makes only $4,000 in a year, they are $6,000 away from the tax threshold. That unused amount of $6,000 is of no value to them. They simply just pay no tax. But if the government was to give value to that unused allowance by giving the individual a portion of that $6,000, they would get to partake in a fraction of the supplemental income that the “freeloaders” enjoy, while also getting to keep the earnings from their job.
This system works better than the current system because it better incentivizes work. Under the current system, many people completely lose their benefits if they get a job because they are earning income. This is the biggest contributor to the welfare trap. People are fearful of losing their benefits, so they never become productive members of society. Instead, they become trapped in a vicious cycle of government reliance. The negative income tax system, however, remedies this problem by still allowing low income earners to receive some governmental aid without completely eliminating the incentive to work. From the earlier example, the worker earning $4,000 a year would make $7,000 after the subsidy, whereas a freeloader would only receive $5,000. These people would quickly recognize that an extra dollar earned always means more money to spend, leading to a more productive lifestyle.
An important thing to understand about the negative income tax is that it would only work if it completely replaced all of the welfare programs that we have in this country. If it were simply just added as another program to function alongside the trove of other welfare programs, it would do more harm than good. By having the money coming from a single source, with the requirement of filing a tax return, there would be less fraud. Likewise, the single source prohibits people from cheating the system by qualifying for programs that overlap. Allowing it to function exclusively would be the only way to achieve the myriad advantages that such a program offers. Its only qualifying factor would be a low income, as it would not discriminate based on dependents, healthiness, or disability like many other programs. The negative income tax system would also address another gremlin of welfare — fraud. If we introduced this new system, it would lessen the likelihood of tax evasion, as everyone would be required to file a tax return. Not doing so would prevent them from receiving any government handouts.
In 2006, we witnessed how dangerous government dependence can be when Hurricane Katrina struck New Orleans. A disproportionate amount of welfare recipients were killed, while the more self-reliant individuals survived. With the government failing to competently intervene in the matter to help those they subsidize, massive amounts of welfare recipients were too ill-equipped psychologically to secure safety for themselves. They depended upon the government to take care of them, and when the government didn’t, they were incapable of taking care of themselves. It was the first time in human history that the pathology of dependency actually defeated the instinct for survival. All of this made possible by our cradle-to-grave entitlements.
It is important that we reform the welfare state of this nation because it has gotten out of control. What was once designed as a safety net for those that were down on their luck has turned into a permanent hammock for those that don’t want to contribute anything to society. If we were to all get in the hammock, there would be no food on the grocery store shelves, no fuel in the gas pumps, and no doctors at the hospital, regardless of your health insurance situation. So tell me, is it more humane to continue subsidizing these people via the current method, or would it be more beneficial to inject some incentive into the equation in order to help these people become productive citizens? I’ll let you decide, though I think the answer is fairly self-evident.