A Reverse Income Tax: A Bold Replacement for Social Security, Welfare, Food Stamps, and others [View all]

[BrentWil]

There are two basic arguments against social welfare/safety net programs. The first is that it creates less economic incentive to work because one starts to lose their benefits once they find employment. Why work a person take a minimum wage job when your economic benefits remain the same? The second is efficiency. We as a nation have multiple agencies directing checks to a lot of different people. In some cases, they aren't really "checks" but means to pay for things with lots of regulation on the individual. For example, the society wants to control what a person can buy with food stamps. The problem is, all that control comes with administration costs. For example, 14 percent of all money that goes towards food stamps goes towards administration costs.

WIth these two arguments in mind, let me suggest a radical solution. It is the reverse income tax. If you make up to 50K a year, the government would simply credit you with 30K a year on your pay check. Once you make over 50K, the government starts to take this money back until your income reaches over 125K. Over that amount, you are taxed on all your income at the same rate. This would be a simple tax on all income and replace all other federal taxes. I imagine that money over 125K would be taxed higher rate then it is taxed today. For retirements, one could simply increase the payout to 50K a year once a person reaches 65 age.

This basic concept would replace all social safety net programs, including welfare, food stamps, unemployment and other non nonmedical programs. The benefits would be twofold. One, it is efficiency. The government isn't trying to control the money or regulate it. It is simply giving it to lower income and middle class Americans. One could eliminate the Social Security administration, for example. I imagine the administration cost could be lowed to 1 or two cents for every tax dollar. The program could be administered simply through the IRS and done so in the same way they take a monthly tax from workers. Second, there is no reason for a person not to take a low paying job and get into the American work force. If someone is living off of the 30K from this program, getting a 20K a year job would simply give them an income of 50K. That would provide a decent livelihood for them.

The other aspect is that this would create a huge middle class that could buy stuff and keep the economy going.

Thoughts?