The Negative Income Tax

Introduction:

Welfare is a major topic of debate in our current age, with some advocating to totally abolish all welfare because they think it makes people dependent on the government. Some people support our current system or increasing spending on welfare because they think it helps the poor. And then there are the people who believe in reducing spending and changing our welfare system instead of abolishing it, but they also understand the argument that welfare creates a dependency on the government. I’m going to explain how these ideas are either correct, incorrect, or both.

Why Not Abolish Welfare?

First I will address the idea of totally abolishing all forms of welfare, and why this is an awful idea. The justification for this idea is that people will become dependent on welfare and won’t strive to get a job and get off of welfare, and this is true, but only if applied to our current system which does create a dependency on welfare, however, if we reform our system we could fix this problem. A very good solution to the problem is to put a limit on how long people can receive welfare which would force them to get a job because after they lose their welfare benefits they would have no source of income. But why do we need welfare at all? Because it is needed to help the impoverished get off their feet and have the ability to get a job. Whenever you apply for most jobs you are asked to give the employer your address, and that means that homeless people cannot get that job, so if we gave them welfare for a period of time they could use that welfare to get a home and by doing that get a job. But why is it the taxpayers’ responsibility to fund the poor? It isn’t, but by helping the poor we also help the economy. Whenever we give these poor people money they use that money to spend and put it back into the economy, and whenever more people spend money it helps companies by letting them receive more money. So, the reason we need welfare is because welfare is necessary to get poor people off their feet and get them into the labor force, and by giving them money they use that money to benefit the economy, which helps all of us. This is why we don’t need to abolish welfare.

Why Not Our Current System?

Many people will see the benefits of welfare and so they will support our current system, which is just as bad as abolishing welfare. Our current system creates no incentive to get off of welfare and get a job, it just gives them the resources they need and then steps back and hopes that the welfare recipient decides to actually get a job, and if the recipient doesn’t get a job they just continue to get benefits, which destroys the incentive to get off welfare. Welfare’s purpose is to give the poor the resources they need to get a job (which our system does) and that’s it and if we do this correctly we get people off their feet and then we leave them alone to advance on their own, but instead our system attempts to continue helping them and it destroys the incentive to get a job. This means that we are wasting our tax dollars on a system that only actually helps a small minority of people that decide to get a job rather than live off of welfare. But wouldn’t our current system still benefit the economy since the poor have money to spend? No, they may have money to spend which helps the economy, but they are supposed to get a job and increase their income so they have more money to spend later on and that’s how welfare benefits the economy, but since they don’t usually get a job and advance their income the cost of welfare hurts the economy because it causes taxes to stay high which hurts businesses just as much if not worse than welfare helps businesses. And it also hurts the spending power of other American since it keeps taxes high and leaves them with less money. Our current system hurts worse than it helps by causing recipients to be dependent on welfare and it keeps taxes high for everyone else.

The Solution:

So we have established that we need welfare but that it doesn’t need to be our current system, so what system do we need? We need to totally replace our system with the Negative Income Tax system that was introduced by Milton Friedman. The negative income tax is basically a system where the welfare recipient receives money from the government based off of their income rather than paying taxes, note the graph above, so the poorer you are the more money you receive. So rather than people on welfare getting food stamps and housing they just receive a basic income, which they can use in ways that they wish. The negative income tax wouldn’t stifle the incentive to advance like our current system does because in our current system when you get a job you lose your unemployment benefits, which is a large part of our welfare system, while in the negative income tax system if you are in a low paying job you still receive some benefits. This means we could also abolish the minimum wage if we had this system because people living under the poverty line would receive welfare benefits as well as income from their jobs, which would dramatically decrease the unemployment rate. However even under this system people still could become somewhat dependent on the government so we also need to implement a limit to how long people receive the benefits, preferably around 15 to 20 years so people have plenty of time to have a low paying job and strengthen their resume so by the time they lose their benefits they are able to get a good paying job. There has been studied conducted over the negative income tax which showed that whenever people received the negative income tax benefits they tended to work fewer hours, but the reason for that was that they didn’t work as much overtime since they had an extra source of income, the study also showed that people would stay unemployed longer but whenever they became employed they tended to have higher paying jobs. This shows that while the negative income tax may reduce the incentive to work, it benefits the recipients of the negative income tax. So rather than keeping our awful current system or abolishing welfare totally, we must replace our current system with the negative income tax.

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