Tuesday, August 23, 2016

Framing Matters

Universal Basic Income vs. Progressive Taxation for an Equivalent Effect.

Progressive Taxation for an Equivalent Effect will get more support from Progressives than the Universal Basic Income proposed by Milton Friedman and many others before and after him.
  • A.  A universal transfer of $10,000 to every person, financed by a 20-percent flat tax on income.  
  • B.  A means-tested transfer of $10,000.  The full amount goes to someone without any income.  The transfer is then phased out: You lose 20 cents of it for every dollar of income you earn.  These transfers are financed by a tax of 20 percent on income above $50,000.
Actually, when you look at it, a difference of $2,000 may exist. Does the 20-percent flat tax on income includes the transfer or not?
  • If the 20-percent flat tax on income includes the transfer, then people without income will only get $8,000, since they have to pay $2,000 of their income.
  • Else the 20-percent flat tax on income does not include the transfer, thus the two statements are equivalent.
Note that this now depends on the definition of income, but transfer is also part of income:

"Some people who get Social Security must pay federal income taxes on their benefits. But, no one pays taxes on more than 85 percent of their Social Security benefits. You must pay taxes on your benefits if you file a federal tax return as an “individual” and your “combined income” exceeds $25,000."

Now that we establish that transfer counts as income, this universal transfer does not define the minimum income to tax, thus, the two cases holds true. Option A: No income gets only $8,000, while Option B: No income gets the full $10,000.

I found that Greg made another mistake.

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