An Economic Miracle Cure? The Case For A Negative Income Tax In Ireland

ArphaRima

This is the kind of innovation that we need. The current tax system is so complex and convoluted that it cant work efficiently.

Why? Because you cant understand it doesnt mean its broken.

I'm vehimently against this negative taxation idea.
For the reasons I gave in the above posts.

Entrepreneurs in low skilled industry will be the only winners. Our taxes will have to pay for this scheme, which in essence is only subsidising low paid jobs in the private sector. It will be an even bigger burden on us than the present system.
Unless you have workable policies to go with this idea. If so I'm listening.

ixus

Maybe taxes should be cut drastically. Searched for this after hearing a speech by Dennis Gartman where he mentioned how New Zealand actually cut their deficit by cutting taxes. Increase the propensity to consume I guess.

Market Reform: Lessons from New Zealand

The collapse of the Muldoon government in 1984 set the stage for two remarkable bursts of reform led by two remarkable politicians. Although many of the individual elements of New Zealand’s reforms can be found in other countries, two aspects make the reforms there unique in the West.

The first is that they took place in the context of a coherent overall framework focused on economic efficiency, stressing predictability, transparency, and accountability. As a result, individual reforms became mutually reinforcing. Supply-side gains were driven by a flatter tax structure and the elimination of distorting tax breaks. Farmers accepted the phasing out of agricultural subsidies because their costs fell with the reduction of tariffs on imported manufactured goods, while the costs of transporting agricultural exports also fell as a result of the commercial management of New Zealand’s ports and railways. That way, losers were also winners. As the economy was freed up and growth kicked in, the gains outweighed the losses. The reformers were influenced by economic thinkers such as Mancur Olson, Ronald Coase, and James Buchanan, and the reforms were shaped by insights from public choice theory, agency theory, and transaction cost economics. The whole process was characterized by robustness and coherence. The “scientific” nature of the reforms enabled them to be successfully directed to the core functions of government, leading to practical results.

The second distinctive feature of the Kiwi experience is political. Economic liberalization was initiated by a party of the left. When the reforming Labour government lost cohesion and fell in the 1990 election, the reform momentum was regained by the opposition National Party, which was then able to tackle areas that a Labour government was constrained by its natural supporters from reforming, notably the labor market and welfare. In both governments, reform was driven by the finance minister rather than the prime minister. In both cases, the momentum of reform was lost and the cohesion of the government fatally undermined when the prime minister of the day withdrew support for the finance minister’s reform program. While those prime ministers — Labour’s David Lange and National’s Jim Bolger — have been largely forgotten outside New Zealand, if indeed they have made any impact at all, their finance ministers, Roger Douglas and Ruth Richardson, put New Zealand on the map.1

As well as intellectual grasp and strong convictions, Roger Douglas and Ruth Richardson share an ideal of citizen-politicians who solve the problems of their country as best they can and then quit the stage once they have given it their best. “Ask yourself why you’re in politics,” advises Douglas. “It seems to me that too many politicians never ask themselves that question. My view is that it is better to be in politics for three years and do something, than to be there for twenty and do nothing.” As Ruth Richardson puts it: “Prepare to be a pioneer. Political bravery reaps dividends. Do it once. Do it properly and use up your political capital doing something useful.”

The economic impact of the Douglas/Richardson reforms was far-reaching. Government subsidies to industry and agriculture fell from 16 percent of government spending to just 4 percent. This was achieved especially through the drastic reduction of farm subsidies, which fell from NZ$1.2 billion (about $670 million U.S. at current exchange rates) in 1983 to NZ$206 million (about $115 million U.S. ) in 1990. New Zealand remains the only developed country to have scrapped farm support, a political achievement all the greater given that agriculture is New Zealand’s largest sector. The move also revealed the malign economics of farm welfare and the benefits of injecting market economics into agriculture. Since abolition, agriculture has increased its share of New Zealand GDP, and total factor productivity growth (labor and capital) averaged 6.3 percent a year for the first nine years of the reforms.2

Tax reform gave New Zealand one of the flattest tax structures in the developed world. The top rate of income tax was halved from 66 percent to 33 percent. Tight control of government spending under Ruth Richardson reduced government spending (excluding debt service), which had peaked at just under 40 percent of GDP, to 35 percent — and trending down to 30 percent if the reform momentum had been maintained. Together with higher growth, the liberalization of the labor market and welfare reform to encourage active job-seeking by the unemployed resulted in rapid job creation. Minority groups particularly benefited from the improved performance of the labor market. Unemployment among the indigenous Maori and Pacific Island people dropped by 10 percentage points. In 1995, Maori had an employment growth rate double that of non-Maori.

Rockshamrover

Put a time limit on it? -The jobs will evaporate whenever the grant expires.


Well I hired 2000 people with the intention of getting the grant. I cant support them without the grant.
I'll close my operation once the limited period is up. But I'll scream in the media how the government doesnt want to save 2000 jobs by keeping the scheme open.
The busines is viable. But only with the grants etc.

Fluffer, the point of my suggestion is to keep people who have jobs in those jobs. It's not about about creating new bogus jobs. After two years, hopefully the world economy will have recovered enough for the tax break to be lifted.

Your scenario of a company creating bogus jobs to get "the grant" wouldn't arise or wouldn't be tolerated. Although it does sound a bit like what FAS do to attract foreign investment.

If people can be kept working there will be more money in circulation, meaning more economic activity and more employment.

I could of course be wrong but better to light a penny candle than etc etc.

jimmycrackcorm

fluffer wrote: »

Entrepreneurs in low skilled industry will be the only winners. Our taxes will have to pay for this scheme, which in essence is only subsidising low paid jobs in the private sector. It will be an even bigger burden on us than the present system.

Better to have some winners than only losers as present (us taxpayers).
Better to have people working than sitting around being unproductive.

So maybe it's not an ideal sitution, it sure has a better ring to it than our presently bloated and totally negative S/W system.

ArphaRima

Better to have some winners than only losers as present (us taxpayers).
Better to have people working than sitting around being unproductive.

So maybe it's not an ideal sitution, it sure has a better ring to it than our presently bloated and totally negative S/W system.

The winners will be winners using taxpayers money to line their pockets. The jobs will be unsustainable. This is proven already by being a failing business in the first place. You are essentially saying that we will give money to failing businesses so they can last another 2 years. After which you'll withdraw the support. You cant say the jobs will be sustainable after 2 years so all you have done is delay the inevitable, rewarded inefficiency and poor business, and increased the tax burden in the meantime. All while a handful of entrepreneurs get to milk the state using cheap labour in what's supposed to be a developed economy. Sorry if I dont see the upside.

We want strong legitimate businesses not reliant on the taxpayer. This model doesnt give us that.

If people can be kept working there will be more money in circulation, meaning more economic activity and more employment.

It gives more employment only. The economic activity is funded by the taxpayer which removes it from the real economy.

I think what you are actually proposing is forced labour for the dole.

ionix5891

fluffer wrote: »

I think what you are actually proposing is forced labour for the dole.

Well at least that way the people will be kept busy not sitting at home surfing boards and getting paid to do nothing

Rockshamrover

I think what you are actually proposing is forced labour for the dole.

Not sure if you are replying to my post Fluffer but just in case.

So somebody is about to lose their job and end up on the dole. The Government steps in to keep this guy in work and thats forced labour?

If Carlsberg did forced labour......

eamonnm79

I think people should be asked to do 15-20 hours community service for their dole.
It should be things that are labour intensive but not expensive to administer.
How about beach clean ups? Visiting old people?
It would be an opertunity to revive a sence of volunteerism and community.

I dont think its perticularly right wing either. I would consider myself left leaning

thebman

My main problem with the idea is it doesn't seem to offer anything to prevent employers reducing wages so the government would have to sponsor a persons wage just because the employer wants to take advantage of cheaper wages and let the taxpayer pay the bill and not because the jobs are unsustainable at the current pay level.

Why would this not happen?

GUIGuy

To me it's a neat 'theory' in a disconnected world, but out in the open it would create a downward spiral in wages that would be not be justified by real factors like supply/demand. Companies would simply lower wages knowing that the gov would pick up the tab. Interfering in the market like this could be even more disastrous than 12% unemployment.

However, that said some measures similar to this are already widely practiced. Grants/tax exemptions to business have the same desired effect. Grants/exemptions allow activity/jobs that otherwise wouldn't be hired. It costs the gov the cost of the grant or lost corporation tax, but they get back PAYE/PRSI/VAT and the benefit of support industries.

Even if it would work in Ireland, it's still a bad idea because it would break EU rules. Countries can not give direct subsidies that have a net effect of distorting the single market. This is not some spoil sport rule... The effect of richer countries subsidising wages would hit smaller/poorer countries harder.

ionix5891

thebman wrote: »

My main problem with the idea is it doesn't seem to offer anything to prevent employers reducing wages so the government would have to sponsor a persons wage just because the employer wants to take advantage of cheaper wages and let the taxpayer pay the bill and not because the jobs are unsustainable at the current pay level.

Why would this not happen?

competition here's example

if dunnes lower wages the employees will try to move to tesco or upskill into m&s

basically a company would be afraid to lower wages if it would mean good employees leaving to competitor

if wages are too low no one will want to do the job and the employer has to put it up until someone out there will be willing to work for it


now some members commented that lower wages are bad, not so if the price of living keeps falling as is the case now

thebman

ionix5891 wrote: »

competition here's example

if dunnes lower wages the employees will try to move to tesco or upskill into m&s

basically a company would be afraid to lower wages if it would mean good employees leaving to competitor

Yeah but that logic is bollocks when it comes to low skilled jobs which is what the initiative is for.

Dunnes don't give a crap about retaining good employees. In the current climate the competitor isn't hiring anyway.

IMO this system becomes a race to the bottom to get the taxpayers money and get cheap workers in non-skilled jobs.

In skilled jobs, there is already competition and in most cases, the wage is above minimum wage anyway.

ionix5891

thebman wrote: »

Yeah but that logic is bollocks when it comes to low skilled jobs which is what the initiative is for.

Dunnes don't give a crap about retaining good employees. In the current climate the competitor isn't hiring anyway.

IMO this system becomes a race to the bottom to get the taxpayers money and get cheap workers in non-skilled jobs.

In skilled jobs, there is already competition and in most cases, the wage is above minimum wage anyway.

well then upskill

way too many people dropped out of leaving cert in last few years to go become involved in construction, ive no sympathy for these, or anyone who can afford to do a course (we still have one of the cheapest 3rd level education in world) but doesn't

people need to realize that in this century with globalisation that the only way to be on top is to be educated

whether you like it or not thats life and about time people start facing up to harsh realities

thebman

ionix5891 wrote: »

well then upskill

way too many people dropped out of leaving cert in last few years to go become involved in construction, ive no sympathy for these, or anyone who can afford to do a course (we still have one of the cheapest 3rd level education in world) but doesn't

people need to realize that in this century with globalisation that the only way to be on top is to be educated

whether you like it or not thats life and about time people start facing up to harsh realities

I have a good degree but thanks for the groundless assumptions, accusations and worthless rant about people you have no sympathy for.

We still need unskilled workers to work in our supermarkets and other areas and my complaint is that under this theoretical system, people would get underpaid and then the government would compensate the employer who doesn't feel like paying a full wage.

That is not a workable system IMO. How such a scenario would be avoided?

ionix5891

thebman wrote: »

I have a good degree but thanks for the groundless assumptions, accusations and worthless rant about people you have no sympathy for.

We still need unskilled workers to work in our supermarkets and other areas and my complaint is that under this theoretical system, people would get underpaid and then the government would compensate the employer who doesn't feel like paying a full wage.

That is not a workable system IMO. How such a scenario would be avoided?

i wasn't talking about you so don't be taking it that way please

ill tell you whats not a workable system

paying people for doing NOTHING

this proposal better than NOTHING

.

Julesie

thebman wrote: »

Yeah but that logic is bollocks when it comes to low skilled jobs which is what the initiative is for.

Dunnes don't give a crap about retaining good employees. In the current climate the competitor isn't hiring anyway.

IMO this system becomes a race to the bottom to get the taxpayers money and get cheap workers in non-skilled jobs.

In skilled jobs, there is already competition and in most cases, the wage is above minimum wage anyway.

I think it is definitely an interesting proposal that merits discussion but I can't help but end up at much the same conclusions that theBman reaches above.

I'm still not sure what the incentive would be for employers to retain their current employees that are at or above the current minimum wage when it sounds like they could hire a new batch of "unemployeds" at far lower levels and have the government supplement the wage.

I guess the crux of the problem is that at the minimum wage level workers become somewhat of a homogenous good as they are by their very nature, unskilled. Therefore cost becomes the main driver. If there is no legally mandated minimum what is the actual value of a burger flipper in McDonalds? If that turns out to be €8000/pa should we really be giving every burger flipper in the country a €6000 top up even if it does lower the cost of a big mac by 10c?

However it could be argued that it is the current minimum wage policy that is actually distorting the market place forcing employers to pay more for a worker than the value of their output. I'm sure there would be a trickle down effect (whether the full cost saving would be passed on by the employer I'm less sure of) and this measure would go someway to restoring our competiveness but I'm not fully convinced that it would have a net positive effect on public finances.

Essentially without substantial economic growth we would find ourselves supporting the current unemployed population to the tune of ~€10,000p/a and those currently on minimum wage also when their employer inevitably cuts their wage.

Hobbes

thebman wrote: »

We still need unskilled workers to work in our supermarkets and other areas and my complaint is that under this theoretical system, people would get underpaid and then the government would compensate the employer who doesn't feel like paying a full wage.

They have to legally pay minimum wage. There is no way around it. The system could work if say the government subsidised paychecks based on the number of employees.

For a rough example if the company hires 10 then 3 of those would be subsidized. Of course this would be split across the 10 and means that is more cost effective to keep 10 hired then it is to keep 8. Of course those are just random numbers you would have to work out what helps everyone.

As for would it work. IIRC this system is already in place.

Rockshamrover

Julesie wrote: »

I think it is definitely an interesting proposal that merits discussion but I can't help but end up at much the same conclusions that theBman reaches above.

I'm still not sure what the incentive would be for employers to retain their current employees that are at or above the current minimum wage when it sounds like they could hire a new batch of "unemployeds" at far lower levels and have the government supplement the wage.

I guess the crux of the problem is that at the minimum wage level workers become somewhat of a homogenous good as they are by their very nature, unskilled. Therefore cost becomes the main driver. If there is no legally mandated minimum what is the actual value of a burger flipper in McDonalds? If that turns out to be €8000/pa should we really be giving every burger flipper in the country a €6000 top up even if it does lower the cost of a big mac by 10c?

However it could be argued that it is the current minimum wage policy that is actually distorting the market place forcing employers to pay more for a worker than the value of their output. I'm sure there would be a trickle down effect (whether the full cost saving would be passed on by the employer I'm less sure of) and this measure would go someway to restoring our competiveness but I'm not fully convinced that it would have a net positive effect on public finances.

Essentially without substantial economic growth we would find ourselves supporting the current unemployed population to the tune of ~€10,000p/a and those currently on minimum wage also when their employer inevitably cuts their wage.

I think it would be pointless to spend money on low end jobs as in burger flippers etc. It makes more sense to use tax concessions to save high skilled productive jobs.

Tax concessions don't have to be carte blanc (my French is magnifique not)
They should be targeted at saving quality jobs. There will never be a shortage of burger flippers.

ArphaRima

They should be targeted at saving quality jobs. There will never be a shortage of burger flippers.

So I think what we are seeing here within the thread is when you look at it, there is no "Case For A Negative Income Tax In Ireland".

Galmay

Thraktor wrote: »

The idea has been floating around economic circles for quite some time, and has been proposed in many shapes and sizes, perhaps most famously by Milton Freidman.

It is precisely policies following Mr. Freidmans other 'economic theories' that have the world economy in its current mess.

johnnyskeleton

nesf wrote: »

The problem:

Welfare at the moment will get you €12,480 per annum.
Minimum wage will get you: €17,684 per annum.

There's not enough of a difference here to act as much incentive and the marginal gain per extra Euro earned over welfare is much less than 50c and this is just pure Welfare at €240 per week, it doesn't count your medical card, extra payment for kids, spouse or rent allowance etc.

It's €204 or €10,608, isn't it?

Also, minimum wage is €8.60 per hour, or €16,867.50 p.a. for a 37.5 hour week.

If you include an extra €400 p.m. (€4800 p.a.) and a 35 hour week (i.e. 9-5 1 hour lunch) those figures become €15,408 for not working and €15,743 for working. Take away the income levy of 2% which applies if you earn over €15,208 and you're left with €15,428.14. So the difference could be as little as €20 per year, (38c p.w.) not even including the benefits that are harder to assess such as medical card or bus pass. Even at the full 37.5 hour week the difference is c. €1100 (€21.15 p.w.).

Then add the other schemes such as back to work or doing odd jobs, and it really doesn't make sense to work at minimum wage.

For the OP, the big moral hazard is that companies can then legitimately offer people jobs at a rate of €0 p.a. and let the state pay the rest of the bill i.e. there is absolutely no difference to the worker if they are paid €9,999 p.a. or €0 by their employer. I am not sure that the long term effects of this are desirable. It is also implicit that the company would then pay no part of the PRSI that they do now (becuase it would be an absurdity - why not get employers to just pay their employees this money). You would have a situation whereby employers can dictate that no one earns above the €10k threshold and that would be where wages would get stuck for everyone other than the self employed or highly skilled individuals who can dictate their own terms. Promotions would be discouraged because the marginal cost to the employer to pay €10,001 as opposed to €10,000 is massive. It would be better just to reform the current system so that there is an incentive to get a minimum wage job

Boskowski

A large part of the shocking situation with regards to public finances is due to the fact that Ireland seems one of the softest touches in the world when it comes to doshing out money left, right and center to the "most vulnerable in society". In Ireland it seems you belong to that disadvantaged group of people when you're an OAP with 'only' 700E a week. Or a single mum with 600E a week and a free house.

I'm sick of it. Dubious disabilities, child & lone parent benefits, incredibly high dole and other benefits like rent & mortgage supplements. And I'm not even talking about actual fraud here to which we also seem to be extremely vulnerable.

So ye sure, why not add a few billion to that bill by giving low income households more free money? So that they can up their Sky subscriptions or buy more cans & fags? Now that would be a great stimulus to the economy.
Too stupid or too lazy to learn something? Content with sitting in your hut lifting the gate all day? No worries, we top up your salary. We keep rewarding stupidity, laziness & uncompetitiveness.

My arse. What sort of signal would that send to the hard working middle class? "Why the fvck do I make an effort at all?" they would say. "Could do almost as good by flippin' burgers or not doing anything at all.", the would continue. And they'd be right.

So I say 'Bollix', most stupid and also most unfair idea I heard in a long time.

Thraktor

johnnyskeleton wrote: »

For the OP, the big moral hazard is that companies can then legitimately offer people jobs at a rate of €0 p.a. and let the state pay the rest of the bill i.e. there is absolutely no difference to the worker if they are paid €9,999 p.a. or €0 by their employer. I am not sure that the long term effects of this are desirable. It is also implicit that the company would then pay no part of the PRSI that they do now (becuase it would be an absurdity - why not get employers to just pay their employees this money). You would have a situation whereby employers can dictate that no one earns above the €10k threshold and that would be where wages would get stuck for everyone other than the self employed or highly skilled individuals who can dictate their own terms. Promotions would be discouraged because the marginal cost to the employer to pay €10,001 as opposed to €10,000 is massive. It would be better just to reform the current system so that there is an incentive to get a minimum wage job

Just to clarify, it's not a matter of the state "topping-up" any salary to €10,000, the state would pay out negative income tax equal to €10,000 minus half the worker's salary. This means that a worker getting paid a nominal salary of €0 would take home €10,000, whereas a worker getting paid a salary of €9,999 would take home €14,999.50. In fact, while there wouldn't be a legal minimum wage, there would be no reason for a worker to accept a wage of near zero, as they could take home almost the same amount unemployed.

The advantage of a negative income tax system, though, is that it's impossible for anyone to every be in a situation where they're better off unemployed than in work. Furthermore, there are no "discontinuities" in take-home pay, as every marginal increase in pay results in a marginal increase in the amount you take home. This means that work is always incentivised, and increased salaries are always incentivised, unlike the current system where there are circumstances where moving into work makes you worse off, and an increase in salary can make you worse off.

ArphaRima

The problem here is that everyone isnt actually seeing this as anything other than a better solution than paying people to do nothing.

But why should WE pay people to do a job for a company's gain?

Why should I pay taxes so that a shoe manufacturer can get free labour in Ireland for example?

Why should a business that was failing because its costs were too high, its market is too weak and trade slow be supported? Surely it should be allowed to fail so that another healthier business may thrive. Thus creating truly sustainable employment and real growth.

IMO if a business cannot afford to pay a salary of 15,428 then why should we pay it.

Answer that. Addressing the issue of which businesses get our money, and how we will stop it from distorting the market.