NIT will disrupt future economy – people won’t want to work

As appealing as it seems, Friedman’s negative income tax is not so simple to implement. Obviously, minimum payments would need to recognize different households’ characteristics. Single individuals would get less than those families with multiple adults and children. Households with a disabled parent or child should be given more to cover additional costs. Those temporarily out of work, after earning a higher income, might need replacement income that would be significantly above the minimum payment. So, once we start differentiating people by their needs, we get back too many current programs – and the bureaucracy – to determine eligibility for various benefit payments. Nor is it clear voters would support the elimination of, tuition tax credits, property tax and rent credits, pension and RRSP deductions, age credits, refundable GST tax credits and other targeted relief measures, which all play a role in social policy. And if voters dislike a flat rate, a much higher marginal tax rate would be needed than 49 percent to make up for special preferences. But such high marginal tax rates would discourage work, saving and risk-taking, ultimately eroding the ability for an economy to sustain a guaranteed income. The idea of just giving out cash to relieve poverty also raises eyebrows for many voters who have to pay tax on their earnings from work. And there’s the unknown labour-supply effect: how many recipients might choose to stay at home, receiving $30,000 cheques, rather than work? That’s why many economists concerned about the working poor prefer wage subsidies instead of just handing cash to otherwise able workers. And cash alone isn’t a panacea for helping all low-income families: we would still need professionals to support those with mental or other health issues, social problems or who lack the basic skills to contend with daily life. As we begin to recover from this pandemic, the last form of intervention we need is to discourage people from pursuing new opportunities and jobs that will eventually become available. That is a lesson so far from the grand experiment we had to adopt in a hurry to help many people survive a severe recession. While necessary in the short term, if the federal government were to heed calls to continue this policy on a permanent basis it could disrupt recovery for years to come.