Negative income tax

Why don’t our opposition parties offer alternative policy proposals for debate? Because they don’t have policy wonks to come up with them. And what would an alternative policy proposal look like, anyway? Here’s one: A negative income tax. What it is and why it is worth considering. Full essay.

6 Responses to “Negative income tax”


  1. 1 cy 28 December 2009 at 15:10

    it won’t work, not just because of the things you pointed out, but also because some rich ppl may have no income but they have income producing assets. so,do we give them money just because they have no salary income? isn’t it more regressive?

    instead, i propose that the dividends and interest from GIC/Temasek to be distributed to citizens annually. this will be progressive and check on SWF.

  2. 2 KAM 28 December 2009 at 18:13

    Good illustration and it was easy to understand.
    Isn’t this a rehash of minimum wage?

    All in all, I think you deserve a place in the NMP or a seat in WP or an opposition party.

    Of course, your sexual-orientation will be an obstacle, but hey you neve let that stand in your way, anyway right?

  3. 3 ThisC 28 December 2009 at 20:55

    If we implement this, we will also need to implement a minimum wage for all employees.

    The reason I’m saying this is because employers will be tempted to decrease (or not increase) the wages of low-income people knowing that the goverment will pay for the rest.

    In order to make sure there is no abuse, the negative income tax could be based on CPF contributions.

    I generally do like your idea though. And also I like the fact that foreign workers will be included in the scheme. These guys are way underpaid.

  4. 4 yawningbread 28 December 2009 at 23:42

    KAM – a negative income tax is completely different from a minimum wage. A minimum wage law only benefits those who are in work, creating a social divide between those who have a job and those who do not, in a way that further privileges (even if minimally) those who already have a job. A negative income tax benefits everybody with no or low income, and that includes housewives and househusbands, those retrenched, the retired elderly. Its appeal lies in the way that it casts the net wide, no arbitrary picking and choosing who deserves and who does not, a feature of many existing schemes.

  5. 5 yawningbread 28 December 2009 at 23:45

    ThisC – I don’t think that employers will depress wages just because there is a state-provided income supplement. After all, the state has been providing workfare for some time now and I don’t see an empirical evidence that wages have fallen because of it. Wages respond to competition. I think wages in Singapore (at the bottom end of the job market) reflect the looseness of foreign labour policy.

  6. 6 skh 30 December 2009 at 17:56

    Alex — Workfare Income Supplement is essentially a negative income tax (with Singapore-specific tweaks). It relies on the CPF system to verify income levels for eligibility — since CPF contributions are mandatory for those making above a certain amount (I think $500 per month), that is an effective solution for these workers.

    But the scheme starts to break down for those making less than $500 per month, casual workers and the self-employed, who do not fall within the CPF net. The less-than-perfect workaround for these folks is to “encourage” them to make CPF contributions — which means a nett reduction of their take-home cash even after including the WIS payouts, although their overall compensation including CPF contributions rises. While the Govt has acknowledged this issue, I do not believe they’ve yet come up with a good solution. So again, the lowest income who need the most help lose out.

    More details at http://mycpf.cpf.gov.sg/Members/Gen-Info/WIS/WIS_Scheme.htm

    PS. WIS is the permanent scheme — Workfare Bonus was the name of a one-off payout from the Govt in 2007, which in retrospect seems to have been a pilot/trial for WIS.


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