California Launches Improved Reverse Income Tax Scheme

work and smile

California’s welfare system (EITC) includes subsidies sent annually for people living without income and that’s about to change. Under new rules the money given to people who earn less than minimum wage will be sent monthly. This is really good since it provides a stable, reliable, and regular sum every month; in theory this will reduce stress for the recipients.

The plan is more like reverse income tax than it is universal basic income. Regardless, it’s good to see one the world’s largest economies delivering financial care in a more efficient manner.

“The typical pattern with the EITC is that you get deeper and deeper into debt over the course of a year,” Ruben says, “and then you use the big payment at tax time to try to pay everything off and break even.” Giving people the option to receive the credit on a monthly basis will help people plan their budgets on a more immediate basis. Benefits like food stamps are delivered monthly, so families receiving both will have a more accurate sense of their financial landscape. And in months when a household finds itself on more stable financial footing, they might be able to put some of the tax credit money aside in savings. “What we’re seeing is the idea of the importance of a steady drumbeat of financial security throughout the year,” Ruben says.

Newsom’s budget proposal aims to tackle these challenges. It will raise the household income threshold to over $30,000 (or what someone would take home working full-time at the projected $15 per hour minimum wage) to include more families. And the expanded funding will grant parents with children under six an additional $500 per year. That may not seem like a lot, Ruben says, but in focus groups run by the ESP over the past year, one woman said anyone who looks at that money and responds in that way “has never had to choose between paying rent and buying food.”



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Time for a Tobin Tax on Financial Transactions

computer screen

High frequency trading increases volatility in stock markets and mean that only those with access to high-powered computers can compete. This is not good for long-term thinking and means that what a company actually does is irrelevant to the stock performance – contradictory to claims about how the market ought to work. Enter the concept of a Tobin tax. In the US, the Congressional Budget Office proposed that such a tax can make a massive and positive difference for the government and society at large.

So how much would this tax on Wall Street raise? Even accounting for certain other revenues that would go down as a result, The CBO says that “This option would increase revenues by $777 billion from 2019 through 2028.”

In other words, you could raise nearly $80 billion a year over the next decade with a small tax that is well-targeted to the investor class, and which would have the salutary effect of discouraging a practice that already serves to rob the public. To give just one example for context, you could fund virtually the entire federal food stamp program with this financial transactions tax.

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These Millionaires Want Higher Taxes

Office room

When it comes to taxes Americans love not paying them, but now some millionaires want to change that. The Patriotic Millionaires call on the rich to pay their fair share, and they call for that attitude to permeate the globe. Developed nations tend to tax money made through labour at a higher rate than money made through investments, meaning rich people can get richer by not working. The chair of PM, Morris Pearl, recently wrote a good op-ed explaining why he thinks the rich should be taxed and has a new book out.

Most of the ultra–rich make the vast majority of their money through capital gains, not income. They don’t work in the way most Americans work, because they live off of their investments. And it’s a lucrative path, because the top capital gains rate is barely over half of that paid for ordinary income.

That means a billionaire whose investments earn him millions of dollars while he sits around at the beach and goes to fancy cocktail parties pays a lower tax rate on his earnings than almost any working American.

Investing is not inherently more valuable than labor, and it’s simply not true that investing in the stock market creates jobs.

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It’s Time to Tax Car Drivers by the Kilometre

small car

The RAND Corporation is calling for a new way to tax drivers in the states: by distance traveled. Car drivers may feel like they’re paying too much in taxes already, but the reality is that the costs of maintaining road infrastructure are far greater than revenue from vehicle-specific taxes. In the USA, congress has had to bail out their highway fund from general taxes and in other jurisdictions (like Canada) it’s just accepted that everyone pays for the luxury of drivers. Gas taxes and the like aren’t bringing in enough revenue so RAND suggest drivers pay per kilometre travelled, that way those who the roads the most pay the most to maintain them.

A Vehicle Miles Traveled tax is what it sounds like: a toll that applies wherever you go. Drivers pay by the mile, at a rate that reflects the actual cost of driving. The idea is popular. More than half of states have looked into taxing VMT. The most prominent has been Oregon. In 2006 the state recruited 300 drivers for a pilot program, and outfitted their cars with GPS. For each mile, they pay 1.5 cents. (They are also exempt from paying the state gas tax.)

A VMT tax could tamp down on congestion by adding a few pennies to the per-mile fee during rush hour or when drivers enter city centers. (That second bit is also known as a congestion charge.) To control emissions, gas guzzlers could pay a higher per-mile rate.

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Using Math to Solve for Inequality

Inequality has been increasing globally for years, and developed nations have seen inequality rise in rates comparable to the start of the great depression. This situation is understandably problematic and worrisome. Accordingly, a lot of thinkers have looked into the problem, most solutions come down to some level of redistribution of wealth. The New England Complex Systems Institute has used a complex math approach to conclude that tax cuts will only make the gap between the rich and poor worse. The solution is, indeed, wealth redistribution.

Bar-Yam and his colleagues’ new research shows that a purely monetary solution to the US economy’s current imbalance is insufficient. Bar-Yam likened this to trying to drive a car by focusing only on the gas and brake pedals, and ignoring the steering wheel. In addition to interest rate regulation, Bar-Yam’s research points to a transfer of wealth to the less wealthy sectors of society as the most effective way to rebalance the consumption and production cycles.

This conclusion is based on response theory, a way of looking at complex systems by changing the environmental conditions to see how the system responds. Bar-Yam and his colleagues analyzed historical data to create models that showed how the US economy responds when the distribution of wealth between the production and consumption cycles are altered. Their models demonstrated that the Trump Administration’s current approach to economic growth—cutting government spending while slashing tax rates for the rich—is misguided.

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