Public Finance - Big Income

Introduction

Negative income tax (NIT) is a tax refund to anyone whose income falls below the cut off line and the NIT brings it back above the line, it is also know as the Basic Guaranteed Income. BIG is a form of income distribution in the society. According to Gary Becker “any state intervention, any income redistribution, creates disincentives and distortions, but if society decides that a certain level of redistribution must take place, the NIT is the best, the most minimally distorting, solution ever devised." The three countries that are adapted to NIT or basic guaranteed annual income (BIG) mentioned in this paper are Canada, The United States of America and Namibia.

Many different sources of funding have been suggested for this form of redistribution and these are: incomes taxes, sales taxes, luxury taxes, wealth taxes, inheritance taxes, capital gains taxes, pollution taxes, tariffs, sin taxes, universal stock ownership, fees from government created monopolies and a national mutual fund. Most citizens of a country do not want money to be deducted from them through taxes. The unhappy citizens will end up moving provinces or countries if the money being deducted from, for examples incomes according to Tibeout. According to the Altruism theory, people might feel the need to help others because they are uncertain about future

Canada

The Manitoba Mincome administered a negative Income tax (NIT) from 1974 to 1978. The residents of Dauphin Manitoba and other surroundings were randomly selected for this pilot project. Due to the political situation in the United States of America they decided to abandon the project, therefore the Canadian government lost interest in the program. (Tim Rourke)

Evelyn Forget a professor of University of Manitoba compiled information for the Manitoba Mincome. She had problems complaining the information because this information was not digitalized. She decided to look at the census and other information for Dauphin the same time the program was run. The Mincome was paid to families and not to individuals.

Results:

During this two year period, the census showed that children stayed in school longer than before or after, the hospital admissions dropped and regressed after 1978 and the pregnancy rate declined

The divorce rate did not change because Dauphin is a very rural, conservative, religious community and four fifths of the people attend the Catholic Church or the Ukrainian Orthodox church. There was a broader effect on society that is the next generation descendants of those who lived in Dauphin the time of the study did better mainly because of more children staying in school, this was a ‘transmitter’ of prosperity to the next generation. (Tim Rourke)