Replace Welfare with the Negative Income Tax

To start off, I will introduce my proposal by explaining why the current system needs to be changed and why the negative income tax is a superior model to welfare. After, I will explain why a negative income tax system is superior to having no governmental means of helping the poor. The Welfare System has Failed Since the declaration of the war on poverty by Lyndon B. Johnson in the 1960's, poverty in this country still remains a major issue, with a total of 50 million people living below the poverty line, and the overall poverty rate fixed at around 15% (1). Despite the fact that federal and total welfare spending has increased drastically over the past 3 decades, one can see in the graph above that the poverty rate has remained stagnant (1). With so many people still in poverty, the question is raised if whether or not the current welfare system is an effective method of reducing poverty. Economists have analyzed the effects of welfare and have determined that there are significant problems that have led it to being ineffective and even harmful to the very people it is intended to be help. As Nobel prize-winning economist Milton Friedman explained, "Our present de facto guaranteed annual income is a mess. It is expensive and most of the money goes to people who are not by any stretch of the imagination poor. It involves a tremendous bureaucracy, wide-spread intervention into the operation of the market system in areas that have nothing to do with poverty, and inexcusable interferences with the individual freedom and dignity of the truly poor who receive assistance, let alone of the rest of us" (2). Instead of continuing on with the current welfare system, I propose to replace welfare with a negative income tax system (or NIT). The negative income tax is the best method for helping the poor because it incentivizes work, is extremely efficient, has very low administrative costs, is less intrusive on people's lives, and more effectively gives poor people what they need to live: money. How the Negative Income Tax Works So, what is the negative income tax? First proposed by Friedman, the NIT is a type of tax where people earning below a certain amount of money receive supplemental pay from the government instead of paying taxes to the government. If one makes below this minimum income floor, people are given money from the government equal to 50% of the minimum income floor minus their income. People that earn more than the minimum income are taxed only on the additional money they receive above that minimum income. For example, let's say that the minimum income floor is $20,000 a year. If the floor is $20,000, a person making no income would be given a $10,000 subsidy from the government. If a person becomes employed and makes $10,000 a year, he would receive an additional $5,000 from the government, making his annual total income $15,000. If someone makes $20,000 a year, he would not being given money nor be required to pay an income tax. If someone earns $30,000 a year, a tax would be required only on the additional $10,000 that he makes above the $20,000 floor. In this system, it would ensure that no individual has less than $10,000 dollars to live off of. In the case of families, the poverty line increases for every additional person in the household, but less money is required when compared to households of single individuals. For every additional member of the household, the minimum income floor would increase by $10,000 a year. For example, a family of four making no income would receive $25,000 from the government. This amount would keep that family slightly above the federal poverty line, which is at $23,850 (3). The family would need to make $50,000 to neither be subsidized nor taxed. The Negative Income Tax Would be Cheaper than Welfare From what was explained in the earlier section, it may seem as though this system would be too costly for the country to handle. In fact, one of the most prominent reasons that the NIT is better than the current welfare system is that it would decrease costs substantially. In total, the United States spends nearly $1 trillion every year to fight poverty. That amounts to $20,610 for every poor person in America, or $61,830 per poor family of three. The federal government alone spent $668 trillion on 126 different programs to fight poverty. This federal spending amounts to $14,848 for every poor person in this country.(1) The graph below illustrates how total welfare spending is actually much higher than the amount of money it would take to bring the income for a family of three above the poverty threshold. Also, each of the 126 federal welfare programs have their own method of administering benefits to the poor, but the majority of them are means tested. The problem with having so many means tested programs is that it becomes extremely costly to test and administer all of the benefits. Even worse, many of the social programs end up acting paternalistic in the way they administer the benefits. The purpose of having strict requirements and regulations is to ensure accountability of the welfare recipient, and ensure the recipient actually needs the resources. The result is hundreds of thousands of public servants being hired to determine whether a person is worthy or unworthy of the welfare benefits. Although it could make sense in some cases to administer welfare on a case by case basis, the amount of money spent to do such a task for millions of people is enormous and ends up being more harmful than beneficial. The accumulated waste of maintaining the welfare bureaucracy and its hundreds of different social programs is very inefficient, when the goal is the same for every program - reduce poverty. The Negative Income Tax Incentivizes Work More than Welfare So why is this system better than our current welfare system? The first major advantage is that it provides a greater incentive to work. Currently, the welfare system is designed in a way where one receives benefits only if they are in a certain tax bracket. If one makes enough money to bring them slightly above that tax bracket, they can lose the benefits given to them by one of the 126 different federal programs. This is a problem, because in many cases, the benefits one loses from attaining a job or getting a raise actually makes him or her lose more value in benefits than they would gain in the additional income. This unfortunate consequence of the welfare system is what destroys the incentive to work and move up the economic ladder. This circumstance is what economists refer to as the welfare trap. The welfare trap leads to an endless cycle of poverty among poor families and it is very difficult to get out of. The solution to the welfare trap problem is the NIT. The NIT is designed in a way where getting a job or a raise always makes one's total income and standard of living rise. This system ensures the incentive to work is always there, and it gives poor individuals the security in knowing that they will always have monetary help from the government when they need it. The pathway to upward mobility would finally be opened to millions of poor Americans who have been stuck in a system which unintentionally keeps them in poverty. But wouldn't giving money out to everyone, no questions asked, also decrease the incentive to work? The answer is the same as the current system, yes. The better question is, which system minimizes that disincentive to work the most? Milton Friedman answers by saying, "Like any other measures to alleviate poverty, it reduces the incentives of those helped to help themselves, but it does not eliminate that incentive entirely, as a system of supplementing incomes up to some fixed minimum would. An extra dollar earned always means more money available for expenditure"(4). Rebuttal - Why the Government Ought to Help the Poor It appears that my opponent agrees with my premise that welfare has failed. What he disagrees with is what we should do in response to the failed system. He asserts that "the responsibility to take care of the poor will fall on themselves if they can manage". The problem with this idea is that many are not capable of taking care of themselves in their current circumstances. There are people all over this country that don't have employment opportunities open to them currently, and may be in dire need of basic necessities to simply live. Food, water, and shelter are required by every person, but they cost money. Not everyone has the ability to gain these resources at various times in their lives. My opponent indeed concedes the point that people may not be able to help themselves, and he gives an alternative solution, which is that "families and private charities can assist the poor if the poor cannot help themselves". This proposed solution has been verifiably unsustainable and insufficient, especially in times of severe economic recession. For instance, there simply wasn't enough charitable organizations and donations during the Great Depression to assist all of the unemployed, youth, the elderly, and stranded rural communities. As a result, the New Deal relief programs were necessary to ensure that people still had enough resources to survive. Today, as stated earlier, poverty is still a problem in this country, and private charity could never be counted on to effectively give assistance to the 10's of millions of people in need. Because of this, the government ought to have a means to help the poorest and most vulnerable in society, and the NIT is the most fair, efficient, cheapest, and effective means of assisting poor people and giving them the chance to get out of their troubled circumstances. Further arguments for the NIT will be given next round. Sources (all in link): http://www.multiurl.com...