The alternative to the living wage.

[Heywood]

I see two better alternatives to the living wage.

1. A negative income tax.
2. A universal basic income.

Either of these would replace the ragbag of government assistance programs. Food stamps, Housing assistance, Unemployment benefits, Social security payments, etc.....those programs and their administrative cost can all go away. The "need" for minimum wage requirement(and all its detrimental effects that come with it) also go away.

First the negative income tax. For simplicity of explanation the cases will be given with a flat tax rate of 50%. In reality I would like to see a progressive tax but a flat tax is easier to explain so I will use that.

A person is granted an exemption of say $25,000. This means if that person makes $100,000 in one year they are only taxed on $75,000. If that person makes a $500,000 a year, they are only taxed on $475,000.

Earning more than the exemption will leave you subject to a positive tax, that is you pay the government money. Earning less then the exemptions means you receive a negative income tax, that is the government pays you money. Open the spoiler to see specific cases.

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Let us assume the tax rate is 50%.

Case 1: Bill is a full time student and doesn't work. He earned 0 dollars in wages. Bill would get 50% of his exemption or $12,500 paid to him by the government. $12,500 is Bill's total income for the year.

Case 2: Alice earned $5,000. Since $5,000 is below the exemption she has no positive tax liability. Since she earned less then the exemption, she gets money paid to her by the government. She has $20,000 left on her exemption so she gets paid 50% of that. The government pays Alice an additional $10,000 on top of the $5,000 she received from her job. Alice's total income for the year is $15,000.

Case 3: Donna earned $15,000. She has $10,000 remaining on her exemption and gets paid half of that from the government. Donna's total income is $20,000. $15,000 from working plus half her remaining exemption or $5000.

Case 4: Carl earns $25,000 a year. Carl pays no taxes to the government, but because he has no remaining exemption, he receive nothing from the government. Carl's total income for the year is $25,000.

Case 5: Walter earns $35,000 a year. Since $25,000 is exempt from taxes, Walter only pays tax on $10,000. Walter's after tax earnings for the year is $30,000.

Case 6: Julia earns $60,000 but because of her exemption only pays tax on $35,000. Julia's after tax earnings are $42,500.

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Second, a universal basic income is simply a system in which the state provides every individual(or their guardians) with a basic income. Enough to enjoy a comfortable, but very modest living. Any income earned or received on top of the Universal basic income is taxed.