too easy - 30% tax -

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    libertarian independents - vote group W in NSW senate

    September 24, 2004

    the 30/30 system

    we support a negative income tax scheme called the 30/30 system. the system combines taxation and welfare into one simple formula.

    there is a tax free threshold of $30,000 and after that, everyone pays 30% of each extra dollar in tax.

    incomes under $30,000 attract no tax, instead they receive negative income tax from the government. the amount is equal to 30% of the difference between the individualÕs income, and $30,000 (the tax free threshold).
    some simple examples will make this clear:

    example 1: you earn $0
    the government pays you 0.3 * 30,000 = $9000

    example 2: you earn $10,000
    you are $20,000 below the threshold, so the government pays you:
    0.3 * 20,000 = $6000 for a total income of 6,000 + 10,000 = $16,000

    example 3: you earn $40,000
    you pay 0.3 * 10,000 = $3000 in tax

    the beauty of this tax system is that the effective marginal tax rate is 30% for exeryone at all incomes. this simply means that for every $1 extra you earn, you contribute 30 cents to society. nothing could be more equitable. everyone contributes the same amount for every extra dollar of income they earn, and everyone has the same incentive to earn.

    other benefits are its extreme simplicity. this income tax system would remove the need for a complicated tax pack, as anyone could work out income tax commitment (or welfare benefit) in a single line. furthermore, it removes the need for complex forms and welfare systems which benefit different groups to differing degrees: every individual in society is guaranteed an income by the state, to spend as they best desire, and may work to supplement their income without hitting arbitrary tax and welfare barriers.

    also the tax system is redistributive, even though it is flat (as a marginal rate) after $30,000. low income earners receive money from the tax department, and high income earners contribute 30% of their income over the threshold. the more they earn, the more they contribute back to society.

    negative income tax systems are not at all radical in economics literature. they are fair and simple, everyone can agree the tax system is far too complex: this reform is the solution.

    (we are indebted to john humphreys of the centre for international economics for his paper "reform 30/30")

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