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Summary Of NIT Picking Martin Lopez-Daneri

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In NIT Picking Martin Lopez-Daneri explores the effect of a negative income tax (NIT) on the U.S. economy. Daneri idea is to use a NIT reform as an alternative approach to fight poverty under a universal basic income model. Under Daneri proposal, the NIT would replace the current welfare and tax system of the U.S. with an upfront lump sum payment to all U.S. households. The use of a NIT would not distort the pricing system of the labor market, unlike minimum wage.

The goal of Daneri research is to gauge the effect a NIT would have on labor supply, tax rates, savings rate, and general welfare of citizens. Daneri hopes the NIT will address the problem of households with similar incomes, that pay different tax rates due to the complexity of the present tax code. Additionally, Daneri believes the NIT can lessen the burden that low and middle-income families feel when their income rise, along with their marginal tax rate, and they are phase-out of welfare programs making them worse off. The implementation of the NIT would be a combination of a constant marginal tax rate and a lump-sum transfer payment to all households. The NIT would work as the following, at the beginning of …show more content…

The study found that a NIT with a 22% marginal tax rate and 11% per-capita GDP transfer would have a 2.1% increase in consumption. Further, the study found that under the NIT the biggest gains are made by low productive agents in the economy. If the NIT were to be implemented without a transfer payment, there would a loss of 4.1% in the welfare of citizens relative to the present tax code. Daneri also notes that a flat tax policy would to underperform a NIT. Daneri offers what he calls the “Popular NIT”, which calls for a 19% marginal tax rate and 9% per-capita GDP transfer. Though the “Popular NIT” does not have the same consumption gains as a 22% tax rate and 11% transfer, there is still a worthy gain of

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