Maybe the description could be parsed slightly differently? Some might read parent's description to be proposing a bonus on W2 income the a limit on the bonus only of $7,500. Thus an income greater than that receives the full bonus. The structural problem you have correctly identified thus does not arise!
It would make sense to assume there is some cut off, and given how government cut offs work in the past, it would be reasonable to assume the cut off will be implemented in a fashion that creates a graph where sometimes raises will result in less pay, at least when combined with existing government aid programs.
Depends how it's implemented, probably. People react differently to larger paychecks and tax refunds, for example. And certainly people react differently if you call it a bonus, even if it is just a negative income tax that would please Friedman.
> It would make sense to assume there is some cut off, and given how government cut offs work in the past, it would be reasonable to assume the cut off will be implemented in a fashion that creates a graph where sometimes raises will result in less pay, at least when combined with existing government aid programs.
That's a completely, fully, absolutely 100% reasonable comment on how poorly implemented current government aid programs are far too often implemented.
It might be a slightly less reasonable comment on the details as written of the proposition above.
The more I think about it, the harder I think it is to create a program which doesn't result in this once combined with other programs. Any cutback, no matter how small, will be combined with all other cutbacks of all other programs, existing and future. As long as these benefits are independent, there is a that the sum of all the cutbacks will outweigh the raise that caused the cutbacks. Even if the max cutback was 10%, meaning it would take a 75k raise to remove all benefits, when combined with 9 other equally generous benefit programs and income tax you still end up with a loss.
When adjusting for the phase out being for optics limiting how the phase out works (as all phase outs for optics would tend to look similar to meet similar expectations), the risk of a raise resulting in lost total income isn't easily dismissed.
This is why a program that at no point has any way, shape, form, or manner of phase-out is desirable. It fully and completely avoids any kind of problem stemming from colliding cutbacks. This is such a good idea and so wise, that it was baked in to the approach proposed above!
But if it doesn't ever phase out, it is really just a tax cut, and to be exact a tax cut. I'll take having to pay 7.5k less taxes (or getting an untaxed check for 7.5k from the same people I have to write my tax check to).
However, what you call something and how you structure impacts how people react to it. Call it wages and spread it over time and people react one way. Call it a bonus and hand it out once a year and people behave differently. So while it may be more correct to call it a negative income tax, this may work against the intended economic effects.
The graph need not ever result in less pay, but Your rate per hour would decrease after the cap is earned out.
Somewhat harebrained perhaps, I like Friedman’s negative income tax but also want to encourage both employment and small business growth.
If you’re making 500k, the income bracket increase used to fund the program would cost far more than the gain you received, but realistically it probably would be written to phase out for pure optics.