Familiar to many, the negative income tax was formerly developed by British politician Juliet Rhys-Williams in the 1940s and later by Monetarist Milton Friedman. The NIT acts like the regular tax system but instead of taxing lesser on people below the stipulated threshold, it supplements them with an additional income determined by the NIT. Take for instance, the threshold for positive tax liability was say, $18,000 (based on the recommended $1,500 per month to live in Singapore), a family with only $15,000 of annual income would, given a negative tax rate of 50% (as recommended by Milton Friedman), receive a check from the Treasury worth  $1,500 (50% of the $3,000 difference between its $15,000 income and the $18,000 threshold). A family with zero income on the other hand would thus receive $9,000 annually. In this article, I endeavour to discuss if NIT could be implemented in Singapore and if so, what would the result be?

As of right now, household earning an annual income of $20,000 and below doesn’t require to pay any tax as seen in the table below.

Under the NIT, households who received more money could then spend more which will further circulate the velocity of money in the economy. It could also perhaps narrow down the income inequality (which is a real problem in developed nations) between the poor and the rich. But what I felt stands out the most is that with the additional funding to the poor, it provides them with an equal opportunity as compared to the middle class and the rich to strive for Singapore’s top-notch education which will likely increase an individual’s chance to pursue a steady and successful career. Another inherent problem that exists is that although there are currently numerous schemes for the needy, people either don’t know the existence of these schemes or that they found the process too complicated. Thus the result is that the effectiveness of such schemes fall short of intent. On top of that, consider tax problems at a different angle. The Goods and Services Tax (GST) which was introduced in 1994 taxes the poor or rich at a rate of 7%. One could argue that it is a regressive tax, in which the poor pays a higher percentage as compared to the rich since the poor tends to spend a larger percentage of their income than the rich. And what the rich doesn’t spend, they avoid paying GST on it. Hence, relative to income, the poor end up paying more GST than the rich.

Of course, as per all schemes there are disadvantages that comes with it. In this case, who is going to fund this particular scheme? It could be said that wealth redistribution from the rich (taxing more on the rich) could fund this but in order to support such a scheme requires a large bureaucracy which would again cost a bomb. Apart from the costs, another major concern for such  a scheme is the disincentives for individuals to work harder. The Stanford Research Institute (SRI), which analysed the SIME/DIME findings, found stronger work disincentive effects ranging from an average 9% work reduction for husbands to an average 18% reduction for wives. Then again, the findings were based on a different geographical area which might spawn different results if tested on Singapore due to the competitive nature of our homeland.

The idea of NIT may appear ludicrous to some, but nevertheless I believe it is an alternative policy which could be revised and reconsidered. Given Singapore’s competitive nature, the NIT wouldn’t have much effect in discouraging middle class people to work harder although it couldn’t be said the same for the lower income earners. In today’s world of politics, politicians seldom propose long-term solutions for the citizens but instead propose solutions that would get them more votes. Such a practise might be detrimental to our society and though the chances of proposing NIT by politicians seem little, the NIT remains yet a hot topic in the world of economics. As such, feel free to drop by your opinions on the NIT!