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 Introduction
In most countries the income tax system and welfare (social security in European countries) system have evolved separately. The existence of two systems - one which takes money from citizens and another which doles it out again has been criticized for two reasons. First, it is inefficient to run two systems which essentially duplicate the same function. Second (and more importantly) the interaction between the two systems can mean that some people pay extremely high 'effective marginal tax rates' - i.e. as their wages rise both their benefits are withdrawn and taxes kick in. In some countries for every extra dollar earned it is possible that the government takes back more than one dollar - leading to work disincentives. In this resource it is not possible to go through every single proposal in each country for integrating taxes and benefits. (For a good example of this see the summary analyses of integration proposals for Australia provided by David Ingles in "Rationalising The Interaction of Tax and Social Security. Part 1: Specific Problem Areas. Part 2: Fundamental Reform Options" Centre for Economic Policy Research Discussion Papers 423 and 424, 2000 Australia ). However the resource will provide details of Negative Income Taxes - the first theoretical proposal for tax-benefit integration, and Tax Credits - practical examples of how integration is proceeding in the UK and US. Negative Income Taxes Negative Income Taxes provide people with a guaranteed minimum income and income subsidies for people on low incomes - up until a break-even point - when normal income taxation kicks in. NITs essentially are welfare benefits which are delivered through the income tax system.
Tax Credits Tax credits are essentially money payments paid through the tax system. They can either paid out in full just like a welfare benefit, and/or they can be set off against tax liabilities - to create a net benefit payment (or a lower tax demand).
Jodie T. Allen, Negative Income Tax, Concise Encyclopedia of Economics. US Patricia Apps, "Why an Earned Income Tax Credit Program is a Mistake for Australia", Centre for Economic Policy Research Discussion Paper 431, 2001 Australia Lisa Barrow and Leslie Moscow McGranahan, "The Earned Income Credit and Durable Goods Purchases", Joint Center for Poverty Research US Mike Brewer and Paul Gregg, "Eradicating Child Poverty in Britain: Welfare Reform and Children Since 1997", Institute for Fiscal Studies WP01/08, 2001 UK Mike Brewer, Tom Clark, and Michal Myck, "Credit Where It's Due? An Assessment of the New Tax Credits", Institute for Fiscal Studies Commentary 86, 2001 UK Mike Brewer, Michal Myck, and Howard Reed, "Financial Support For Families With Children: Options for the New Integrated Child Credit", Institute for Fiscal Studies Commentary 82, 2001 UK Mike Brewer, Tom Clark, and Alissa Goodman, "The Government's Child Poverty Target: How Much Progress Has Been Made?", Institute for Fiscal Studies Commentary 88, 2002 UK Rebecca M. Blank, David Card, and Philip K. Robins, "Financial Incentives for Increasing Work and Income Among Low-Income Families", Joint Center for Poverty Research US Richard Blundell, Alan Duncan, Julian McCrae, and Costas Meghir, "Evaluating In-Work Benefit Reform: The Working Families Tax Credit in the U.K.", Joint Center for Poverty Research UK Richard Blundell, "Work Incentives and 'In-Work Benefit Reforms: A Review", Oxford Review of Economic Policy, Vol 16 No 1, 2000 UK Stacy Dickert-Conlin and Douglas Holtz-Eakin, "Employee-Based versus Employer-Based Subsidies to Low-Wage Workers: A Public Finance Perspective", Joint Center for Poverty Research US David T. Ellwood, "The Impact of the Earned Income Tax Credit and Social Policy Reforms on Work, Marriage, and Living Arrangements", Joint Center for Poverty Research US Milton Friedman, "The Case For The Negative Income Tax", National Review, 1967 US Carolyn J. Hill, V. Joseph Hotz, Charles H. Mullin, and John Karl Scholz, "EITC Eligibility, Participation, and Compliance Rates for AFDC Households: Evidence from the California Caseload", Joint Center for Poverty Research US HM Treasury, "Tackling Poverty and Making Work Pay - Tax Credits for the 21st Century", 2000 UK HM Treasury and Inland Revenue, "The Child and Working Tax Credits", 2002 UK Janet Holtzblatt and Robert Rebelein, "Measuring the Effect of the EITC on Marriage Penalties and Bonuses", Joint Center for Poverty Research US V. Joseph Hotz and John Karl Scholz, "The Earned Income Tax Credit", Working Paper for NBER Conference 2000 US V. Joseph Hotz, Charles H. Mullin, and John Karl Scholz, "The Earned Income Tax Credit and Labor Market Participation of Families on Welfare", Joint Center for Poverty Research US Marilyn Howard, "Designing the Employment Tax Credit", Poverty 107, 2000 UK Derek Hum and Wayne Simpson, "Whatever Happened to Canada's Guaranteed Income Project?" Canada David Ingles, "Rationalising The Interaction of Tax and Social Security. Part 1: Specific Problem Areas. Part 2: Fundamental Reform Options" Centre for Economic Policy Research Discussion Papers 423 and 424, 2000 Australia JCPR Policy Brief (Vol. 3, No. 1): The Illinois Earned Income Tax Credit: JCPR Legislative Research Briefing", Joint Center for Poverty Research US Jeffrey Liebman, "Lessons About Tax-Benefit Integration from the US Earned Income Tax Credit Experience, Joseph Rowntree Foundation, 1997 UK and US Jeffrey B. Liebman, "Who are the Ineligible EITC Recipients?", Joint Center for Poverty Research US Nina Manzi and Joel Michael, "The Federal Earned Income Tax Credit and The Minnesota Working Family Credit" , 2000 US Janet McCubbin, "EITC Noncompliance: the Misreporting of Children and the Size of the EITC", Joint Center for Poverty Research US Pamela Meadows, "The Integration of Taxes and Benefits for Working Families With Children", Joseph Rowntree Foundation, 1997 UK Bruce D. Meyer and Dan T. Rosenbaum, "Making Single Mothers Work: Recent Tax and Welfare Policy and its Effects", Joint Center for Poverty Research US Bruce D. Meyer and Dan T. Rosenbaum, "Welfare, the Earned Income Tax Credit, and the Employment of Single Mothers", Joint Center for Poverty Research US Charles Michalopoulos, Philip K. Robins, and David Card, "When Financial Incentives Pay for Themselves: Early Findings from the Self-Sufficiency Project's Applicant Study", Joint Center for Poverty Research US Jane Millar and David Hole, "Integrated Family Benefits in Australia and Options for the UK Tax Return System", Joseph Rowntree Foundation, 1998 UK and Australia David Neumark and William Wascher, "Using the EITC to Increase Family Earnings: New Evidence and a Comparison with the Minimum Wage", Joint Center for Poverty Research US Gerry Redmond, "Tax-Benefit Policies and Parent's incentives To Work: The Case of Australia 1980-1997" SPRC Discussion Paper 104, 1999 Australia Jennifer L. Romich and Thomas Weisner, "How Families View and Use the EITC: The Case for Lump-sum Delivery", Joint Center for Poverty Research US Timothy M. Smeeding, Katherin Ross Phillips, Michael O'Connor, and Michael Simon, "The Economic Impact of the Earned Income Tax Credit (EITC)", Joint Center for Poverty Research US "Guaranteed Annual Income: A Supplementary Paper", Social Security Reform Discussion Paper, Federal Government, 1994 Canada Floor M. Van Oers, Ruud A. de Mooij, Johan J. Graafland and Jan Boone, "An Earned Income Tax Credit in the Netherlands: Simulations with the MIMIC Model", Research Memorandum, CPB Netherlands Bureau for Economic Policy Analysis, 1999 Netherlands Dennis J. Ventry, "The Collision of Tax and Welfare Politics: The Policy History of the EITC, 1969 - 1999", Joint Center for Poverty Research US Robert Walker and Michael Wiseman, "The Possibility of a British Earned Income Tax Credit", Fiscal Studies, Vol 18, No 4, 1997 UK
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