I think you explained it pretty well. "Universal income" is simpler language, but what happens is that people earning at a middle level pay themselves $12,000 (i.e. no change) and those earning more pay themselves 12K and pay some more to cover the 12K payments to those earning less. Milton Friedman advocated a negative income tax along the lines you describe. Experiments found it was challenging to administer a NIT which 2. provides an ostensible incentive to work (a far greater concern when benefits are to be extended beyond the traditional welfare population dominated by female-headed families), and 3. restricts coverage to any manageable proportion of the population—the so-called "break-even" problem. The program eventually gave birth to the Earned Income Tax Credit which is still on the books. UBI might one of those ideas that looks better on paper than it works in practice. But it might not have to be very good to be an improvement over what we have.1. provides an income guarantee as generous as the cash and in-kind benefits already available to many welfare recipients in the United States,
a 1990 IRS study revealed that owing in part to the complexity of the EIC rules, almost 40 percent of EIC benefits were paid to families who were not eligible for them. Yet the finding of such a high error rate did not deter Congress from both enlarging and further complicating the EIC in the fall of 1990
I've advocated for a long time that a great place to start if we want to amend tax law to be more in line with our collective values that we should eliminate the payroll tax summarily. It is a horrible tax that is oddly regressive, and doesn't even apply fairly to different types of income or even across families with the same incomes. I grumble at it with every paycheck. Imagine just giving poor people a 12% raise, because that's what would happen if we started treating all income tax the same. Perhaps that would allay some concerns vis-a-vis minimum wage, earned income, etc. It was interesting to see the GOP argue for reinstating the 2% (or was it 4%...can't remember off the top of my head) cut in the payroll tax that Obama and they agreed upon as part of the recovery law. That was the serpent eating its tail if I've ever seen it.
I am not sure I understand your opposition, or maybe I don't understand what you mean by payroll tax. The 12.4% FICA tax pays into the Social Security program. Eliminating the tax would amount to a nice raise, but would require different funding or elimination of Social Security. There are two interesting features of the tax: 1. There is a cap on how much income is taxed, currently $118,500. Income beyond that level is not taxed. I think this is why you call it "regressive," because very high earners do not pay more than people earning at the limit. But judging by the benefits worksheet, you don't get higher benefits either. No one gets more Social Security benefits by earning above the annual limit. (High-earners were originally supposed to be completely excluded from Social Security.) So everyone contributes 12.4%, and everyone gets back in proportion to their contributions. Doesn't seem regressive. (I am ignoring the Ponzi flavor of the program and assuming that benefits are fairly calculated: that people who contributed twice as much get back twice as much on average.) 2. Contributions are split between employer and employee. I don't see why this matters to anyone's bottom line. It is sneaky that employees only see half of the total as a deduction on their paychecks, but even if the employer's contribution were printed on the check it wouldn't put more food on the table. Employers don't care how the tax is paid, they only want to know the total cost of keeping another worker employed, so making the entire 12.4% an income tax wouldn't affect salaries. It appears that only the employee-paid half of FICA is tax deductible, which is strange, but that also applies to everyone equally, and doesn't seem to raise a fairness issue.we should eliminate the payroll tax
Trying to talk about the payroll tax gets to the very heart of why we pay taxes, and what social security is, exactly. Neither of which are evident in its case. Is it a savings program, or is it a safety net? If it's a savings program (and I actually get my proportion back at some future point), then I want the money for myself. Give me 12.4% of my pay and mandate that I can't spend it until I'm 59.5, like an IRA. If it's a safety net, then by definition we're all in it together, and therefore it should be taxed as income like every other government program. I don't like how much we spend on the military, but I'm not absolved from paying taxes on it because I don't benefit as much from it as someone who lives in a place where there is a high level of military spending. I'm not at all arguing that the 12.4% should be collected as income tax. I'm arguing that social security should be funded by income tax (it it is in fact a social safety net; again, we've never really defined it). My gripe about how it is calculated has everything to do with the cap, whether it's a safety net or savings program. For example, imagine a married couple who each make $100,000. Combined, they make well beyond the cap, but separately they're both under. Annually, they'll pay $25,000 in payroll tax. Now imagine a married couple in which one spouse earns $200,000 and the other earns 0. Combined, they'll pay more than $10,000 less in payroll tax (plus the other "Marriage Penalty" they're not hit with, but that's a whole other story that will just piss me off more to talk about) than the first couple. They are free to take that $10,000 and dispose of it at will, including doing such things as investing in certainly higher average return programs. Taxing all income equally would of course require raising the income tax across the board, because it isn't probably sustainable to give up whatever ridiculous number the social security administration collects every year. We can go back and forth about whether it's regressive or not, but they way it is currently structured is the most nanny state program we have. Social security needs a dramatic reorganization and redefinition, so that we all know what it is we're paying for and why. There is no other program that has this tax and spend structure, and I would argue that it hurts earners more than it helps them.