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Re: On NIT by Milton Friedman



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Please help make the Manifesto better, or accept it, and propagate it!
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NIT is fine. How are you going to deal with massive tax evasion by 
non-salaried class to begin with?. I am sure that Income tax paid by the 
businesses are a fraction of what they should be paying.  Salaried class is 
the victim here and that is partly a reason for corruption among the Govt. 
employees


>From: "Dr. Sanjeev Sabhlok" <sanjeev@sabhlokcity.com>
>Reply-To: debate@indiapolicy.org
>To: debate@indiapolicy.org
>Subject: On NIT by Milton Friedman
>Date: Mon, 5 Jun 2000 07:20:49 -0700 (PDT)
>
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>Please help make the Manifesto better, or accept it, and propagate it!
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>Since very few of us fully understand the NIT, I got much of Chapter 12 of
>Friedman's Capitalism and Freedom, dealing with NIT, wordprocessed (placed
>below). This is such a superb exposition everyone must read each word of 
>it.
>Prof. Roy, could you pl. use your good offices with Milton Friedman to
>secure his permission for the internet publication of this chapter on IPI's
>web site? Grateful.
>
>After reading this chapter closely again, I realize I have myself made a
>significant error in my analysis, which I will try to correct this week.
>The updated version my NIT notewill be circulated within a week to all here
>and in the Plg. comm, etc. for further views.
>
>India could not have adopted NIT 50 years or even 5 years ago. Since I am
>now aware of the sea change in the use of information technology in
>government in India and the greater thrust being given by Ministry of IT, I
>am convinced we can adopt NIT latest within 2 years if properly executed.
>The time has come to explore its details thoroughly.
>
>SS
>
>========================================================================
>
>The Alleviation of Poverty
>by Milton Friedman
>
>	The extraordinary economic growth experienced by Western countries during
>the past two centuries and the wide distribution of the benefits of free
>enterprise have enormously reduced the extent of poverty in any absolute
>sense in the capitalistic countries of the West. But poverty is in part a
>relative matter, and even in these countries, there are clearly many people
>living under conditions that the rest of us label as poverty.
>	One recourse, and in many ways the most desirable, is private charity. It
>is noteworthy that the heyday of laissez-faire, the middle and late
>nineteenth century in Britain and the United States, saw an extraordinary
>proliferation of private eleemosynary organizations and institutions. One
>of the major costs of the extension of governmental welfare activities has
>been the corresponding decline in private charitable activities.
>	It can be argued that private charity is insufficient because the benefits
>from it accrue to people other than those who make the gifts - again, a
>neighborhood effect. I am distressed by the sight of poverty; I am
>benefited by its alleviation; but I am benefited equally whether I or
>someone else pays for its alleviation; the benefits of other people's
>charity therefore partly accrue to me. To put it differently, we might all
>of us be willing to contribute to the relief of poverty, provided everyone
>else did. We might not be willing to contribute the same amount without
>such assurance. In small communities, public pressure can suffice to
>realize the proviso even with private charity. In the large impersonal
>communities that are increasingly coming to dominate our society, it is
>much more difficult for it to do so.
>	Suppose one accepts, as I do, this line of reasoning as justifying
>governmental action to alleviate poverty; to set, as it were, a floor under
>the standard of life of every person in the community. There remain the
>questions, how much and how. I see no way of deciding "how much" except in
>terms of the amount of taxes we - by which I mean the great bulk of us -
>are willing to impose on ourselves for the purpose. The question, "how,"
>affords more room for speculation.
>	Two things seem clear. First, if the objective is to alleviate poverty, we
>should have a program directed at helping the poor. There is every reason
>to help the poor man who happens to be a farmer, not because he is a farmer
>but because he is poor. The program, that is, should be designed to help
>people as people not as members of particular occupational groups or age
>groups or wage-rate groups or labor organizations or industries. This is a
>defect of farm programs, general old-age benefits, minimum-wage laws,
>pro-union legislation, tariffs, licensing provisions of crafts professions,
>and so on in seemingly endless profusion. Second, so far as possible the
>program should, while operating through the market, not distort the market
>or impede its functioning. This is a defect of price supports, minimum-wage
>laws, tariffs and the like.
>	The arrangement that recommends itself on purely mechanical grounds is a
>negative income tax. We now have an exemption of $600 per person under the
>federal income tax (plus a minimum 10 per cent flat deduction). If an
>individual receives $100 taxable income, i.e., an income of $100 in excess
>of the exemption and deductions, he pays a tax. Under the proposal, if his
>taxable income minus $100, i.e., $100 less than the exemption plus
>deductions [is negative], he would pay a negative tax, i.e., receive a
>subsidy. If the rate of subsidy were, say, 50 per cent, he would receive
>$50. If he had no income at all, and, for simplicity, no deductions, and
>the rate were constant, he would receive $300. He  might receive more than
>this if he had deductions, for example, for medical expenses, so that his
>income less deductions, was negative even before subtracting the exemption.
>The rates of subsidy could, or course, be graduated just as the rates of
>tax above the exemption are. In this way, it would be possible to set a
>floor below which no man's net income (defined now to include the subsidy)
>could fall - in the simple example $300 per person. The precise floor set
>would depend on what the community could afford.
>	The advantages of this arrangement are clear. It is directed specifically
>at the problem of poverty. It gives help in the form most useful to the
>individual, namely, cash. It is general and could be substituted for the
>host of special measures now in effect. It makes explicit the cost borne by
>society. It operates outside the market. Like any other measures to
>alleviate poverty, it reduces the incentives of those helped to help
>themselves, but it does not eliminate that incentive entirely, as a system
>of supplementing incomes up to some fixed minimum would. An extra dollar
>earned always means more money available for expenditure.
>	No doubt there would be problems of administration, but these seem to me a
>minor disadvantage, if they be a disadvantage at all. The system would fit
>directly into our current income tax system and could be administered along
>with it. The present tax system covers the bulk of income recipients and
>the necessity of covering all would have the by-product of improving the
>operation of the present income tax. More important, if enacted as a
>substitute for the present rag bag of measures directed at the same end,
>the total administrative burden would surely be reduced.
>	A few brief calculations suggest also that this proposal could be far less
>costly in money, let alone in the degree of governmental intervention
>involved, than our present collection of welfare measures. Alternatively,
>these calculations can be regarded as showing how wasteful our present
>measures are, judged as measures for helping the poor.
>	In 1961, government amounted to something like $33 billion (federal,
>state, and local) on direct welfare payments and programs of all kinds :
>old age assistance, social security benefit payments, aid to dependent
>children, general assistance, farm price support programs, public housing,
>etc.  I have excluded veterans' benefits in making this calculation. I have
>also made no allowance for the direct and indirect costs of such measures
>as minimum-wage laws, tariffs, licensing provisions, and so on, or for the
>cost of public health activities, state and local expenditures on
>hospitals, mental institutions, and the like.
>	There are approximately 57 million consumer units (unattached individuals
>and families) in the United States. The 1961 expenditures of $33 billion
>would have financed outright cash grants of nearly $6,000 per consumer unit
>to the 10 per cent with the lowest incomes. Such grants would have raised
>their incomes above the average for all units in the United States.
>Alternatively, these expenditures would have financed grants of nearly
>$3,000 per consumer unit to the 20 per cent with the lowest incomes. Even
>if one went so far as that one-third whom New Dealers were fond of calling
>ill-fed, ill-housed, and ill-clothed, 1961 expenditures would have financed
>grants of nearly $2,000 per consumer unit, roughly the sum which, after
>allowing for the change in the level of prices, was the income which
>separated the lower one-third in the middle 1930's from the upper
>two-thirds. Today, fewer than one-eighth of consumer units have an income,
>adjusted for the change in the level of prices, as low as that of the
>lowest third in the middle 1930's.
>	Clearly, these are all far more extravagant programs than can be justified
>to "alleviate poverty" even by a rather generous interpretation of that
>term. A program which supplemented the incomes of the 20 per cent of the
>consumer units with the lowest incomes so as to raise them to the lowest
>income of the rest would cost less than half of what we are now spending.
>	The major disadvantage of the proposed negative income tax is its
>political implications. It establishes a system under which taxes are
>imposed on some to pay subsidies to others. And presumably, these others
>have a vote. There is always the danger that instead of being an
>arrangement under which the great majority tax themselves willingly to help
>an unfortunate minority, it will be converted into one under which a
>majority imposes taxes for its own benefit on an unwilling minority.
>Because this proposal makes the process so explicit, the danger is perhaps
>greater than with other measures. I see no solution to this problem except
>to rely on the self-restraint and good will of the electorate.
>
>===
>
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This is the National Debate on System Reform.       debate@indiapolicy.org
Rules, Procedures, Archives:            http://www.indiapolicy.org/debate/
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