[AnthonyMouse]

All benefits for lower income people are subsidies for low wage employers. A tax credit has the benefit of being particularly efficient and with a minimum of bureaucracy, as compared with the typical highly distorting programs like housing or mortgage interest subsides, federally-backed student loans or health insurance subsidies that inflate rents and housing/education/healthcare costs.

[walshemj]

It distorts the market is my point and when you hit a recession and cant keep pace with inflation it can lead to unrest - its called out in a recent guardian piece on the yellow vest movement.

[AnthonyMouse]

Tax credits are cash. That's why they don't distort markets. If you give everyone extra money they can only use for education, education costs go up. If you give them extra money they can only use for housing, housing costs go up. Up compared to everything else -- like wages. Which is a problem.

If you give them the money as cash, nothing is disproportionately affected because the money can be used for anything. There is no inherent reason it would even have to cause inflation, since general inflation is affected by multiple other independent factors, like interest rates, that can be set independently of any tax credits.

The problems in France are caused by just the opposite -- they have many rules that collectively make it very risky and expensive to hire employees, resulting in employers who are wary to hire and a high unemployment rate. Which erodes the tax base, reducing the resources the government has for social programs while inducing demand for them from all of the unemployed people and lower income working people paying high ratios of taxes to benefits to compensate for those unable to find work, leading to widespread discontent and protests.

They would do well to abandon the inefficient collage of price controls and subsidies in favor of direct cash transfer payments from the rich to the poor.

[walshemj]

Distorts the employment and capital markets and leads to companies that are only viable because of tax payer subsidy.

[AnthonyMouse]

It isn't the companies that are only viable due to the subsidy. The existence of Walmart doesn't depend on a specific unskilled labor price -- if unskilled labor was more scarce they would turn to more automation or pay higher wages and have to charge higher prices, but they would still exist.

The problem is the people who are only viable with government intervention, because the market price of their labor isn't enough to make a living. Some of that is a result of government action in other ways (e.g. policies that cause high housing/education/healthcare costs), but none of those are likely to be solved overnight.

Which means there will be calls to intervene in the market somehow so they can make a living.

And just giving them the money is the least distorting way to achieve the necessary result. It doesn't take disproportionately from the employers who are actually willing to hire unskilled workers. It doesn't cause unemployment for anyone whose labor value really can't command a living wage given the aforementioned as-yet-unfixed policy inefficiencies. It doesn't have an abrupt cutoff where anyone who makes less than a minimum wage gets a 100% subsidy up to the minimum wage but anyone who makes a penny more gets nothing, even though they're almost equally as shafted by high housing costs etc. It just does the exact thing necessary to patch the problem until the other issues can be resolved in the long term.

[dragonwriter]

> The problem is the people who are only viable with government intervention, because the market price of their labor isn't enough to make a living.

The government actively intervenes against the viability of labor by taxing labor income more heavily than capital income (both by the preferential tax rate for capitalism gains compared to “regular” income, and also because labor income, especially well into the middle class range, faces additional taxes—payroll taxes—on top of the taxation of “regular” income.)

Do we need UBI? Maybe (I'm inclined to say yes.) But first we need government to stop intervening against the viability of labor.

[AnthonyMouse]

> The government actively intervenes against the viability of labor by taxing labor income more heavily than capital income (both by the preferential tax rate for capitalism gains compared to “regular” income

The reason the long-term capital gains rate is lower than the top earned income rate is inflation. If you buy an asset for $100, there is 20% inflation over some years and you sell it for $130, your actual profit, the real increase in the value of your asset, is $10 rather than $30. This is why the lower rate doesn't apply for short-term investments.

What they ought to do is to calculate the capital gain in light of inflation (i.e. adjust the tax basis for inflation since the purchase date) and then use the same tax rates as for earned income. But the way they are doing it isn't exactly favoring long-term capital income. You can currently lose real value and end up owing capital gains taxes because the reduction in real value was less than the inflation over the period you held the asset.

Which isn't particularly relevant for the people just scraping by anyway. The long-term capital gains rate is lower than the highest earned income rate, but it's not lower than the rates low income people pay.

> and also because labor income, especially well into the middle class range, faces additional taxes—payroll taxes—on top of the taxation of “regular” income.)

Yes, the way payroll taxes are structured is dumb. Especially the cap past which rich people no longer have to pay them. (And the fact that social security makes higher payments to rich people rather than the same for everyone.)

But this is not really the main problem either. FICA is a total of ~15%, including the employer's portion. That's not nothing, and we should fix it, but the scope of the problem is larger than a 15% difference.