Hey look my name here!

Thats not the definition of Negative Income Tax! Negative Tax means Govt pays money on the as a portion. I will write on this later.

Workers better off with Negative Income Tax
Rajan RishyakaranMay 14, 07 5:45pm Adjust font size:

I refer to the letters Workers suffer without Minimum Wage Act, Minimum wage absence affecting marriages and Minimum wage will reduce gap between rich, poor.

Arutchelvan blames capitalism and neo-liberal policies as something that will not increase wages on their own. Why then are wages in minimum wage-free Malaysia higher than in Indonesia? Why are wages in minimum wage-free Singapore higher than Malaysia? If greedy capitalists have no desire to pay better wages without state intervention, wouldn't our wages be lower than Indonesia? Indonesia has a minimum wage, after all.

He then claims that market forces are a poor way to provide a living wage for all workers. He painted it a choice - either put workers at the mercy of market forces or institute some sort of minimum wage, ignoring better alternatives.

Ashoy, on the other hand, claims minimum wage would encourage marriage and help rehabilitate drug addicts. He further claims that pornography addiction, massage parlours and prostitutes are the consequence of the lack of minimum wage.

All the unusual benefits Ashoy cited would not occur with minimum wage. Quite the contrary, it does the opposite. Increased unemployment means while some can afford marriage, others would be left jobless. Ex-drug addicts are already less desirable as employees - putting them to compete with others on the same wage level would put them at a greater disadvantage and actually hinder their rehabilitation into society.

Noor Yahaya claims minimum wage would not cause the distortions I had mentioned, unemployment and increase in business cost, simply because labour cost is just a part of the total business cost. Further, Noor Yahaya pointed out that minimum wage set properly would not cause the ramifications I painted. However, the only way minimum wage would not cause any distortion at all would be to set it at or below the current lowest wages; but with that, there isn't any point to minimum wage anymore.

A minimum wage would increase business cost for a portion of today's businesses directly (and indirectly for many more). The writer suggests other ways to curb business costs, yet the very fact minimum wage as a policy requires offsets elsewhere shows its negative impact. And if we could reduce the cost of business by, to use Noor Yahaya's example, simplifying bureaucracy - why cancel it out with the minimum wage?

Both Arbibi Ashoy and Noor Yahaya failed to understand the concept behind the Negative Income Tax (NIT). If RM500 is set as a minimum, all taxpayers in Seremban, for example, would be given RM500 while taxed for any other income they receive. If I were to earn RM3 for 45 hours of work, earning RM135 that month and assuming the tax rate is 10%, I would pay RM13.50 to the government in taxes, receive the RM500 and end up with RM621.50 that month - not RM500 Noor Yahaya claims.

If I found a full-time job paying RM500, I would pay RM50 in taxes and receive RM500 in credit - making my net income RM950: not RM500 as Noor Yahaya claims. NIT does the very opposite of causing laziness. If workers choose to be lazy and work less, they do so at their own
peril. After all, I would have lost RM328.50 if my laziness caused me to stay in that part-time job.
Far from encouraging businesses to pay low wages, since wages actually affect the net income of workers, employees would still find higher wages more enticing: even if that wage is below the hypothetical RM500.

Both Arutchelvan and Noor Yahaya cite the gap between the poor and rich as a problem that needs solving. But minimum wage increases business cost, prices, and the cost of living. And this increase in cost of living affects the poor most—the very same poor that has to deal with less job opportunities.

But unlike the minimum wage, NIT promises just that. Because that hypothetical RM500 would be funded by taxes, the rich pay for it. This is direct redistribution of wealth -seemingly the aim of Arutchelvan and Noor Yahaya.

And NIT isn't the only alternative to minimum wage; Singapore's Workfare scheme comes to mind. Targeted subsidies and grants to the poor can also help in alleviating poverty. The point of bringing NIT up is to show more elegant, better solutions in contrast to minimum wage.

And lastly, for Noor Yahaya's information, the reason why Milton Friedman opposed Congress' implementation of his ideas was simply because it diverged far from NIT. His decision does not reflect the strengths and weaknesses of NIT.