> Over-reporting it is essentially trivial, e.g. two people who are in the relevant income range exchange favors (do each others' laundry etc.), or claim to have, and then actually report the transactions as income and get the credit.
True, but this is less of a problem if the credit rate is comparable to the payroll tax rate. In that case, a worker who over-reports their income will create an obvious payroll-tax debt in the hands of the notional employer.
> Stop using a complicated progressive rate structure, and instead eliminate the phase out entirely.
From a welfare-cliff perspective, that's a fine idea. However, per the article here, the unconditional cash transfer seemed to lead to reduced labour income. That's an obviously worrisome sign, suggesting that integrated welfare system might need an even stronger pro-wage bias.
> True, but this is less of a problem if the credit rate is comparable to the payroll tax rate. In that case, a worker who over-reports their income will create an obvious payroll-tax debt in the hands of the notional employer.
But that's just an accounting sham to claim you're taxing them less than you are and you no longer actually have a negative marginal tax rate.
> However, per the article here, the unconditional cash transfer seemed to lead to reduced labour income. That's an obviously worrisome sign
Well that's mainly because they worked 1.3 fewer hours a week and were less desperate to take a low-quality job.
You might also notice that the effect you're referring to isn't net of the payments, and is also probably invalidated by the period the study was done -- it started during COVID. Between the first and last year of the study, the household income for the control group increased by $20,000 -- on a $30,000 base! The experiment group increased by almost as much before the payments and were ahead by more than $6000/year including them.
In any event, you don't have to use a different rate structure to do what you suggest, you get the same effect without the complexity by increasing the flat tax rate and adding the money to the UBI.