People could then use the money as they saw fit. The idea of a negative income tax began gaining steam with the 1962 publication of economist Milton Friedman’s book “ Capitalism and Freedom.” Friedman thought a negative income tax would alleviate poverty - and he believed it would have many additional benefits, as well.įriedman argued that a negative income tax improved on traditional welfare - he wanted to give poor people cash rather than an array of welfare benefits. That program generally has bipartisan support, and there is even legislation proposed to expand it. It does, however, have the earned income tax credit, which functions similarly and benefits millions of Americans. doesn’t currently have a negative income tax in place. The goal with a negative income tax is that no one is destitute, and earning even a small salary is always preferable to earning nothing. While someone who makes a little money - but not enough to pay income tax - will receive less from a negative income tax than someone who doesn’t make any money, overall, the person earning more will have more. This structure is designed so that people who work will always make more than people who don’t, which would ideally incentivize people to work. (This is different from a universal basic income in which everyone, regardless of income level, receives the same amount of money.) If they made $35,000, they would receive $2,500 from the government.

For instance, if the income cutoff was set at $40,000, and the negative income tax percentage was 50 percent, someone who made $20,000 would receive $10,000 from the government. Theoretically, this would work by giving people a percentage of the difference between their income and an income cutoff, or the level at which they start paying income tax. In contrast to a standard income tax, where people pay money to the government, people with low incomes would receive money back from the government. The negative income tax is a way to provide people below a certain income level with money.

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