The negative income tax (NIT) is a proposal to establish a basic level of income for everyone, which no one can fall below for any reason. It differs from other guaranteed minimum income proposals by limiting payouts to people near or below the poverty line, who have the most pressing need for income assistance.
The basic principle of a negative income tax is simple. People below a set level of income receive a tax refund subsidy from the government which supplements their income up to the set level. For example, if the set minimum income level is $12,000 per year, people making $9000 receive a $3000 supplementary payment in the form of a tax refund.
The chief objection to a negative income tax and any other guaranteed minimum income proposal is the idea that people will receive "something for nothing," meaning that benefits are provided without a corresponding obligation on the part of the recipient. For many people, this single objection is sufficient to remove the idea from consideration.
Advantages and Benefits
Despite the "something for nothing" objection, a guaranteed minimum income has numerous potential advantages. These are some of the most noteworthy:
1. Ending poverty. A negative income tax will supplement everyone's income above the poverty line. In addition to the humanitarian value, this will also greatly reduce social costs associated with poverty.
2. Replacing bureaucracy.The NIT will replace all existing financial assistance programs, including Social Security, welfare agencies, food stamps, etc. This will offset a large portion of its initial cost.
3. Empowering employees. With the NIT in place, employees will have the flexibility to choose better employment situations without fear of severe economic consequences, which will create new jobs.
4. Safeguarding employers. The NIT will help remove unmotivated, unproductive workers from the workplace. Productivity will improve considerably as a result of ensuring a self-motivated workforce.
5. Reducing consumption. By allowing a certain small segment of the population to voluntarily live with less income, the NIT will reduce excessive consumption and help resolve environmental issues.
6. Stimulating spending. By placing additional funds in the hands of low-income families and individuals who tend to spend locally, the overall economy will be stimulated in a sustainable manner.
7. Encouraging democracy. If work is de-coupled from basic survival, people interested in civics and social issues will have more free time to pursue education, political activism, and culture.
8. Promoting progress.Through the NIT, traditional moral values such as social equality and economic justice will be put into practice. The political and cultural climate will improve as a result.
The Bottom Line
While all of these advantages may seem attractive, people often wonder how much the NIT is going to cost. Surprisingly, the actual net cost may be quite low, or even nonexistent. This is possible because the NIT replaces many costly existing programs, and provides substantial savings in terms of the social costs associated with poverty. These savings also further enrich the society over time.
Some experts estimate that the unadjusted gross cost of a basic NIT program in the United States may be about $60-90 billion per year. While this may sound like a large figure, bear in mind that it is just one-seventh to one-tenth of the Pentagon's annual military budget. Additionally, it does not take into account any of the savings mentioned above, which may reduce the net cost to nearly zero.
For some, the idea of people receiving unearned income from the government may be an ideological stumbling block that cannot be overcome. But for others, it is clear that the NIT offers potential advantages which must be taken seriously. For example, advisors to Republican president Richard Nixon, including pre-eminent conservative economist Milton Friedman, supported it.
More Reading
A lengthier presentation of these arguments can be found at The Case For a Guaranteed Minimum Income. Additional information on the negative income tax is available at Wikipedia.
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