{"id":26360,"date":"2021-01-31T20:08:01","date_gmt":"2021-02-01T00:08:01","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=26360"},"modified":"2021-02-08T22:13:54","modified_gmt":"2021-02-09T02:13:54","slug":"milton-friedman-negative-income-tax","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/milton-friedman-negative-income-tax\/","title":{"rendered":"Milton Friedman: Negative Income Tax Lifts Poverty"},"content":{"rendered":"\n<p>What is the <a href=\"https:\/\/www.shortform.com\/blog\/milton-friedman-capitalism\/\">Milton Friedman<\/a> negative income tax idea? How would negative income tax work?<\/p>\n\n\n\n<p>Milton Friedman&#8217;s tax theories also include a negative income tax. This would allow direct payments to be paid to people below a certain income as opposed to having them pay taxes, which would help alleviate poverty. <\/p>\n\n\n\n<p>Read more about Milton Friedman, negative income tax, and what it means.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\">Milton Friedman: <strong>Negative Income Tax<\/strong><\/h2>\n\n\n\n<p>But one should not take these criticisms of anti-poverty programs to mean that being pro-capitalist necessarily makes one indifferent to poverty. Indeed, <a href=\"https:\/\/www.shortform.com\/blog\/poverty-alleviation-programs\/\">alleviating poverty<\/a> benefits <em>everyone <\/em>throughout society.<\/p>\n\n\n\n<p><strong>The problem arises when anti-poverty measures are coercive, are targeted only to certain groups of people, or distort the proper functioning of the market. <\/strong>To get around these traditional defects of such programs, governments should adopt a negative income tax.<\/p>\n\n\n\n<p>Milton Friedman&#8217;s negative income tax idea provides a direct cash subsidy to people earning below a certain income threshold. To illustrate how this would work, we\u2019d need to know:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The income threshold (the amount below which there is no tax liability);<\/li><li>The income tax rate (the rate at which earnings <em>above <\/em>the income threshold are taxed); and<\/li><li>The subsidy rate (the rate at which incomes <em>below <\/em>the income threshold are subsidized).<\/li><\/ul>\n\n\n\n<p>Let\u2019s assume that the income threshold is $50,000\u2014that is, those earning below this amount pay no taxes. Let\u2019s further assume that the income tax rate is 20 percent (we\u2019ll assume a flat rate for simplicity\u2019s sake, though the negative tax rate could be graduated). Lastly, let\u2019s assume that the subsidy rate is also 20 percent.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Under this scenario, a person earning $40,000 would receive a subsidy of $2,000 from the government (the $10,000 difference between the income threshold and this person\u2019s income, multiplied by the 20 percent subsidy rate).<\/li><li>A person earning $100,000 would pay a tax of $20,000 (the $100,000 income multiplied by the 20 percent income tax rate).<\/li><li>A person earning $50,000 would receive no subsidy nor pay any taxes (because their earnings would be precisely at the threshold).<\/li><\/ul>\n\n\n\n<p><strong>A negative income tax would redistribute income, but on a far more equitable and transparent basis than traditional tax-and-transfer programs. <\/strong>It would effectively guarantee a certain basic income for everyone. It would also be more efficient than the current patchwork of welfare programs, most of which are targeted to specific groups (like veterans, widows, the elderly, and so on). The narrow and targeted nature of such benefits programs requires an expensive bureaucracy to maintain and administer them.<\/p>\n\n\n\n<p>According to Milton Friedman, the negative income tax would deliver cash benefits directly to people without forcing them to jump through endless government red tape and would give them the freedom to spend their money as they saw fit.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is the Milton Friedman negative income tax idea? How would negative income tax work? Milton Friedman&#8217;s tax theories also include a negative income tax. This would allow direct payments to be paid to people below a certain income as opposed to having them pay taxes, which would help alleviate poverty. Read more about Milton Friedman, negative income tax, and what it means.<\/p>\n","protected":false},"author":5,"featured_media":11377,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[81,31,24],"tags":[204],"class_list":["post-26360","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-money","category-society","tag-capitalism-and-freedom","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Milton Friedman: Negative Income Tax Lifts Poverty - Shortform Books<\/title>\n<meta name=\"description\" content=\"Milton Friedman writes that a negative income tax can alleviate poverty. 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