Negative income tax

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In economics, a negative income tax (NIT) is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government.


  • The arrangement that recommends itself on purely mechanical grounds is a negative income tax. […] The advantages of this arrangement are clear. It is directed specifically at the problem of poverty. It gives help in the form most useful to the individual, namely, cash. It is general and could be substituted for the host of special measures now in effect. It makes explicit the cost borne by society. It operates outside the market. Like any other measures to alleviate poverty, it reduces the incentives of those helped to help themselves, but it does not eliminate that incentive entirely, as a system of supplementing incomes up to some fixed minimum would. An extra dollar earned always means more money available for expenditure.
    • Milton Friedman, Capitalism and Freedom (1962), Ch. 12 : The Alleviation of Poverty
  • I favor the negative income tax because it would be vastly superior to our present guaranteed annual income. It would cost much less, give more help to the truly poor, avoid interference with personal freedom, preserve some incentives to work, and drastically reduce the present bureaucracy.
    • Milton Friedman, "The Case for the Negative Income Tax", National Review (7 March 1967)
  • Under a negative income tax, poor families would receive financial assistance without having to demonstrate need. The only qualification required to receive assistance would be a low income. Depending on one’s point of view, this feature can be either an advantage or a disadvantage. On the one hand, a negative income tax does not encourage illegitimate births and the breakup of families, as critics of the welfare system believe current policy does. On the other hand, a negative income tax would subsidize not only the unfortunate but also those who are simply lazy and, in some people’s eyes, undeserving of government support.
    • N. Gregory Mankiw, Principles of Economics (7th ed., 2015), Ch. 20 : Income Inequality and Poverty

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