Negative Income Tax

Milton Friedman also proposed in his book, Capitalism and Freedom published in 1962, a negative income tax system. To summarize: If a person’s taxable income is larger than the amount of exemptions and deductions, he pays a tax – the normal practice. But if his taxable income is smaller than the amount of exemptions and deductions, he pays a negative tax – receives a subsidy.

It does not eliminate the incentives of those helped to help themselves – an extra dollar earned always means more money available for expenditure. The system fits directly into the current income tax system. It substitutes for the present rag bag of measures directed at the same end – the total administration burden would surely be reduced.

The system is simple, and directly helps those that help is intended for – the poor. More control will be shifted to the citizens from the government bureaucracy – a smaller government. Guess where the opposition will be coming from?