http://www.economyprofessor.com/economictheories/negative-income-tax.php

Negative Income Tax

(1962)

Negative income tax was first used by American economist Milton Friedman (1912- ) to describe a form of income maintenance which aims to bring low-income households living below the subsistence level up to a minimum income level set by the government.

Source:
M Friedman, Capitalism and Freedom (Chicago, 1962)

=> A proposal to combine income tax and social security in a single system. Under this system, all citizens would report their pre-tax incomes; they would then pay tax if their incomes after deducting any allowances to which they were entitled came above some cut-off level, and would receive payments if their income was below the cut-off.

http://politicalcartel.blogspot.com/2007/05/negative-income-tax_16.html

To this point, I haven't posted anything about economics which is strange because this is one of my favorite subjects. I guess a good place to start would be my favorite hypothetical tax model. I say hypothetical because it has never been done and probably never will, but it's fun to talk about.

I am an advocate of the negative income tax, a tax structure advocated by Milton Friedman. Its actually pretty simple. I would darn near say this is the simplest tax structure there ever could be. To begin with, you eliminate the entire welfare system. You also eliminate minimum wage. In their place, you create a minimum yearly income. For this example we'll use a minimum income is 10,000 dollars. That means, every single person in the country gets a guaranteed 10,000 dollars.

Then the current tax system would be completely eliminated. In it's place would be a flat tax. Let's put it at 25%. This would make doing and collecting taxes much easier. Based on the given figures, here are some different scenarios:

1. Someone making 4,000 dollars a year would be taxed 1,000 dollars. However, they would then recieve the 10,000 dollars from the government making their net income 13,000 dollars.

2. Someone making 40,000 dollars a year would be taxed 10,000 dollars but they would recieve 10,000 form the government. This would make 40,000 dollars the break-even point.

3. Someone making a million dollars a year would be taxed 250,000 dollars and would recieve 10,000 from the government. This would mean their net income would be 760,000 dollars. I got these examples from wikipedia. I'm much too lazy to come up with my own numbers if I don't have to.

I like this system because it gives the poorest more of an incentive to work. Many people recieving welfare have no incentive to work because they lose their welfare. I also like it because it gives everybody something. I'm not saying it will be easy but If you take that 10,000 dollars with whatever else you are earning and use it wisely, you can advance yourself. You can get yourself out of the cycle of poverty. You can survive an unexpected illness. You can afford to take some community college courses. This system is not perfect but I think it is a lot better than what we have.