Milton Friedman, the conservative economist, called his idea to alleviate poverty a “Negative Income Tax”. He meant by that a cash payment to those in poverty. Here are some quotes describing his thoughts:
- To put it differently, we might all of us be willing to contribute to the relief of poverty, provided everyone else did. We might not be willing to contribute the same amount without such assurance….. Suppose one accepts, as I do, this line of reasoning as justifying governmental action to alleviate poverty; to set, as it were, a floor under the standard of life of every person in the community. [i]
- First, reform the present welfare system by replacing the ragbag of specific programs with a single comprehensive program of income supplements in cash – a negative income tax …… the negative income tax would have enormous advantages. It is directed specifically at the problem of poverty. It gives help in the form most useful to the recipient, namely, cash. It is general – it does not give help because the recipient is old or disabled or sick or lives in a particular area, or any of the other many specific features entitling people to benefits under current programs. It gives help because the recipient has a low income. It makes explicit the cost born borne by taxpayers. Like any other measure to alleviate poverty, it reduces the incentive of people who are helped to help themselves. However, if the subsidy rate is kept at a reasonable level, it does not eliminate that incentive entirely. An extra dollar earned always means more money available for spending. [ii]
Here is more on the purpose of welfare and Milton Friedman’s position. See also poverty quotes.
Negative Income Tax of Today
Milton Friedman’s argument for a Negative Income Tax has partially come true. The refundable income tax credits of the IRS law function as a Negative Income Tax. They pay cash to individuals and families based on their low income and act as a welfare program. The recipients get money even if they owe no taxes because their annual income is too low to pay federal income tax. However, the refundable income tax credits are one of 13 welfare programs. As Milton Freidman described them, the “ragbag of programs” still exists. As a result, the refundable tax credits are smaller cash payments than they would be if all the welfare programs were rolled into a single Negative Income Tax program.
Dr. Martin Luther King Agrees
Milton Friedman used the term Negative Income Tax. Dr. Martin Luther King used the term Guaranteed Income [iii]. It meant the same to both men – a government payment to alleviate poverty. The two men are far apart on the political spectrum, yet they agree on this issue. Milton Friedman is arguably the most respected conservative economist of the 20th century. Dr. King is arguably the most impactful progressive of the 20th century.
Today, the terminology is entitled Universal Basic Income. Here is a complete analysis, including the scope of King’s and Freidman’s ideas for alleviating poverty.
[i] Milton Friedman. 1967. Capitalism and Freedom. The University Chicago Press. Page 191. Available here.
[ii] Milton Friedman. 1979. Free to Choose. Harcourt Books. Pages 120 and 122. Available here.
[iii] See Mr. King’s description on the Poverty Quotes Page.