Negative Income Tax - NIT

What Is Negative Income Tax?

Negative income tax (NIT) is an alternative to welfare suggested by, among different advocates, economist Milton Friedman in his 1962 book Capitalism and Freedom. NIT defenders state that each American without income over the threshold for tax liability ought to have a [basic income](/fundamental income) guarantee and that NIT is a way to finance the penniless at less cost than the welfare system.

Negative Income Tax Explained

To get a negative income tax subsidy, the poor would, alongside different taxpayers, essentially file income tax returns. The IRS' mechanized system could then rapidly and impartially recognize taxpayers with income below the threshold as eligible for help.

NIT defenders imagined negative income tax (NIT) as a mirror picture of the existing tax system where tax liabilities of over the-threshold taxpayers shift decidedly with income as per a tax rate schedule; and tax benefits of below-the-threshold taxpayers change contrarily with income as indicated by a negative tax rate (or advantage decrease) schedule. Taxpayers with income over the threshold would pay taxes in a cash amount equivalent to the difference ('positive taxes') and taxpayers with income below the threshold would receive NIT refundable credits in a cash amount equivalent to the difference ('negative taxes').

NIT rivals applying [labor-supply economic theories](/work efficiency) stressed that negative income tax (NIT's) commitment of a threshold income guarantee would make the working poor work less or quit completely to substitute in relaxation exercises since wages reduce yet may not surpass the guarantee, especially after payroll and state and nearby income taxes are taken out. In the event that too a considerable lot of the working poor surrendered to this income effect and this substitution effect, the enlarging number of penniless with income below the threshold and eligible for NIT refundable credits would make total negative income tax (NIT) costs illogical.