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What is Negative Income Tax?

Tricia Christensen
Updated May 17, 2024
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The negative income tax is an interesting, but controversial concept that suggests changes to the way a progressive tax system could be implemented. It would guarantee a certain level of income to all workers through supplementing the salary of workers, who didn’t meet what was defined as the minimum income salary, with tax payments. Those who actually paid taxes would make well above the minimum income and with their payments would provide the money for supplementation of a minimum income to others. Such taxation would also presumably pay for any government spending required.

There have been numerous people who have contributed to the ideas of the negative income tax system. Most credited is Lady Juliet Rhys-Williams, a 20th century British politician of considerable note. American economist Milton Friedman, best known by some as one of President Ronald Reagan’s economic advisers, expanded on Lady Rhys-Williams’ concepts a few years later.

Despite the work of these and other economists, there has never actually been a negative income tax system. While there is support for implementing such a system, there are also great fears and criticism, no matter how it might be created. On top of that, the challenges of completely changing the tax code of an extremely large country could be extraordinarily difficult, time-consuming and expensive.

The basic way that the negative income tax system might work is that people would report their income and pay no taxes, receive money or pay taxes, depending on where income level was set. Another model would simply be to grant money to people who were in low income levels at various intervals so that they could supplement their incomes. There are some things in various taxation systems that bear a little similarity to negative income tax.

In the US, people with low incomes may qualify for Earned Income Credit (EIC). This does not necessarily raise the level of income to a guaranteed minimum amount, but it may help slightly. People receiving EIC do not pay taxes, and instead receive a government payment.

Welfare is, in some ways, a negative income tax, too. It aims to make up for the salary not being received by the person. In this way a minimum amount of money is guaranteed to those who qualify.

A criticism levied against any form of negative income tax is that it would encourage people to keep their incomes at or below the poverty or minimum level. People might not work as many hours as they should or might refrain from seeking more lucrative work. This criticism may be accurate or laughable depending on where the minimum income level is set. It is commented frequently that present poverty line guidelines in places like the US are far too low and do not really provide an income that offers living with dignity. Unrealistically low minimum income guidelines would probably keep people from trying to remain only at the poverty level.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Tricia Christensen
By Tricia Christensen , Writer
With a Literature degree from Sonoma State University and years of experience as a WiseGeek contributor, Tricia Christensen is based in Northern California and brings a wealth of knowledge and passion to her writing. Her wide-ranging interests include reading, writing, medicine, art, film, history, politics, ethics, and religion, all of which she incorporates into her informative articles. Tricia is currently working on her first novel.

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Tricia Christensen

Tricia Christensen


With a Literature degree from Sonoma State University and years of experience as a WiseGeek contributor, Tricia...
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