Basic Income vs. Negative Income Tax: Why supporters of basic income should be in favor of a negative income t

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I am a supporter and advocate of a universal basic income, but in considering the numbers I come to believe that a universal basic income is not a realistic policy goal at the current time in the United States. While I believe that eventually we need a universal income guaranteed and also that we eventually will get to that point, I believe that given the state of contemporary politics we ought to pursue a negative income tax a first step towards a universal basic income. The argument for a negative income tax is simple in that while we currently could not find enough money for legitimate universal basic income, meaning not without politically impossible policy changes to things like taxes, healthcare and defense, even without major policy changes we could find enough money for a negative income tax that would be large enough to eliminate poverty.

Basic Income vs. Negative Income Tax

For those not familiar with the difference, a universal basic income is an amount of given to each and every member of society unconditionally, meaning without consideration of the person’s economic status, employment status, age, etc. Whereas a negative income tax is money paid out to individuals who fall below a certain designated income status. Milton Friedman was actually a supporter of a negative income tax rather than a basic income. A negative income tax is similar to the current earned income tax credit but would be more broadly available and larger. In a negative income tax system, people earning a certain income level would owe no taxes; those earning more than that would pay a proportion of their income above that level; and those below that level would receive a payment of a proportion of their shortfall, which is the amount their income falls below that level.

Friedman suggested that the negative tax rate be 50%, anything higher he argued would be a disincentive to work. To understand how it works, let’s say we set the allowances for a single person at $24,000 per year. Their allowance is the amount of money they can earn and still receive a negative tax. With a negative tax rate of 50% that person would receive a payment of $12,000 per year, if they earned nothing in that year. If they earned $12,000 per year they would receive a payment of $6,000 per year, as $6,000 is 50% of $12,000 which is the unused portion of their allowance.

Here is video of Friedman discussing the idea:

The Advantages of a Negative Income Tax

The main benefit of a negative income tax is pretty obvious, with a negative income tax one could provide more help to those who need it the most given current financial restrictions. Ed Dolan at the economic monitor estimates that we could provide a basic income of $4,452 per year per person just by eliminating current welfare programs and without any major tax increases or major changes to defense spending, or the healthcare system, all of which are politically ambitious given the current political climate.

$4,452 per years is not bad and works out to be over $17,000 per year for a family of four. That would work for the hypothetical family of four but not for a single mother with two children. Really even for a family of four is not at a level that would could truly be considered a basic income. And it is a good deal short of the $12,000 per year per person that is often thrown around as what would constitute a legitimate basic income.

One solution would be to limit the persons who are eligible to receive this basic income. We could either give $4,452 to everyone or we could give $13,356 to everyone in the lowest third of the income distribution. Or we could give $17,808 to the lowest quarter of the income distribution! Which to my mind is really the type of number we should be shooting for as even $12,000 per year isn’t a true basic income.

Using current welfare spending and without touching politically charged issues we could legitimately bring everyone above the poverty level. Officially poverty rates, while a bit unrealistic, only have 15.1% percent of the American population living in poverty. A negative income tax could drastically change the bottom end of the income distribution ensure no one lives in poverty.

One further advantage of the negative income tax is that we could structure it benefit not just the lowest decile of the population, or what number we settle on, but that it could be structure to provide some help to those higher up on the income distribution as well.

The Advantages of a Universal Basic Income

A universal basic income has a number of advantages over a negative income tax. It is easier to administer, eliminates the possibility of “scamming the system,” and completely eliminates the disincentive to work. With a negative income tax there does come a point where there is a disincentive work, although that would only apply to people earning quite a bit so probably not a major problem. And under a negative income tax there is an extremely powerful incentive to not report income, which I do think is a serious drawback but probably not a deal breaker in my mind.

To my mind the biggest disadvantage is that a negative income tax doesn’t provide the quantum leap forward in progress that a basic income would. A negative income tax operates within the framework of “welfarism” where we help people that need help but a basic income involves transitioning to an entirely new paradigm that represents the next major leap forward in the progress of human civilization in which we have the technology to unconditionally support all persons.

To make a universal basic income work, at a reasonable level, say $12,000 – $18000 per year, would require some very significant economic overhauls in the areas defense spending, healthcare, and taxation. As well as technological innovations so that the basic income isn’t being provided at the expense of the environment.


I don’t have any data on the topic but one interesting question is which proposal would generate the most popular support. My suspicion is that a universal basic income would probably garner more popular support but be less popular with GOP law makers. I can’t imagine them signing on to a proposal to just give everyone money, although rank and file GOP members and conservatives might be in favor of it purely based out of self-interest and they are more likely to feel like it is a fair arrangement. A universal basic income is not welfare in the traditional sense as everyone in society gets the benefit. The poor just happen to need it more. If it were true that massive popular support could be generated for a universal basic income and support for the necessary welfare reforms, tax raises, and defense spending cuts I would be in favor of pushing for a universal basic income at this time.

But it seems to me to be politically unviable at this juncture. But I think a negative income tax might actually be somewhat viable. Milton Friedman is something like a god amongst conservatives and libertarians and he was in favor of a negative income tax, which automatically gives it a shot. It wouldn’t require compromise on major issues like taxes and defense spending, which are currently not a possibility, that a universal basic income would. And it is something legitimate that GOP lawmakers could actually use to show that they are working to address poverty, unlike Paul Ryan’s last two plans, which is something they desperately need. It will certainly have to wait until Obama is out of office but I could imagine that a deal on this could by made in the next administration if the everything played out just right. Republicans would have to lose terribly in the midterms and the next presidential election. If they lost badly enough it could produce enough people willing to actually compromise and work with the president to do something big. And we would need a visionary president will to put herself out there on something like this. Elizabeth Warren maybe?

So, while I would ultimately prefer a universal basic income, with the above mentioned reforms, I think we ought to focus on promoting a negative income tax, although we could still do that under the name of “basic income.”

I think a negative income tax could be a legitimate step towards a universal basic income. In the same way that SNAP, medicare, medicaid, social security, etc. are really steps towards a basic income. But a negative income tax would really bring us much closer to a basic income and would ultimately serve as a bridge between current programs a full basic income. The path to a universal basic income could begin with implementing a negative income tax. Then we could continue with progressive reforms working to reform the healthcare system, raise taxes, slash the military budget and transitioning to renewable energy and once significant progress is made on those issues we could push for a true universal basic income.

A negative income tax would put us within striking distance of a universal basic income, which would frankly be pretty awesome. I’m an idealist and basic income is such an amazing idea that it is hard to settle something less. But the truth is that a negative income tax would not be settling because a basic income is not really on the table at this point.

I think it is best to admit at this point that the numbers just don’t quite add up without reforms that are not currently possible. This is especially true when we think about extending a basic income to all persons on the planet. The arguments for a basic income apply to all persons, not just those in the first world. All persons deserve to have their basic needs for food, shelter, clothes, medicine, education, safety, etc met and to get to the point of providing a universal basic income to all persons will take a good deal of time. The numbers really don’t add up when looked at from a global perspective. But taking a “negative income” approach to global poverty could do, and has done, wonders to alleviate poverty.

A negative income tax while not ushering in the era of human civilization would end poverty and that is pretty awesome!

I should add that this line of reasoning applies primarily the United States and other places where basic income is not a feasible policy option. In places like Europe where a universal basic income is possibility I believe it should be pursued.



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2 thoughts on “Basic Income vs. Negative Income Tax: Why supporters of basic income should be in favor of a negative income t

  1. We have something similar here in the UK called working tax credit – it’s only paid to people over 25 who are on a low income but working – you can’t really live on it (it’s about £2700 per year when you are eligible for it all) and they take it away as soon as they can – I rely on it to keep a roof over my head but there is now a massive anti benefit claiming movement here and they are aiming to change/remove this system soon

  2. Hi Sev, thanks for the comment. We have something like that here in the US as well, it is called the Earned Income Tax Credit the difference between such programs and a negative income tax proper is the amount. A negative income tax, as I outlined here, would be in the range of $1,000-1,500 per month. And in theory, with some tax reforms and cuts in military spending it could be significantly higher. A NIT is enough to live on, whereas the program you mentioned and the program we currently have in the US are no where near that level.

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