# Negative Income Tax **A guaranteed income floor delivered through the tax code.** Set a threshold; above it you pay tax as normal, below it the flow reverses and the Treasury pays you a fraction of the shortfall. Proposed in its influential modern form by [[Milton Friedman]] in *[[Capitalism and Freedom]]* (1962). ## How it works Three parameters define any NIT: - **The guarantee (G)** — what someone with zero income receives. - **The break-even point** — the income at which payments stop. - **The phase-out rate (t)** — how much of each earned dollar is clawed back. Payment = G − (t × earned income). With G = $12,000 and t = 50%, someone earning nothing gets $12,000; someone earning $12,000 gets $6,000; someone earning $24,000 gets nothing. The relationship to [[Universal Basic Income]] is arithmetic, not philosophical. A flat UBI plus a proportional income tax produces the same net position at every income level as an NIT with matching parameters. They differ in **optics and administration**: UBI writes a check to everyone and taxes it back, NIT nets it out in advance. That difference is not trivial politically — universality is what makes programs durable — but the economics are equivalent. ## Friedman's argument was an anti-welfare argument This is the part most often lost. Friedman did not propose the NIT to make redistribution more generous. He proposed it to make the welfare *state* unnecessary: - **Cash beats in-kind.** Recipients know their own needs better than administrators. Food stamps, housing vouchers, and categorical programs are paternalism plus deadweight loss. - **One program beats dozens.** A single tax-code mechanism eliminates overlapping agencies, eligibility caseworkers, and the entire compliance apparatus. - **It fixes the marginal-rate trap.** Means-tested programs that cut off abruptly can produce effective marginal tax rates above 100% on the working poor. A smooth phase-out cannot. The trade was explicit: **the poor get cash and autonomy; the government loses the bureaucracy and the discretion.** Friedman's fellow travelers at the [[Chicago School]] and [[Mont Pelerin Society]] read it as a libertarian consolidation, not a concession — and the [[Cato Institute]] has argued in that register periodically ever since. The same logic reappears, scaled up, in [[Charles Murray]]'s *[[In Our Hands]]* (2006). ## The Nixon moment Friedman's proposal came closest to law under a Republican president. Nixon's **Family Assistance Plan** (1969), developed by Daniel Patrick Moynihan on NIT logic, would have set a federal income floor for families with children — roughly $1,600/year for a family of four, with earnings disregards. It passed the House twice. It died in the Senate, killed from both flanks: conservatives objected to any unconditional guarantee, welfare-rights advocates and northern liberals objected that the floor was set below existing state benefits. The failure is a durable lesson about basic income politics — **a proposal that splits both coalitions has no natural majority**, only two sets of enemies. ## The experiments To settle the work-disincentive question empirically, the federal government ran four large randomized trials between 1968 and 1980 — New Jersey/Pennsylvania, rural Iowa and North Carolina, Gary, and the largest, **Seattle-Denver (SIME/DIME)**. These remain among the biggest randomized social experiments ever conducted in the US. **What they found:** - Work reductions were **real but modest** — on the order of a few percent of hours, concentrated in secondary earners (mostly wives) and young adults, not primary breadwinners. - Youth reductions were substantially **school attendance and completion**, which is a labor-supply reduction in the data and an investment in reality. - SIME/DIME reported an increase in **marital dissolution** among recipients. The marital-dissolution finding did more political damage than every other result combined, and was cited heavily by opponents through the 1970s and after. It was later challenged substantially on methodological grounds — including the observation that the effect was concentrated in ways inconsistent with the proposed mechanism, and that follow-up analysis with longer data did not sustain it. That correction arrived long after the political moment had closed. It is a clean case study in **how a contested empirical finding, arriving at the right time, can outlive its own debunking.** ## Where it lives now The NIT never passed as such, but its logic is embedded in American policy in fragmentary, conditional form — the Earned Income Tax Credit is the most direct descendant, though its work requirement inverts Friedman's unconditionality. In academic and policy debate, "NIT" remains the standard vocabulary for **phased-out** basic income designs, as against flat universal ones. Its main present-day use in this knowledge base is as **evidence of the right's own paternity of the idea it now fights**. When state legislatures pass bans on local guaranteed-income pilots (see [[Guaranteed Income Preemption]]), they are prohibiting small-scale versions of a program the movement's most cited economist designed, and a Republican president tried to pass. ## See also [[Universal Basic Income]] · [[Alaska Permanent Fund]] · [[Means Testing]] · [[In Our Hands]] · [[Guaranteed Income Preemption]] · [[Capitalism and Freedom]] · [[Milton Friedman]] · [[Chicago School]] · [[The Social Safety Net]] · [[Economics Hub]]