Briefly explain the case for a negative income tax.

Question

What will be an ideal response?

Answer 1

A negative income tax collects taxes from high-income families and gives
subsidies to low-income families. Thus, it is a tax and a transfer program. It uses the
personal income tax system to set up a series of payments to citizens and tax receipts
by the U.S. Treasury according to a schedule based on family size and actual income
earned. The plan would not require setting up a new system. It could be an extension of
the fully computerized system that already exists. Many economists favor a negative
income tax. They point out that it would not require the massive bureaucracy that now
exists for administering public assistance, food stamps, and other programs. Hence,
many of the resources now spent for this huge bureaucracy could be spent on other
priorities, or used to provide the negative tax (the government payment) to needy
families. No one would have to demonstrate need. It would not encourage illegitimate
births or family break-ups, as critics of the current welfare system claim it does.