In 2017, over 12 million American households had annual incomes of less than $13,500 and approximately 30 million households (one quarter of all American households) had incomes of less than $30,000, according to the US Census Bureau. These income levels create many problems and the need for all kinds of government and charity support programs.
To address income issues, the CSS plan begins by implementing a version of Nobel Prize-winning economist Milton Friedman’s negative income tax system. This system will guarantee all Americans enough unconditional income to raise them out of poverty. Part of this income will be in the form of healthcare credits that can only be used to buy private health insurance.
Friedman pays for the cost of his system by eliminating most, not all, welfare programs. He argued that people – given financial resources – will be more efficient in solving their problems than an ever-increasing list of government social programs and rules. Friedman was careful to construct his plan so that Americans would always be better off earning additional income.
However, if implemented by itself, the negative income tax system may not work as intended. If low-income Americans have more money to spend but the supply of affordable housing is not increased, some of this additional money would simply go to landlords who raise the rent. Additionally, employers may be tempted to offer lower wages since they know that low wage workers will always have additional money coming in. Also, if we do not address the need to reduce healthcare, education, and housing costs, these costs may continue to rise beyond what is financially feasible for low-income Americans. Finding ways to lower these costs while increasing access and improving quality is the key to ending poverty in America.
Would such a plan be economically feasible?
The following table shows that using a national negative income tax to raise all Americans out of poverty, would cost 475 billion dollars annually based on 2019 census data. Households qualifying for low-income cash credits (LIC) would receive them on a bi-weekly or monthly basis. Taxes on this income may somewhat reduce the net cost to the government for this program.
| Family size |
Number of families |
Median income | Maximum Income Credit | Maximum qualifying income | Number qualifying for credit | Average qualifying income | Average credit amount | Estimated cost | |
| One | 36 M | 34,500 | 16,000 | 40,000 | 20 M | 19,300 | 7,900 | 158 B | |
| Two | 45 M | 77,000 | 21,000 | 52,500 | 14 M | 31,000 | 8,000 | 112 B | |
| Three | 19 M | 92,000 | 25,000 | 62,500 | 6 M | 35,000 | 10,300 | 62 B | |
| Four | 16 M | 106,000 | 30,000 | 75,000 | 5 M | 44,300 | 11,400 | 57 B | |
| Five | 8 M | 101,500 | 34,000 | 85,000 | 3 M | 44,900 | 15,100 | 45 B | |
| Six | 3 M | 93,500 | 39,000 | 97,500 | 1.5 M | 53,800 | 16,400 | 25 B | |
| Seven+ | 1.5 M | 96,500 | 44,000 | 110,000 | .9 M | 62,000 | 18,000 | 16 B | |
| Total | 128 M | 69,000 | 50 M | 475 B | |||||
Offsetting these costs would be the elimination of most, not all, welfare costs. In 2018, excluding health, education, and private charity spending, Federal, State, and Local Governments spent around $444 billion on welfare costs.
This means that a negative tax system, if implemented by itself, may be slightly more expensive than what we are currently spending on welfare. However, when we include cost reductions made possible by simultaneously implementing the other proposed policy changes CSS recommends, it is possible that the net costs to the government may be reduced.
Some costs to society are incurred because families with insufficient resources sometimes make poor decisions. Pilot projects that have given small amounts of unconditional financial resources to low-income families have had very beneficial results. Analysis and additional pilot projects will be needed to determine what is likely to happen if the CSS plan were implemented.