The Problem with Income
The problem with income is that to many American households do not have enough income or savings to meet their basic needs or unexpected events without substantial government or charity assistance. This creates many secondary problems and the need for an ever-expanding list of government and charity support programs.
For example, 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 generated the need for federal, state and local governments to spent approximately $444 billion on welfare programs in 2018. In addition, federal, state and local governments also needed to spend approximately 1.6 trillion dollars on healthcare related programs and 1.1 trillion dollars on education related programs in 2018.
To avoid an ever-expanding list of government and charity support programs, every household needs to have an economic foundation that can meet their basic needs and generate some savings for unexpected events.
The Solution
To start building this economic foundation, the CSS plan begins by implementing a version of Nobel Prize-winning economist Milton Friedman’s negative income tax system. This system guarantees all American families 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. 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.
Ending poverty in America is a complex task, requiring coordinated policy changes in many different areas. The key to doing this will be finding ways to lower healthcare, education, and housing costs while increasing the incomes of low-income Americans without significantly raising taxes or government spending. Building a socially, economically, and politically way to do this that respects traditional American values is what the CSS plan is designed to do.
Would the negative income tax 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 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. As stated previously, 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, would be 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, the net costs to the government may actually be reduced.
Pilot projects that have given small amounts of unconditional financial resources to low-income families have had very beneficial results. More detailed analysis and pilot projects will be needed to determine what is likely to happen if the negative income tax plan is implemented together with the policy changes in healthcare, education, and housing that the CSS plan recommends.
Additional information about income issues can be found in book
Questions: email David@fundingvisions.org