The Problem with Income
It is estimated that about a third of all American households do not have enough income or savings to meet their basic needs and/or unexpected expenses without government or charity assistance. This has created many secondary problems and the need for an ever-expanding list of government and charity support programs.
The Solution
Every household should have an economic foundation they can depend on to meet their basic needs and generate some savings for unexpected expenses.
To start building this economic foundation, NPMP 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 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.
But 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.
This illustrates why we need to coordinate solutions to inter-related problem areas to mitigate our complex social problems.
Would the negative income tax plan be economically feasible?
The following table shows that a national negative income tax that raises 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.
| 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 income 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 healthcare, education, and housing policy changes that NPMP recommends, the net costs to the government should be lower than what we are now spending.
Possible starting project
Using more current data, estimate what the likely costs and benefits are if Milton Friedman’s Negative Income Tax were implemented nationally and/ or in selected states. How might these costs and benefits change over time if lower cost healthcare and housing options become widely available?
Additional information about income issues can be found in book
Questions: email David@fundingvisions.org