What is a negative income tax in simple terms?

If your income is below a threshold, you receive money from the government instead of paying tax.

How does it differ from basic income?

Basic income pays everyone the same; a negative income tax pays only those with low incomes, on a sliding scale.

Negative Income Tax

🤝 Social Welfare By CampusDown Wiki Editorial Team Last updated October 27, 2026

A negative income tax is a system in which people with incomes above a threshold pay tax, while those below it receive a payment covering part of the shortfall, so their tax becomes negative. Milton Friedman popularised it as a replacement for complex welfare programmes.

Contents

1. Concept and proposal
2. Income maintenance experiments
3. Policy influence and comparison
4. FAQ
5. References

Concept and proposal

Friedman (1962) proposed consolidating welfare programmes into one payment equal to a share of the gap between income and a threshold. Because support phases out gradually, it reduces the poverty trap in which working leaves people worse off. Tobin, Pechman and Mieszkowski (1967) examined practical design and cost.

Income maintenance experiments

The US ran four large experiments from 1968 to the early 1980s. Robins (1985) and Burtless (1986) found modest reductions in work hours. Forget (2011) showed that Canada's Mincome experiment in Dauphin improved health, including fewer hospitalisations. Widerquist (2005) argued results were miscommunicated politically, with only work disincentives emphasised.

Policy influence and comparison

Moffitt (2003) showed the idea was never adopted outright but shaped the Earned Income Tax Credit. Unlike a universal basic income, it pays only those with low incomes, though after-tax outcomes can be designed similarly, linking to debates on universalism and selectivism and comparisons with workfare.

FAQ

What is a negative income tax in simple terms?: If your income is below a threshold, you receive money from the government instead of paying tax.
How does it differ from basic income?: Basic income pays everyone the same; a negative income tax pays only those with low incomes, on a sliding scale.

Sources reviewed: 2026-10-26

References

Friedman, M. (1962). Capitalism and freedom. University of Chicago Press. The classic that popularised the negative income tax.
Tobin, J., Pechman, J. A., & Mieszkowski, P. M. (1967). Is a negative income tax practical? The Yale Law Journal, 77(1), 1–27. Examines practical design and costs.
Robins, P. K. (1985). A comparison of the labor supply findings from the four negative income tax experiments. The Journal of Human Resources, 20(4), 567–582. Compares labour supply results across four US experiments.
Moffitt, R. A. (2003). The negative income tax and the evolution of U.S. welfare policy. Journal of Economic Perspectives, 17(3), 119–140. Traces NIT's influence on US welfare policy.
Widerquist, K. (2005). A failure to communicate: What (if anything) can we learn from the negative income tax experiments? The Journal of Socio-Economics, 34(1), 49–81. How experimental results were misread politically.
Forget, E. L. (2011). The town with no poverty: The health effects of a Canadian guaranteed annual income field experiment. Canadian Public Policy, 37(3), 283–305. Health effects of Canada's Mincome experiment.
Burtless, G. (1986). The work response to a guaranteed income: A survey of experimental evidence. In A. H. Munnell (Ed.), Lessons from the income maintenance experiments (pp. 22–52). Federal Reserve Bank of Boston. Surveys work responses in the experiments.

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Basic incomeWhat basic income means, BIEN’s five features (periodic, cash, individual, universal, unconditional), how it differs from means-tested welfare, the Finnish experiment and Alaska Permanent Fund Dividend, and arguments for and against.🤝 Social Welfare Poverty TrapWhat a poverty trap is: self-reinforcing mechanisms that keep countries or households poor, the vicious circle, multiple equilibria, the big push and aid debate, Kraay–McKenzie's review, field experiments and the psychology of scarcity.📈 Economics Universalism and Selectivism in Social WelfareUniversalism and selectivism in welfare allocation: Gilbert and Terrell's bases of allocation, Titmuss's argument, stigma versus target efficiency, Korpi and Palme's paradox of redistribution, and Korean debates over free school meals and child allowance.🤝 Social Welfare WorkfareWhat workfare is: welfare that requires recipients to work, search for jobs or join training in exchange for benefits. Covers its origins, its relation to activation, and evidence and critiques.🤝 Social Welfare

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This article was last updated on October 27, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.