December 6, 2011

Milton Friedman and friends.

The age-old question of Taxes. In the early 1960's Economist Milton Friedman adopted an idea hatched in England in the 1950's regarding a Negative Income Tax, to replace the current system of Welfare. During the election year of 1968 the concept of the Negative Income Tax came up again and Friedman was on hand to champion it's acceptance.

Here is an interview he did for the News Magazine Program Newsfront from NET (precursor to PBS) from May of 1968 where Friedman is asked to explain just what the Negative Tax idea is.

Milton Friedman: “Under present law we have a positive Income Tax that everybody knows about, particularly now, a couple weeks after they’ve paid their income taxes. And under the Positive Income Tax if you happen to be the head of a family of four, for example, and you have $3,000 of income, you neither pay a tax nor receive any benefit from it. You’re just on the break-even point. Suppose you have an income of $4,000. Then you have $1,000 of positive taxable income, on which at current rates (14%) you pay $140.00 in tax. Suppose today you had an income of $2,000. Well then you’re entitled to deductions and exemptions of $3,000, you have an income of $2,000. You have a negative income taxable income -$1,000. But currently under present law you get no benefit of those unused deductions. The idea of a Negative Income Tax is that, when your income is below the break-even point, you would get a fraction of it as a payment “from” the government. You would receive the funds instead of paying them.”

To a lot of people that idea sounded pretty good, especially to those who wanted "less government" floating around. The big problem, it was soon discovered, was that it was a system that could very easily to manipulated by the unscrupulous and whatever benefits it portended to have, were evaporated by the amount of large gaping holes the plan inherently had in it.

Friedman was adamant until a proposal came along to fold the Negative Tax scheme in with the present one and Friedman dropped it rather quickly.

But at the time, it was the "next big thing"

Milton Friedman interviewed by Mitchell Kraus on the NET program Newsfront for May 8, 1968

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