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Negative Income Tax (NIT)

Negative Income Tax (NIT) is a form of basic income that phases out as recipient earned income rises. NIT is composed of an "income floor" and a "phaseout rate". The income floor is the amount of cash a recipient with $0 of earned income receives. The phaseout rate is how much the cash benefit is decreased per additional dollar of earned income.

For example, consider an NIT with an income floor of $13,000 and a phaseout rate of 50%. A citizen with no income would receive $13,000 per year, often broken up into monthly payments. If the citizen gets a part-time job and begins earning $20,000 per year, they would still receive $3,000 per year in NIT benefits.
A universal earned income tax credit (refundable up to the first $10,000 on income) would cost roughly $1.3 trillion per year. If redistribution does not discourage work, then NIT-style programs better optimize social welfare functions relative to to EITC-style ones. Relative to annual payments, more frequent, periodic payments of the EITC indicates that periodic payments reduce perceived financial stress, diminish debt accumulation and late fees, and improve mental health. “ When payment is conditional on work or narrowly targeted, basic income will increase workers’ market dependence and facilitate exploitation, but when it is generous, broadly available, and crucially, delinked from work, it will obstruct exploitation.” Canadian NIT led to 8.5% decrease in hospitalizations. One econometric model predicts a NIT implies a 13% drop in the savings rate and a subsequent 22% reduction in the capital stock.
Guaranteed Income for the 21st Century Underreporting and Experimental Effects on Work Effort: Evidence from the Gary Income Maintenance Experiment. Systematic Misreporting and Effects of Income Maintenance Experiments on Work Effort: Evidence from the Seattle-Denver Experiment. Could we end poverty in a postindustrial society? The case for a progressive negative income tax. Expanding the Discourse on Antipoverty Policy: Reconsidering a Negative Income Tax The Case for Negative Income Tax with Flat Tax in Europe: An Empirical Optimal Taxation Exercise
Kelly Capatosto Ari Glogower Kyle Strickland Naomi Zewde Darrick Hamilton John Friedman Robert Moffitt David Greenberg
Basic Income Social Wealth Fund
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