The economic effects of the negative income tax proposal
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With the advent of recent "anti-poverty" legislation various plans and philosophies have been expressed as to the efficacy of possible measures to alleviate or eliminate poverty. The theme of this thesis concerns one such plan, the negative income tax. There are two basic variants of the plan. One of the variants proposed by Professor Friedman would base the payment of the negative tax (i.e. transfer payment) on unused exemptions and deductions. The amount of exemptions and deductions available to an individual but not used to make his tax equal zero are defined as constituting unused exemptions and deductions. Friedman would have the negative income tax be a comprehensive measure and would use it in favor of other welfare programs. Professor Lampman has presented another variation of this plan. With a sufficiently high negative tax rate, payments would be based on the "poverty gap". The poverty gap is the difference between a prejudged standard of living and a lower level of income. Lampman would have the negative income tax act as a complement to existing measures. Both plans have the same basic underpinning—the guarantee of a minimum level of income. This thesis is divided into four chapters. Chapter one briefly discusses the history of guaranteed income proposals and gives the format to be followed. The second chapter deals with the construction of an operable definition of poverty, the extent-of poverty in the U.S. that follows from the definition, and the extent to which present welfare programs alleviate poverty. Chapters three and four examine some of the effects that the imposition of the plan would have in the U.S. economy. The negative income tax plan has tremendous initial appeal because of its apparent simplicity. But some basic questions remain to be answered. First, who is to be eligible and how are they going to be paid? Second, what amount of work effort will be lost? Third, will the societal effects be harmful or is the price of the plan too high?