Negative Income Tax - NIT

DEFINITION of 'Negative Income Tax - NIT'

A guaranteed minimum income plan advocated by economist Milton Friedman in 1962 where federal income subsidies are provided to persons or families whose income falls below a certain level. Negative income tax (NIT) would allow claimants to receive income through the simple filing of tax returns rather than through the claiming of welfare benefits, ideally eliminating the need for a complex welfare bureaucracy.

BREAKING DOWN 'Negative Income Tax - NIT'

The primary criticism of the negative income tax is that it discourages some low-income individuals from working. If one can receive $2,500 from the government for not working at all versus $5,000 for dozens of hours of work, some people will choose to not work because they would rather have more leisure time even if it means less money and an inability to meet basic living expenses.

Another criticism is that a negative income tax system cannot eliminate the complexities associated with the welfare system because the taxpayers who fund the subsidies demand accountability from the taxpayers who receive the subsidies. This demand necessitates a complex system of rules and oversight intended to prevent abuse of the system.

RELATED TERMS
  1. Welfare

    A government program which provides financial aid to individuals ...
  2. Welfare Economics

    A branch of economics that focuses on the optimal allocation ...
  3. Welfare Capitalism

    Definition of welfare capitalism.
  4. Income

    Money that an individual or business receives in exchange for ...
  5. Future Income Tax

    Income tax that is deferred because of discrepancies between ...
  6. Federal Income Tax

    A tax levied by the United States Internal Revenue Service (IRS) ...
Related Articles
  1. Economics

    What's a Subsidy?

    A subsidy is a benefit given to an individual, business or institution, typically by the government. Subsidies are given to promote a social good or an economic policy. The government usually ...
  2. Taxes

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  3. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  4. Taxes

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  5. Taxes

    What All the Candidates’ Tax Plans Are Missing

    The presidential candidates have starkly different tax-reform proposals – but none of them gets to the real problem of America's tax system.
  6. Savings

    All About Income

    Income is the money you or a business earns by providing goods or services, or through investments.
  7. Investing Basics

    Understanding How Oil Companies Pay Taxes

    Read about how big oil corporations pay taxes, and learn about tax exemptions and the option to defer. Discover the argument about big oil being given tax exemptions
  8. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  9. Taxes

    Explaining Taxable Income

    Taxable income is the net of gross income and allowable deductions.
  10. Taxes

    Personal Income Tax Guide: Basic Concepts

    By Ken ClarkOne of the most important but misunderstood concepts in tax planning is the mechanics of the United States' progressive tax system. When asked how this system functions, most people ...
RELATED FAQS
  1. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  2. Is the marginal tax rate a progressive tax?

    Learn how the marginal tax rate is a progressive tax that takes a higher percentage of income tax from high-income earners ... Read Answer >>
  3. Do I need to file an income tax return every year?

    Understand if a person needs to file a tax return every year. Learn the benefits of filing a yearly income tax return even ... Read Answer >>
  4. Is Social Security considered to be welfare?

    Learn why Social Security is an entitlement, not welfare. Since 1940, Social Security has kept its promise to Americans who ... Read Answer >>
  5. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  6. How are subsidies justifiable in a free market system?

    Learn some of the arguments in favor of or against providing subsidies in a market economy, including economic and political ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center