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.

Investopedia explains '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.



comments powered by Disqus
Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious debt when government leaders use borrowed funds in ways that don't benefit or even oppress citizens. Some legal scholars argue that successor governments should not be held accountable for odious debt incurred by earlier regimes, but there is no consensus on how odious debt should actually be treated.
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by additional investment would not warrant the expense. A harvest strategy is employed when a line of business is considered to be a cash cow, meaning that the brand is mature and is unlikely to grow if more investment is added.
  5. 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 be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes.
Trading Center