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Milton Friedman's revolutionary idea: How does negative income tax challenge the traditional welfare system?
In the 1960s, the famous economist Milton Friedman proposed the concept of negative income tax (NIT). This idea not only challenged the welfare system at the time, but also provided a more prosperous and fair economic prospect. new perspective. Negative income tax is a tax system in which the government not only does not collect taxes but also provides financial support to people whose income is below a certain level, which is completely opposite to the traditional tax system. This article will delve into how Friedman’s idea of a negative income tax upended the old welfare system and triggered important thinking about the support systems of modern society.
The key to a negative income tax is that it allows households with lower incomes to receive a cash boost, thereby reducing poverty and encouraging work.
The core concept of negative income tax
The basic idea of a negative income tax is to subsidize low-income earners while taxing individuals whose income exceeds a certain threshold. In this way, when people's income is below a certain standard, the government will pay a corresponding amount based on the income gap. Friedman pointed out that this system can not only effectively reduce poverty, but also simplify the cumbersome welfare system, reduce administrative costs, and make the allocation of funds more efficient.
Friedman once mentioned in "Capitalism and Freedom" that negative income taxes will not destroy the motivation to work, but will encourage people to stay employed.
In contrast, traditional welfare systems often cancel benefits when recipients' income increases, leaving people facing the so-called "welfare trap" in which they may be unwilling to find work or increase their income because of the loss of welfare support. working hours. On the other hand, negative income tax forms a cycle of positive incentives, giving people the motivation to pursue better job opportunities.
Direct response to poverty
Historically, many welfare systems have supported low-income groups through non-cash forms of assistance, such as social security, public housing, etc. But Friedman believes that such policies may not accurately respond to the core of the poverty problem. He argued that cash assistance would be a more efficient allocation of resources by allowing beneficiaries to decide for themselves the consumption patterns that best meet their needs.
Direct cash transfers are more efficient than the allocation of physical resources because each recipient can make the best choice based on his or her actual situation.
Policy experiments and their results
In order to verify the effectiveness of negative income tax, the United States conducted a series of experiments from 1968 to 1982. The experiments tested various levels of income protection and tax rates, involving thousands of households. The results show that the reduction in men's labor supply is relatively small, while the labor supply of women and young people has declined significantly.
The results of these experiments have triggered heated discussions. Many economists believe that such reductions in labor supply have not caused people to lose their desire for work, but have given more people the opportunity to return to school for further studies and improve their abilities. skills and competencies.
In some cases, the implementation of negative income taxes has resulted in increased school attendance, a by-product worth noting.
Negative income tax and the future welfare system
To this day, the discussion of negative income tax policy is still heated among academics and policymakers. Many economists believe that this system is a middle-ground solution that can both promote economic efficiency and ensure social fairness. On the other hand, the traditional welfare system, due to its complexity, low efficiency and other shortcomings, has caused many recipients to be trapped in the whirlpool of poverty and find it difficult to extricate themselves.
With technological advancement and changes in social structure, negative income tax based on bottom-line protection may become part of future social reforms. If it wins, this will be a major challenge to the traditional welfare system and will truly realize the implementation of the "Generalized System of Preferences."
What is the potential for negative income taxes in the future?
Faced with the increasing gap between the rich and the poor in society and the changing economic environment, the potential impact of negative income tax cannot be underestimated. Whether it can play its due role in today's society will depend on the adjustment of public policies, public acceptance and political support. Against this background, will negative income tax become a mainstream policy choice in the future?
