First Draft Milton Friedman , the Negative Income Tax , and the Evolution of U . S . Welfare Policy

The negative income tax represents one of the fundamental ideas of modern welfare policy. Based on a simple application of elementary price theory, it has a powerful lesson for work incentives in welfare programs. The academic literature on the negative income tax has raised two difficulties with it, one concerning work disincentives arising from an increase in the eligibility point, and the other concerning the possible superiority of work requirements. Actual welfare policy developments in the U.S. over the last thirty years have exhibited strong trends both consistent and inconsistent with the negative income tax ideal. On the one hand, the Earned Income Tax Credit has produced a negative-income-tax-like program that exceeds in generosity anything that Friedman ever imagined; on the other hand, the rise of a work requirement philosophy and the increasing categorization of the population into different, multiple programs represents the antithesis of the negative income tax.