Negative Income Tax: A Solution for Watauga’s Poverty

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Caleb Garbuio, Opinion Editor

During the 2020 Democratic Primaries, many media outlets heavily featured Andrew Yang’s proposal to end American poverty called the “Freedom Dividend.” Yang’s policy is a form of universal basic income that guarantees all Americans $1,000 a month.

Within his website, Yang falsely equated Nobel Prize-winning economist Milton Friedman’s negative income tax with UBI. The difference between UBI and Friedman’s negative income tax is that UBI is given to everyone, while negative income taxes supplement income for people.

In his 1962 book, “Capitalism and Freedom,” Milton Friedman proposed a negative income tax to address issues with American welfare programs. Friedman contended that welfare programs, such as the Supplemental Nutrition Assistance Program, causes more harm than good. SNAP provides people living below the federal poverty line with food through an electronic benefit transfer card. This means that should individuals earn more income they will receive less SNAP benefits.

Despite SNAP’s good intentions, the policy may lead people to become dependent on the system. The Congressional Budget Office found that workers who increase their income will lose benefits that will offset financial gains. The report found that increasing income may lead some to face over a 40% implicit marginal tax rate, causing $40 loss in benefits for every $100 earned, making it costlier for people to improve their livelihoods.

By contrast, negative income taxes supplement people’s income proportionately to the income earned by an individual. For example, if the cutoff rate is $30,000, and the negative income tax rate is 50%, then someone earning $15,000 receives $7,500 additional income. More importantly, this tax benefit allows poorer people to spend their money freely.

Despite Watauga County’s per capita income being above the federal poverty line at $24,635, just over 21.2% of Wataugans live below the federal poverty line, according to the U.S. Census in 2019. At least 11,860 individuals rely on the government to make ends meet in Watauga County. 

Keeping local residents reliant on welfare is unacceptable for a state whose slogan is “first in freedom.” Negative income taxes give people freedom from government interference and allows them to spend supplemental income freely.