Negative Income Tax

Watching the excellent Free to Choose series on freetochoose.tv I was reminded of the excellent idea of the negative income tax. All in all this probably is the only way to get out from under the increasing financial burden of the welfare state. I was however struck by an apparent contradiction in that the negative income tax would set up a de facto minimum wage, which is something that proponents of the NIT are against (as indeed is every decent economist).

On further reflection I realized this could ultimately be a benefit. Let me explain.

Under the current regime households earning less than ~35k a year are being subsidized. Under a NIT the burden they place on people earning more than this (and thus paying into the welfare system) would be reduced. People earning less than whatever level is set up by the NIT and those near the margin might decide not to work and this is the primary critique of the idea. However, being freed from the burden of working menial jobs would allow many of these people to pursue the bettering of their own value in the workforce.

This would be an acceleration of a process that is happening already where the US is becoming a skilled economy and relatively unskilled jobs are leaving. The NIT provides a much gentler transition that is going to occur whether we prepare for it or not.