Since the Earned Income Tax Credit has been discussed here in the last few weeks, I thought it worthwhile to bring up an article from City Journal (one of the finest publications around when it comes to public policy) on the negative income tax.
In case you don’t recall, the negative income tax (NIT) was a proposal by the late Milton Friedman to do away with the the whole apparatus of the welfare bureaucracy and simply send checks to the poor. His reasoning: It would be cheaper and more efficient.
It was implemented, in bastardized fashion, in the Earned Income Tax Credit (EITC).
Except it wasn’t really what Friedman called for. To quote from the City Journal article, “The EITC may resemble Friedman’s idea superficially, but it is quite different. It doesn’t replace any welfare programs; instead, it adds another layer to them, utterly failing to reduce government bureaucracy. And though it is a cash payment, as Friedman would have suggested, it goes only to the working poor; the unemployed continue to receive in-kind support, such as food stamps.”
Why didn’t the negative income tax take off? Conservatives didn’t like the fact that it would further establish welfare as a fixture of American government. (Hmm. Their opposition doesn’t seem to have ended the welfare state as a whole.)
George P. Schultz, an economist before he became the Secretary of State for Bush 41, gave another reason that illustrates what’s wrong with establishing new government bureaucracies: “The bureaucrats who manage the current welfare state like the power it grants them.”
Conservatives of a certain stripe like to talk about “empowerment” through school vouchers, health savings accounts, and so forth. IF we are going to give people money just because they’re poor, we ought to consider “empowering” the poor by scrapping the various welfare programs (which still exist, despite “welfare reform”) as well as the EITC and implement a straight cash transfer through the NIT. It will make the cost of welfare programs more obvious. As a bonus, the people who receive NIT checks probably won’t be insisting that they are serving the public at large.
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