Negative income tax

Milton Friedman supported a negative income tax. This is a kind of a progressive income tax system, where people who are earning below a certain amount of money, will receive a supplemental pay from the government instead of paying taxes.

Typically, such a tax system is implemented as a flat tax, combined with a fixed government payment. For example, if the flat tax rate is 25% and a government payment of €10.000, then:
- A person earning € 1.000.000 would pay close to the full 25% tax, as the government payment would be negligible compared to the € 250.000 in tax payments.
- A person earning only € 4.000 per year would pay € 1.000 in taxes but receive € 10.000 in payment. Thus this person has a net income of € 13.000, € 9.000 in net government payments.


Source: http://economistsview.typepad.com/economistsview/2006/11/milton_friedman_1.html

Gerbrand Vidts