Replacing Expensive Welfare with Milton Friedman's Guaranteed Income Proposal: The Negative Income Tax in the Trump Administration (2025-2029)

Economy
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By Jay Mudholkar

Introduction

The 2025-2029 Trump administration stands at a crossroads in economic policy, particularly in light of shifting political dynamics highlighted by the 2020 election. In that election, approximately 70% of wealth holders voted for Biden, while only 30% supported Trump. This significant realignment indicates a growing opportunity for economic help for working class Americans. As these changing demographics reshape political affiliations, the administration has an opportunity to craft a policy that appeals to both sides of the aisle.

Milton Friedman’s concept of a Negative Income Tax (NIT) offers a compelling solution that can bridge the divide between left and right ideologies. The NIT proposes a guaranteed income for all citizens, effectively addressing poverty while fostering the principles of capitalism. By providing financial support without the complexities of traditional welfare systems, the NIT presents a pathway to enhance individual responsibility and economic mobility.

Understanding the Negative Income Tax

Concept Overview

Milton Friedman proposed the NIT as a method to ensure a minimum income level for all individuals. Instead of traditional welfare programs, which can be bureaucratic and stigmatizing, the NIT simplifies the process by providing cash payments to individuals whose income falls below a certain threshold. As income increases, the subsidy gradually phases out, encouraging work and reducing dependency.

Goals of the NIT

  1. Reduce Poverty: The NIT aims to lift individuals and families out of poverty, providing them with the means to meet basic needs.
  2. Encourage Employment: By phasing out benefits as income rises, the NIT incentivizes individuals to seek work rather than remain in a welfare system that may discourage earning additional income.
  3. Streamline Welfare: The NIT reduces the bureaucratic burden of administering multiple welfare programs, leading to cost savings and increased efficiency.

Changing Political Dynamics

The political landscape is evolving, as evidenced by the 2020 election results. The substantial shift in voting patterns among wealth holders indicates a recognition of the necessity for social safety nets. This presents a prime opportunity for the Trump administration to advocate for policies like the NIT that can appeal to both conservative and progressive values.

Rationale for Implementation

Economic Benefits

  1. Increased Disposable Income: The NIT puts more money in the hands of individuals, boosting consumer spending and stimulating the economy.
  2. Cost-Effective: By consolidating various welfare programs into a single cash transfer system, administrative costs can be reduced.
  3. Encourages Investment: A guaranteed income can empower individuals to invest in education and skill development, fostering a more competitive workforce.

Social Benefits

  1. Empowerment: Providing individuals with a basic income promotes autonomy and dignity, allowing them to make choices about their lives.
  2. Reduction in Crime: Economic stability can lead to a decrease in crime rates, as individuals have less need to engage in illegal activities for survival.
  3. Improved Health Outcomes: Economic security is linked to better physical and mental health, reducing the burden on healthcare systems.

Policy Design

Framework for Implementation

  1. Income Thresholds: Establish an income threshold below which individuals will receive the NIT. This threshold should be based on the poverty line and adjusted for family size.
  2. Subsidy Rate: Determine the subsidy rate, ensuring it provides adequate support while encouraging individuals to seek employment. A proposed rate could be set at 50% of the difference between the individual’s income and the threshold.
  3. Phase-Out Structure: Implement a gradual phase-out of benefits as income rises, ensuring that individuals are not penalized for earning more.

Example Calculation

To illustrate how the NIT would work with a 50% subsidy rate, consider the following example:

  1. Income Threshold: Let’s set the income threshold at $30,000 for an individual.
  2. Individual’s Income: Suppose an individual earns $20,000.

Calculation of NIT Payment:

  1. Difference from Threshold:
    Difference=Threshold−Income=$30,000−$20,000=$10,000
  2. NIT Payment: Using the 50% subsidy rate:
    NIT Payment=50%×Difference=0.50×$10,000=$5,000

In this example, the individual earning $20,000 would receive a NIT payment of $5,000.

If this individual were to decrease their income to $0, the calculation would change:

  1. Difference from Threshold:
    Difference=Threshold−Income=$30,000−$0=$30,000
  2. NIT Payment: Using the 50% subsidy rate:
    NIT Payment=50%×Difference=0.50×$30,000=$15,000

In this example, the individual earning $0 would receive a NIT payment of $15,000.

This gradual phase-out ensures that as the individual earns more, they still receive a reduced benefit, encouraging continued work without a sudden loss of support.

Benefits Over Means-Tested Programs

Unlike means-tested programs, which provide benefits based on strict income limits—often creating a “cliff” effect where individuals suddenly lose support upon surpassing a certain income level—the NIT promotes a more gradual and supportive transition into the workforce. This approach encourages individuals to take on higher-paying jobs without the fear of losing crucial benefits all at once.

In means-tested systems, the disincentive to work can be stark: a person might choose not to accept a raise or a better job opportunity if it means losing essential support. The NIT mitigates this issue by ensuring that individuals retain some level of benefit as they increase their earnings, promoting a culture of hard work and economic mobility.

Funding Mechanisms

  1. Tax Reforms: Consider broadening the tax base and implementing reforms that close loopholes, ensuring the wealthiest individuals and corporations contribute fairly.
  2. Elimination of Ineffective Programs: Identify and eliminate welfare programs that are redundant or ineffective, reallocating those funds to the NIT.
  3. Increased Efficiency: Streamline the welfare bureaucracy, reducing administrative costs associated with the current system.

Implementation Phases

  1. Pilot Programs: Begin with pilot programs in select states to assess the effectiveness of the NIT and make necessary adjustments before a nationwide rollout.
  2. Public Awareness Campaigns: Educate the public on the NIT, addressing misconceptions and highlighting its benefits to build support across the political spectrum.
  3. Full Implementation: Following successful pilot programs, gradually implement the NIT nationwide, with ongoing monitoring and evaluation.

Addressing Concerns

Left-Wing Concerns

  1. Adequacy of Support: Ensure that the NIT provides sufficient support to lift individuals above the poverty line. Continuous adjustments based on cost of living should be part of the plan.
  2. Equity Issues: Focus on ensuring that marginalized communities benefit equitably from the NIT, with targeted outreach and support services.

Right-Wing Concerns

  1. Work Incentives: Emphasize the NIT’s design to incentivize work rather than discourage it. Showcase success stories from pilot programs where individuals have transitioned to employment.
  2. Fiscal Responsibility: Highlight the potential for cost savings through the elimination of redundant welfare programs and increased tax compliance.

Building Political Consensus

Engaging Stakeholders

  1. Bipartisan Support: Work to build a coalition of lawmakers from both parties, highlighting the NIT’s potential to address key issues such as poverty and economic growth.
  2. Community Involvement: Engage local communities and organizations in discussions about the NIT, ensuring that diverse perspectives are heard and incorporated into the policy design.

Framing the Narrative

  1. Common Ground: Emphasize the shared goals of reducing poverty and enhancing economic opportunity. Position the NIT as a solution that aligns with both conservative and progressive values.
  2. Success Stories: Use data and testimonials from pilot programs to illustrate the effectiveness of the NIT in promoting economic stability and empowering individuals.

Monitoring and Evaluation

Establishing Metrics

  1. Poverty Reduction Rates: Monitor changes in poverty rates across demographics to assess the NIT’s impact.
  2. Employment Rates: Track employment rates before and after implementation to evaluate the policy’s effectiveness in encouraging work.
  3. Cost Savings: Analyze the financial impact of the NIT compared to existing welfare programs to determine overall cost-effectiveness.

Continuous Improvement

  1. Feedback Loops: Create mechanisms for ongoing feedback from participants and community organizations to identify areas for improvement.
  2. Policy Adjustments: Be open to making adjustments to the NIT based on empirical evidence and stakeholder input, ensuring it remains effective and relevant.

Conclusion

The implementation of Milton Friedman’s Negative Income Tax presents a unique opportunity for the Trump administration to bridge political divides while addressing pressing economic issues. By providing a cost-effective and empowering solution to poverty, the NIT aligns with capitalist principles and promotes a more equitable society. With careful planning, stakeholder engagement, and a commitment to monitoring outcomes, the NIT can transform the economic landscape of the United States, fostering growth and opportunity for all citizens. This approach not only honors Friedman’s vision but also creates a legacy of economic security and empowerment that resonates across the political spectrum.

Merged policy oberservation from @iBringBalance

Universal Basic Income (UBI), aka Guaranteed Income

Replace all welfare programs with UBI, as suggested by
Milton Friedman in Capitalism and Freedom

This would result in some immediate benefits:

  1. Reduction of government: no overhead/employees to check for welfare qualification
  2. Reduction of poverty: bare-minimum required to survive is available to all citizens
  3. Protection from automation: as automation of jobs continues to increase with AI/ML, a safety net is in place if job availability starts to plummet
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So, are you arguing to increase taxes? Or, where does this money come from? How do you do this without increasing the federal budget, and thereby taxes and inflation? It’s also not clear how this would reduce the overhead of existing welfare programs.

This also disincentivizes work, reducing national productivity. I’d also argue that this reduces freedom by ensuring a dependency culture, disincentivizing self-reliance and personal responsibility. It also opens our tax dollars up to potential abuse and government overreach (you can only qualify for x if you behave like y).

It seems contrary to many American values (hard work, individualism, self-reliance and capitalism). It is also socialist in nature, which throws a massive wrench in a capitalist economy. It needs to be fully capitalist to exercise the benefits of capitalism, a truly free economy. Else you just have a weird form of fascism with many exceptions that drag down the efficiency and benefits of a capitalist economy.

I think money would be better spent on programs that target the root causes of poverty and inequality than to freely dole out ‘equity dollars’.

Just my 2c.

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Limiting automation is not part of a free market society. Automation can be painful, but in the end increases productivity and grows the economy.

Anecdote: I once worked on a trading floor with several hundred people. Within 10 years time, that operation was reduced to about 5 people and a big computer.

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Read up on Friedman’s Capitalism and Freedom - he has all the answers there (yes, more taxes, such as VAT on luxury goods)

It’s not enough money to go & buy a 60-inch OLED TV & buy a car

It’s enough for food & shelter - if that’s all someone wants in life, more power to them & they can coast

If, like most people, they’re driven to have a phone, TV, car, etc., then they’ll need to work

It is 100% capitalist - again, go read Friedman’s book, Capitalism and Freedom (it’s right there in the title)

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No. This is socialism. It would incentivize people not to work.

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I don’t think anyone is proposing limiting of automation…

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It’s not socialism - as I said above, go read up on Milton Friedman: Capitalism and Freedom - Wikipedia

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This idea is way better

UBI has a few problems:

  • Inflation of the prices of goods as more people have more dollars to buy basic necessities. Increasing monetary velocity results in higher prices.
  • UBIs typically guarantee a specific amount of money, which creates an underclass of people entirely reliant on the state, who depend on the state for their livelihood, and thus would be leveraged by the state whenever they want to introduce unpopular reforms. This also gets landlords to raising their prices by exactly the amount of the UBI.
  • UBIs cost a lot of money obviously.

My proposal accomplishes the same thing as UBI but with none of these issues.

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Get your idea backed by hundreds of world-renowned economists who understand inflation & economics, including libertarian & conservative ones: List of advocates of universal basic income - Wikipedia

And I’ll bite

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I think our welfare state is way way too large as it is. Get a job. There are lots of openings.

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I may have interpreted the 3rd point in a way other than what was intended. I read it as desiring protection from automation vs. providing income in the case of automation reducing jobs. Even if jobs were reduced, I still wouldn’t advocate for an income safety net outside of unemployment that is already in place. If a person needs to reinvent themselves to remain employed, so be it.

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I’m a software engineer & I make some pretty good money - I’m not advocating for myself here

As a software engineer who understands LLMs & ML, I can assure you, a storm is brewing

@MarkG there’s no “reinvent yourself & remain employed” - there will be nothing left that an average human can do that a machine can’t do better

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Basic economics, if the supply’s floor is raised it is the new zero. Pricing will adjust for the increase and the income will no longer matter as everyone treats it as nothing.

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Exactly! “The new zero” …

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I am a supporter of UBI because it increases the negotiating power of workers. Currently the logic of capitalism is broken in that workers are unable to realistically respond to a bad employer by finding another employer. They live paycheck to paycheck and can’t afford for money not to come in. They can’t just leave their job.

However, it is not productive to put your fingers in your ears and ignore the potential problems. The way out is to provide solutions that fix these problems.

Maybe if you know a few of those world-renowned economists you can share my iteration of UBI with them. To my eyes it solves some of the biggest problems of UBI (namely the cost, the inflation, and the predictable dollar amount being sucked up by rent seekers, undermining any increased buying power).

Or maybe if you know you have any opinions of your own you can respond substantively to my idea with constructive criticism. If not, please run it by one of your economist friends to see what they think.

I have tried to get people to give me opinions on this fucking idea and only one person several years ago has given me anything to work with. And it wasn’t you.

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Friedman is a trifle controversial!
Common sense is not his strong point.
This proposal simply creates a new floor. A new zero starting point.
It is IMMEDIATELY factored into the price of housing and used to REDUCE the hourly wage or salaries.
Theory would clash with reality and theory would lose.

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I appreciate what you are saying and I’m fully aware about the capabilities of what computers and software can do, but humans have to trust the “algorithm” behind whatever process is being done. The way the world is, mass adoption isn’t going to happen anytime soon. The best computer is still the human brain.

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On paper, the idea of a UBI to replace the welfare state makes sense.

However, I want everybody to know exactly what would happen:

  1. EBT ends, UBI for all.
  2. The media will find someone with a smoke detector chirping who has 9 fatherless kids who will stand in front of her brand new Nissan Altima bought on a line of credit with monthly payments exactly equal to her UBI checks, and whine that there’s not enough money and her kids are hungry.
  3. EBT cards are reintroduced ON TOP of UBI.
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Currently the floor is 0 for everyone, as that is where we all start. If you move the floor to any number above this point, the costs of everything will increase automatically. The wages for employing people will increase, as people will require more incentive to work as their base needs are being met through the UBI. Rents will increase, as no landlord will permit money to be left on the table, as it is mostly based on what the market can bare. In every instance where UBI has been successful, it has been in an enclosed group, where only the participant’s knew they were involved, no one else. When it has been performed on a national scale, it failed miserably. Canada had CERB during the pandemic, which was $2,000 per month and designed for those that lost their jobs abruptly due to lockdowns, and ultimately extended to a large portion of the working and non working population. Businesses started to lose workers because they couldn’t compete with the free funds, and due to the lack of consumers from the pandemic, they closed. For those that remained employed they bought Ipads and laptops, 60" OLED TVs, the market at the time was booming. In 2022 a lot of those funds were recalled from those who shouldn’t have received them. It was later revealed to be an attempt at UBI, but failed, and the recall caused a lot of homelessness, while a lot of those non workers that received it were on skid row, and enjoyed taxpayer paid drugs.

You are better off getting rid of the welfare programs, than encouraging the worst version; 100% government dependence.

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There is an argument to be made that a modest dividend (lets say even $500/month) of unconditional cash (progressively taxed back at higher tax brackets), can combine with countless jobs to then turn those into income-viable jobs that otherwise are not.

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