Apr

10

 Milton Friedman - The Negative Income Tax - Firing Line with William F. Buckley Jr.

In this 1968 interview, Milton Friedman explained the negative income tax, a proposal that at minimum would save taxpayers the 72 percent of our current welfare budget spent on administration.

Stefan Jovanovich writes:

My Dad helped Friedman embark on the way to making serious cash in his later life. Dad published "Free to Choose" and helped Friedman find the TV producer (who deserves much of the credit for the success of that series by damping down Professor Milton's inclination to be obnoxiously pedantic). The book royalties were excellent, but what really helped Friedman become semi-rich was the fact that the series made him a "name" for the trade show lecture circuit. The fees he earned were nothing like those the Clintons and General Powell and others later earned; but they were, for the time, major coin.

Since no good deed by a publisher goes unpunished, it will not surprise the List to learn that Friedman continuted to think he knew more about elementary and secondary education than Dad did. I remember listening to several conversations they had where Dad tried to persuade Friedman that his voucher system was both bad politics and worse pedagogy. "Milton, the urban schools were failing (they still are) precisely because the actual students had no incentives. The middle and upper class kids are paid to do well in school - by their parents; my son the bum knew that he would be rewarded for swotting away. But the kids in the ghetto have no such encouragements. They lose money by going to class. Their truant friends could be out on the streets hustling or, at the very least, enjoying the rewards of freedom. This is what has changed with "modern" education. They system worked in the past because poor kids had the greatest personal incentives. Being allowed to skip farm work and go to school only if you got good grades was a real incentive. For you and me, as the children of immigrants, there were huge personal rewards. We were the prize boys in the family. Our parents wanted us to go to school so that someone in the house could speak "proper" English; hell, my older siblings had to sacrifice some of their prospects so that I, the youngest child, could afford to keep going to school."

Dad's solution was simple: pay children for achievement test results. Pay every child for taking the test and then pay them more for getting better and better results. Once people understood that the system was here to stay, parents would be making certain that their kids went to school - if only, Dad said, so they could drink up the money the children earned. (This may sound cynical but it was, in fact, wonderfully charitable; there was nothing "society" could actually do about preventing children from being exploited by bad parents but at least the children would be learning the skills that would allow them to escape as adults.)

Friedman seems to me to have had a similar blind spot regarding "poverty". He was right, of course, about the poverty industry; it is appallingly wasteful and corrupting. But the solution was not to allow the poor to believe that they were somehow entitled to the money, which is precisely what a negative income tax would do. You could eliminate the "helping" bureaucracies and offer the poor incentives to do better by following Dad's scheme, by paying the poor for good conduct. But, if you simply handed over the money and used the income tax as the mechanism, you would be undermining the tax system itself. The experience with the Earned Income Tax Credit is proof of that fact; if you are going to have an income tax at all, you have to treat all income equally and apply the lowest possible rates, even to the helping and disability payments. If the poor pay nothing, they have a permanent incentive to remain officially poor.


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  1. Ed on April 13, 2017 10:41 pm

    Don’t scale it to income or otherwise make it a poverty program. More like a trust fund that kicks in at 21. Privatize it and tie it to citizenship - a citizen’s dividend. Want to immigrate? Make it freely traded. Immigration problem solved. We can see if we attract productive people if the value and income of our dividend increases. If we attract leaches we are diluted and lose purchasing power. No incentive not to work as everyone wants more money and you don’t lose the dividend with increasing income.

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