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Page 192
cal grounds is a negative income tax. We now have an exemption of $ 600 per person under the federal income tax (plus a minimum 10 per cent flat deduction). If an individual receives $ 100 taxable income, i.e., an income of $ 100 in excess of the exemption and deductions, he pays a tax. Under the proposal, if his taxable income minus $ 100, i.e., $ 100 less than the exemption plus deductions, he would pay a negative tax, i.e., receive a subsidy. If the rate of subsidy were, say, 50 per cent, he would receive $ 50. If he had no income at all, and, for simplicity, no deductions, and the rate were constant, he would receive $ 300. He might receive more than this if he had deductions, for example, for medical expenses, so that his income less deductions, was negative even before subtracting the exemption. The rates of subsidy could, of course, be graduated just as the rates of tax above the exemption are. In this way, it would be possible to set a floor below which no man's net income (defined now to include the subsidy) could fallin the simple example $ 300 per person. The precise floor set would depend on what the community could afford.
The advantages of this arrangement are clear. It is directed specifically at the problem of poverty. It gives help in the form most useful to the individual, namely, cash. It is general and could be substituted for the host of special measures now in effect. It makes explicit the cost borne by society. It operates outside the market. Like any other measures to alleviate poverty, it reduces the incentives of those helped to help themselves, but it does not eliminate that incentive entirely, as a system of supplementing incomes up to some fixed minimum would. An extra dollar earned always means more money available for expenditure.
No doubt there would be problems of administration, but these seem to me a minor disadvantage, if they be a disadvantage at all. The system would fit directly into our current income tax system and could be administered along with it. The present tax system covers the bulk of income recipients and the necessity of covering all would have the by-product of improving the operation of the present income tax. More important, if enacted as a substitute for the present rag bag of

 
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