Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 6 The Economics of Labor Markets
Chapter 20 of 36 Income Inequality and Poverty
Section 16 of 20
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· minimum wage laws
· welfare
· negative income tax
· in-kind transfers
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Negative income tax
Whatever tax collecting system a government uses, it affects the income distribution.
In the case of a progressive income tax, high-income families pay a larger percentage of their income in taxes than do low-income families.
Equity across income groups is an important consideration in the design of a tax system.
Many economists have advocated supplementing the income of the poor with a negative income tax.
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With a negative income tax
· every family would report its income to the government
· high-income families would pay an income tax
· low-income families would receive a subsidy, a negative income tax, rather than pay income tax
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Suppose the government used this formula to compute a family's tax liability:
taxes owed = 1/3 of income minus $10,000
In this case, a family that earned
· $120,000 would pay $30,000 in taxes ($40,000 - $10,000):
net after-tax income of $90,000
· $90,000 would pay $20,000 in taxes ($30,000 - $10,000):
net after-tax income of $70,000
· $60,000 would pay $10,000 in taxes ($20,000 - $10,000):
net after-tax income of $50,000
· $30,000 would pay zero in taxes ($10,000 - $10,000):
net after-tax income of $30,000
· $15,000 would receive a negative income tax payment of $5000 ($5000 - $10,000):
net after-tax income of $20,000
· $9,000 would receive a negative income tax payment of $7000 ($3000 - $10,000):
net after-tax income of $16,000
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Under a negative income tax poor families would receive financial assistance without having to demonstrate need.
The only qualification required would be a low income.
A negative income tax can work to advantage or disadvantage.
It does not encourage illegitimate births and breakup of families.
But, critics point out a negative income tax would subsidize both the unfortunate and those who are simply lazy.
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The Earned Income Tax Credit (EITC) is a current tax benefit working much as a negative income tax.
The EITC allows poor working families to receive income tax refunds greater than the income taxes they paid during the year.
Because the EITC applies only to the poor who are working it does not discourage recipients from working as other antipoverty programs can.
EITC does not address and reduce poverty due to unemployment, sickness, and
other inability to work.
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Earned Income Tax Credit (EITC) information.
Gemini:
The Earned Income Tax Credit (EITC) is a federal tax benefit for low-to-moderate-income workers and families.
It is a refundable credit, meaning you can receive money back as a refund even if you don't owe any taxes.
Who Qualifies?
To be eligible, you generally must:
-Have earned income (including wages and self-employment income) below specific annual limits.
-Have investment income of $11,950 or less for tax year 2025 (or $11,600 for 2024).
-Have a valid Social Security Number.
-Be a U.S. citizen or resident alien all year.
-Not be the qualifying child or dependent of another person.
File using a status other than "Married Filing Separately" (with very limited exceptions).
If you have no qualifying children, you must be at least age 25 but under 65 and have lived in the U.S. for more than half the year.
The EITC amount depends on your income, filing status, and number of qualifying children.
The maximum credit for tax year 2025 (filed in early 2026) is $8,046 for families with three or more children.
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inability to work
rōdō funō (pronounced “roudou funou” – hold the “o” sound)
労働不能
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