Forget the negative income tax, how about a negative tariff?
By John Tamny
Real Clear Wire
Milton Friedman was incorrect. About the negative income tax, specifically. The great Nobel Laureate (1912-2006) viewed a negative income tax as something that would encourage work.
While most people pay taxes on work earnings, those under the poverty line would essentially be paid by the IRS to work, and their negative income tax rate would grow the more that their income from work fell below a specified level. If the latter were $10,000 and the earner made $9,000 each year, the $1,000 check from the federal government would amount to a 10 percent negative income tax rate. Friedman mis-fired.
No one in the U.S. requires an incentive to work. As evidenced by the great lengths that the world’s poorest go to in order to get to the U.S. so that they can work, there’s no reason for the federal government to pay people.
More importantly, tax stimuli to enhance the desire to work arguably miss the point. The much better way to boost interest in work is through better work options.
Which is why a negative tariff on foreign production would be quite a bit more effective than a negative income tax. And it really wouldn’t even come close.
Some will reflexively recoil at the very notion. To believe the rhetoric from the Trump administration, foreign production is what puts Americans out of work as opposed to it boosting desire to work. Yes and no.
No doubt foreign production would erase work done by Americans, but not to their detriment. Seriously, if the goal were solely about “creating jobs,” the easy answer would be to abolish the automobile, the computer, the internet, the smartphone, and realistically every technological advance from 1900 to the present.
If so, every American would be working all the time, dawn to dusk, realistically 7 days per week just to survive. Americans would be desperately poor under such a scenario, incredibly miserable too, but they would have “jobs.”
It’s just a reminder that as job creators, tariffs are certainly effective, but only insofar as they result in jobs that we can’t stand. Call tariffs a work disincentive.
That they are is more evidence that while President Trump will talk wistfully about “beautiful” tariffs, it’s highly unlikely that his actions will match his rhetoric. See above.
In thinking about tariffs as the path to the work we loathe, it’s more useful to think about the opposite of a tariff, as in a negative tariff. As opposed to taxing foreign production, what if the federal government were to pay for it? One can dream. Opinion pieces are the art of the possible.
Applied to tariffs and the Trump administration, a president truly intent on a Golden Age would make policy with it well in mind that work done by others doesn’t put us out of work as much as it frees us to do the work most associated with our unique skills and intelligence.
With negative tariffs, Americans would be even more inundated with the world’s plenty, and the reward would be freedom to do what they do best. In academic terms, imagine never having to take a math class again, or imagine always having to take math classes. The latter is the tariff equivalent.
Which is a short way of making a basic point. It’s often said the minimum wage should be less than zero so that we can pay to get the kind of work that we truly want. Negative tariffs are a variation of this, and a grand one. When others do for us, we get to do what we love.
John Tamny is editor of RealClearMarkets, president of the Parkview Institute, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His next book is The Deficit Delusion: Why Everything Left, Right and Supply Side Tell You About the National Debt Is Wrong.