EconExtra: What Idea did Andrew Yang, Martin Luther King Jr. and Milton Friedman Share?

EconExtra is a series of posts that go beyond the textbook, relating current events and recent developments in economics to content standards, and providing resource suggestions to help you incorporate the current events into your lessons.


The Issue


There is much debate about the most effective way to provide an economic safety net. Democratic Presidential candidate Andrew Yang, considered a progressive, proposed a guaranteed minimum income ($1000/month). It may surprise your students to learn that this is not a new concept. Martin Luther King espoused a guaranteed minimum income in the 1960’s. But even more surprising may be the fact that Libertarian Economist Milton Friedman, proponent of capitalism, free markets and minimal government, proposed just such a thing in his seminal 1962 book “Capitalism and Freedom.” Specifically, he proposed a “negative” income tax, where the government pays people who have incomes below a certain threshold.


The most effective way to understand this is to hear Friedman himself explain how the negative income tax would work, and how this structure keeps the incentive to work intact, unlike other subsidy proposals. This clip (under 4 minutes) is taken from an interview with William F. Buckley Jr. on his show Firing Line back in 1968. (Note the dollar amounts used by Friedman—a comparison to today would be useful after viewing the clip.)


The structure of income limits for many of today’s subsidy programs create a “cliff.” If you step over the income threshold, you lose all of your benefits, making your incremental income cost you more in real terms/value than you gain in income. For example, if adding $50 per week pushes you over the food stamp income limit, you may lose more than $50 worth of food stamps per week. As explained by Friedman in that first video clip, in a system with a negative income tax, you keep at least some (50% in his example) of the extra amount earned. 


Matt Orfalea collected clips of Friedman in a video in which he explains the five reasons he was supportive of a negative income tax. (This slightly shortened version is about 5 minutes long.) It is valuable to add this layer of understanding beyond the mechanics.


This MIT article from The Sloan School “Ideas Made to Matter” series explains the concept of a negative income tax (with more relatable dollar figures) and compares it to current systems in place. This would be a good recap, or if you were short on time, this article could be the one resource assigned.


The Lesson Plan


Here is a quick lesson plan you could use if you wanted to pursue this concept with your students using the resources cited above.


Step 1: Watch clip with Friedman explaining the negative income tax .

Step 2: Have students convert the example given by Friedman to today’s dollars

     a) What is today’s standard deduction-? (use a family of 2 adults and 2 children)

     b) Use Friedman’s 50% tax rate as well as the relevant marginal tax rate if this hypothetical family earns an extra $5000 and compare.

Step 3: Watch the longer video clip by Matt Orfalea.

Step 4: Discuss the five reasons Milton Friedman supported the Negative Income Tax.

Step 5: Read the MIT article and recap the advantages a negative income tax has over the current welfare system.


Fun fact: Friedman was also instrumental in introducing the withholding tax, introduced during World War II to help finance it. Read about that in this Conversable Economist blog.

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