1. Explain how the negative income tax avoids the disincentive to work that characterizes poverty programs that simply give benefits based on low income.
The Earned Income Tax Credit (EITC), a negative income tax, applies only to those workers who earn income; over a certain range of incomes, the more a worker earns, the higher the amount of EITC received. A person who earns no income receives no income tax credit. By contrast, poverty programs that pay individuals based solely on low income still make those payments even if the individual does not work at all; once the individual earns a certain amount of income, these programs discontinue payments. As a result, such programs contain an incentive not to work and earn income, since earning more than a certain amount makes individuals ineligible for their benefits. The negative income tax, however, provides an incentive to work and earn income because its payments increase the more an individual works.