The negative income tax Many economists believe that a more effective way to supplement the income of the poor is through a negative income tax. Under this scheme, everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while low-income individuals and families receive a subsidy, or negative tax. Assume that the only qualification required to receive a tax credit is low income. Suppose the government uses the following equation to compute a family’s tax liability:
Taxes Owed = (1/2 of Income)−$6,000
For each of the incomes listed in the following table, determine the tax liability for a family with that income level.
Income Tax Liability
(Dollars per year) (Dollars per year)
0
6,000
12,000
30,000
The maximum subsidy a family can receive is $3,000.
A. True
B. False