In a negative income tax system, people earning a certain income level would owe no taxes; those earning more than that would pay a proportion of their income above that level; and those below that level would receive a payment of a proportion of their shortfall, which is the amount their income falls below that level.
Typically, this is proposed to be implemented as a flat tax combined with a fixed government payment. For example, if the flat tax rate is 25% and a government payment of $10,000, then:

* A person earning $40,000 per year would be at the break-even point. They pay no taxes, because their tax payment equals their government payment.

* A person earning $1,000,000 would pay close to the full 25% tax, as the government payment would be negligible compared to the $250,000 in tax payments.

* A person earning only $4000 per year would pay $1000 in taxes but receive $10,000 in payment, for a net income of $13,000, or $9,000 in net government payments. The net payment is 25% of the difference between their income and the break-even income.

Ross Perot's famous warning that the North American Free Trade Agreement (NAFTA) would produce a "giant sucking sound" still rings in our ears. The implication was that free trade with Mexico would cause significant job losses in the United States. Despite Perot's warnings, President Clinton signed the agreement in January of 1994. Subsequently, employment in the United States increased steadily and dramatically, with the share of the working-age population employed reaching an all-time historical high in 2000.

The issue of whether trade costs jobs--or whether jobs are intrinsically scarce at all--is one that divides economists from non-economists. Bryan Caplan puts it,

The public often literally believes that labor is better to use than conserve. Saving labor, producing more goods with fewer man-hours, is widely perceived not as progress but as a danger. I call this the make-work bias, a tendency to underestimate the economic benefits of conserving labor. Where noneconomists see the destruction of jobs, economists see the essence of economic growth: the production of more with less.

...
In the 1990's, labor market policies in Europe were often geared toward stopping job losses. Ideas included a limited work week or penalizing firms for firing workers. The net result was higher unemployment and a lower share of the working-age population employed than in the United States. It turns out that the anti-job-loss policies make workers expensive to employ. As a result, they reduce new hires by more than they reduce job losses.

The fallacy is to confuse gross job losses with net job losses. A nation can have a large number of gross job losses without any net job loss, as long as additions to employment in expanding companies are at least as large as reductions in employment at contracting companies.

The overall key point is that the common intuition that jobs are scarce is dangerously wrong in many contexts. It leads to a fear of productivity gains. It leads to a particularly strong fear of the productivity gains that come from trade and comparative advantage. It leads to a faith in anti-job-loss policies that is counterproductive.

And yet, there is one context in which economists talk about job scarcity in the same terms as an ordinary layman guilty of make-work bias. That context is macroeconomics. When they talk macro, professional economists speak of the need to create jobs. Economists will grade Presidents on how many jobs are gained or lost during their administrations, rather than on, say, productivity growth during their tenure in office.

I worry that mainstream Keynesian macroeconomics is little more than fancy camouflage for make-work bias. That is, it allows economists to strike a sympathetic chord with non-economists, while maintaining an air of professional sophistication.

(from an email discussion which illustrates what I see as some common left-wing misperceptions and the generic libertarian/laissez-faire answers)

Here's the situation: You move to CR and emply a vagrant to do housecleaning. The vagrant is willing to work for $1/day because it's more than they had before (increase of their utility). However, $1/day is not enough to secure food, clothing, and shelter (i.e. health) for the

Then why is the vagrant still alive and able to work? I suspect part of the problem is the difference between your definition of basic necessities and what is really necessary for survival. There is no binary scale, with a certain wage meaning you live and another meaning you die. Instead, there is a steady decline in health, comfort, happiness, etc. as wage goes down. Specific definitions of livable wages tend to be extremely prejudiced by whatever society one is currently living in. An american making a poverty wage is wealthy by the standards of much of the world - let alone a few hundred years ago. There are some places (pacific islands) where the living wage is 0$ - a few hours of work a day gets you everything you need (their food sources require no maitenance and are public property). The only reason they need money is to buy things like cigarettes.

People are willing to survive in conditions far worse than most modern people let themselves imagine, and continually raising the bar of "necessity" vs. "luxury" through invoking the emotion of compassion obscures the truth about poverty.

employee. Does libertarian philosphy deal with "human rights" (for lack of a better term)? Does the libertarian recognize that ensuring the vagrant's health (which hopefully ensures continuing service) is right action?

The libertarian would say "I have made the vagrant better off than he was before. I am better off than I am before. Everyone is better off. What is the problem?". The economist would then point out that while the vagrants time is clearly worth more than $1/day to me, it is probably not worth much more (or he'd be able to get a different job with an employer willing to offer him more). Say its worth $1.50/day. Lets pretend that your definition of a high level of basic necessities for life is correct, and that he must consume 2$/day in order to stay healthy and alive.

You can see the basic conflict - if I pay him enough to stay alive, I lose money, so I'm not going to do it in my own self-interest, only out of charity. I'm essentially giving him 0.50$/day. Not only does this mean that I am losing money (which liberals would focus on), but *the rest of the world* is losing wealth, because the vagrant consumes 2$/day of food/clothing/shelter and generates $1.50 a day of resources! This is the "whole picture" part which is crucial to a correct analysis. The fact that selfish employers are not willing to pay Bob (lets give the vagrant a name) enough to survive is *fundamentally tied* to the fact that Bob cannot generate as much for the world as he must consume to live.

There are some who believe it is worth using up resources in order to keep Bob alive, but be aware that its not just a matter of "selfish capitalists" unwilling to pay a "decent living wage". The vast majority of people are not like Bob - they result in the world being richer, not poorer, by engaging in mutually beneficial interactions and generating more resources for the world than they consume. The Lib's would say that Bob should die - why should the productive majority of the world suffer in order to keep him alive? They would add that you are welcome to expend your resources on Bob, as long as you don't force anyone else to do so.

L's believe that human rights consist of the right to protection of property, enforcement of contracts, and protection from violence. A corollary to this is that food, shelter, and clothing are things that you have to get other people to give you through mutually beneficial arrangements, not "rights". Its a very different perspective on the world - a less compassionate one, I admit. But it stems logically from the axiom that no one may force anyone else to support them, or be forced to work on behalf of someone else. This is incompatible with the food/shelter/clothing/medicine sort of human rights.

Lets take a more realistic view of survival and say that while Bob would be a lot happier on $2/day, he can survive on 1$/day at the cost of poorer health, a more boring diet, and rarer laundering of his few clothes. Notice that if there is no minimum wage, I pay Bob 1$/day and he survives. If you set the minimum wage to 2$/day to ensure that Bob's human rights remain intact, I don't pay him to work and he starves and dies. Minimum wage laws (as well as many other standards, certification and licensing requirements) hurt unskilled laborers the most - and are generally pushed by unions and skilled laborers to help themselves, with the result of hurting immigrants.