Capital Transference

We've been here for almost 50 years and no one noticed

The idea that we are in “late stage capitalism” is wrong. Both ideologically and empirically. In fact, we entered the negative income tax (NIT) stage of capitalism almost fifty years ago and no one seemed to notice.

Photo by Towfiqu barbhuiya on Unsplash

Quick reset. Every generation of capitalism’s critics since 1848 has been certain they were living through the final act. The phrase “late stage” presumes an ending nobody can locate. Calling any present moment “late” requires knowing the lifespan, either from a known endpoint we don’t have or from a theoretical one that’s been smuggled in. The honest stage descriptor names the mechanism actually doing the distributional work, and in the United States that mechanism has been maturing since 1975.

The NIT mechanism is already installed. The Earned Income Tax Credit (EITC), enacted in 1975, now sends about $65 billion a year to roughly 25 million households. The Child Tax Credit (CTC), created in 1997 and expanded repeatedly, reaches most American families with children. Affordable Care Act premium subsidies channel income scaled cash through the healthcare system. In 2021, the expanded Child Tax Credit briefly became a near universal monthly child allowance paid by the Treasury, a Friedman style negative income tax in everything but name.¹

Government transfers to households have grown from roughly 7 to 8 percent of personal income in 1970 to 17 to 18 percent today, and that growth has been steady across every administration of both parties.²

The EITC shows how NIT redistribution works. The credit has three zones. In the phase-in zone, a worker receives a credit equal to a fixed percentage of earned income: 7.65 percent for childless workers, scaling up to 45 percent for three or more children. A single parent with two children earning $10,000 receives a $4,000 credit, raising effective income to $14,000. The credit then plateaus at a maximum (about $7,800 for a family with three or more children in tax year 2025) and phases out gradually, reaching zero somewhere between $19,000 for childless workers and $67,000 for larger families. The credit is fully refundable: if it exceeds the worker’s tax liability the IRS sends the difference as a check or direct deposit.

This is redistribution, pure and simple. The federal income tax is steeply progressive: the top 10 percent of earners pay roughly 76 percent of all federal income taxes, the top 1 percent pay about 46 percent, and the bottom 50 percent pay about 2.3 percent.³ When a refundable credit pays out more than a household owes, the cash is drawn from a revenue pool funded almost entirely by households higher up the distribution: high earners pay income taxes, those taxes flow into general revenue, and the IRS routes a portion back out as EITC and CTC refunds to lower earning households. It is a continuous flow from capital heavy and high wage households to labor light and low wage households, administered through the tax filing system.

The phase in structure rewards work at the bottom of the distribution, which is why labor force participation among single mothers rose substantially after the 1993 expansion.⁴ The CTC operates on similar principles with broader middle class reach, and ACA subsidies extend the same logic into healthcare consumption. Together they form a redistribution layer running through the most administratively efficient channel the federal government has, which is the IRS.

Labor’s share of national income held stable at around 63 to 65 percent for most of the twentieth century, then dropped into the high 50s after 2000 and stayed there.⁵ When wages capture a smaller share of what the economy produces, wages alone can no longer distribute enough income to keep most households participating in consumption. Something has to close that gap. The transfer and credit apparatus is what closed it. This is why expansion happens under Republican administrations as readily as Democratic ones (Reagan, both Bushes, and Trump all signed major expansions) and why the political fights over individual programs are noise on top of a steady underlying trend.

The empirical record is broadly accepted by public finance economists. The EITC reduces poverty, increases work among single mothers, improves infant health, and produces measurable gains in the educational attainment and adult earnings of recipients’ children.⁶ The 2021 CTC expansion cut child poverty by roughly 46 percent in six months, and child poverty rebounded almost immediately when the expansion expired.⁷ The headline finding that these programs work as designed is not seriously contested.

“Late stage capitalism” is the ideological version, predicting a collapse it cannot date or defend. The standard welfare state framing is the political version, treating transfers as a victory one coalition won against another, which doesn’t explain why the apparatus grows under both. The “NIT stage” describes what is actually happening: a capital heavy production regime requires a transfer layer on the consumption side to remain functional, and the United States has been building that layer in plain sight for half a century.

The interesting question isn’t whether we’ll enter this stage. We’re in it, and have been since 1975. The question is whether the funding side can keep taxing capital. That tension, not collapse, is what determines what comes next.

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Notes

1. On EITC history and parameters, see IRS Statistics of Income and the IRS Taxpayer Advocate annual reports. On the 2021 CTC, see Goldin and Michelmore (2022) and Columbia Center on Poverty and Social Policy monthly poverty estimates.
   
   

2. Bureau of Economic Analysis, NIPA Table 2.1 (Personal Income and Its Disposition).
   
   

3. Tax Foundation, “Summary of the Latest Federal Income Tax Data” (annual series, based on IRS Statistics of Income).
   
   

4. Eissa and Liebman, “Labor Supply Response to the Earned Income Tax Credit,” Quarterly Journal of Economics 111, no. 2 (1996); Meyer and Rosenbaum, “Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers,” Quarterly Journal of Economics 116, no. 3 (2001).
   
   

5. Karabarbounis, “Perspectives on the Labor Share,” Journal of Economic Perspectives 38, no. 2 (Spring 2024): 107 to 136. See also Karabarbounis and Neiman, “The Global Decline of the Labor Share,” Quarterly Journal of Economics 129, no. 1 (2014); Autor et al., “The Fall of the Labor Share and the Rise of Superstar Firms,” Quarterly Journal of Economics 135, no. 2 (2020).
   
   

6. Hoynes and Patel, “Effective Policy for Reducing Poverty and Inequality?” Journal of Human Resources 53, no. 4 (2018); Chetty, Friedman, and Rockoff, “New Evidence on the Long Term Impacts of Tax Credits” (2011); Bastian and Michelmore, “The Long Term Impact of the Earned Income Tax Credit on Children’s Education and Employment Outcomes,” Journal of Labor Economics 36, no. 4 (2018); Rothstein, “Is the EITC as Good as an NIT?” American Economic Journal: Economic Policy 2, no. 1 (2010).
   
   

7. Parolin et al., “Monthly Poverty Rates in the United States during the COVID 19 Pandemic,” Columbia University CPSP working papers (2021 to 2022). Han, Meyer, and Sullivan have offered methodological challenges; the broad finding survives.