The advantages of a negative income tax are easy to describe. Such a tax typically gives positive work incentives to even the poorest persons. With some forms of the negative income tax there are no incentives for families to split apart to obtain greater welfare payments. Furthermore, individuals of similar income are treated in similar fashion, and therefore it is fair and also relatively cheap and easy to administer. In contrast to these advantages of a negative income tax, the advantages of a system of welfare made up of a patchwork of different awards to help various needy groups are less easy to describe and also less well understood. Such a system uses various characteristics, such as age, employment status, female head of household, to identify (in my terminology to “tag”) groups of persons who are on the average needy. These groups are then given special treatment, or, as the economist would view it, they are given a special tax schedule different from the rest of the populace. A system of tagging permits relatively high welfare payments with relatively low marginal rates of taxation, a proposition which will be explained presently and discussed at some length. It is the aim of this paper to explore the nature of the optimal negative income tax with tagging and to compare this tax with the optimal negative income tax in which all groups are treated alike.