Basic income in Canada

Basic income in Canada has been debated since at least the 1930s with the Social Credit movement, but as in other parts of the western world the discussion has increased during the last decades. Different names have been used, for example Guaranteed Annual Income (GAI), "Social Dividend" and "basic income". More specifically there have been plans to implement either a guaranteed minimum income or basic income; these are referred to here as NIT (for negative income tax) and UD (for Universal Demogrant) respectively.

History

William Aberhart

William Aberhart, Premier of Alberta, was inspired by Major C. H. Douglas Social Credit theory and tried to implement a basic income for Albertans during the 1930s. However he was thwarted in his attempts by the Federal Government of the time.^[1]

In 1970 the Canadian Department of National Health and Welfare issued a white paper which both emphasized the ability of NIT to decrease poverty but at the potential expense of decreased work incentive. Specifically, the white paper^[2] stated:

Following this stance, the National Council of Welfare advocated in 1976 for the implementation of the guaranteed annual income in Canada.^[3]

In order to determine real-life responses to NIT implementation, the US government undertook four income maintenance experiments; they transpired in New Jersey and Pennsylvania (1968–1972), rural areas of North Carolina and Iowa (1970–72), Seattle and Denver (1970–78), and Gary Indiana (1971–1974). These prospective large-scale field studies were truly remarkable due to their size and the fact that families were randomized to either an experimental arm (i.e., NIT) or control arm (usual tax practice). Three major objectives of these interventions were to measure the labour supply response of NIT recipients, understand the effect of varying the base guarantee level and tax rate, and to make a better estimate of the cost of implementing such a program.^[4]

In Canada, an analogous experiment called Mincome took place in Winnipeg and Dauphin, Manitoba between 1974–1979. Importantly, the city of Dauphin served as a saturation site, since all 10,000 community members were eligible to participate (the elderly and disabled were exempt from the four American NIT experiments); four foci of Mincome were an economic arm (examining labour response), a sociologic research division (examining family formation and community cohesion), an administrative programme, and a statistical division.^[5] Unfortunately, the ambitious project ran into significant budgetary problems early on and neither the newly elected Progressive Conservative government in Ottawa nor the Tory government in Manitoba felt strongly about providing further funding. As stated by Hum and Simpson:^[6]

Ultimately the Dauphin data which was collected at great expense to the taxpayers and time from participants (in the first social experiment ever conducted in Canada) remains largely unexamined. However, some of the participant interviews were released and provide support for the efficacy of NIT. For instance Amy Richardson, a mother of six whose husband was disabled said:^[5]

Doreen Henderson, a stay at home mother whose husband worked as a janitor also appreciated the benefits of NIT;^[5] she said:

In general, the average reduction in work force in the US sites was about 13%, with most of the reduction in labour from secondary (typically the wives) and tertiary (typically older children) earners as opposed to the primary earner (usually the husbands). In Mincome the reduction in work effort was more modest: 1% for men and 3% for wives.^[6] It is important to remember that when the experiments were conducted, it was less socially acceptable for women to work outside the home. According to Rossi and Lyall^[4] only 40% of wives who participated in the experiment worked outside the home and their earning power was low due to limited and discontinuous work experience. As such, the authors contend that wives' labour involvement was marginal and when faced with competing tasks of looking after the household and raising children, the additional income provided by NIT was sufficient to justify an exit from the labor market. However, this phenomenon was predominantly observed in Caucasian wives whereas African American and Hispanic women exhibited a small increase in labor force participation. The decrease in labor involvement of teenage children was correlated to higher rates of high school graduation. A potential explanation is that the additional income from government assistance meant that young adults could stay in school as opposed to join the workforce in order to support their family. This has the potential positive long-term effect of allowing youth to find higher wage employment. In summary, the work supply response to NIT was very complex; however, data from the American studies would argue against a dramatic decline in the labour force.

Models

The first model under the GAI is the negative income tax (NIT). Negative income tax works on the assumption that families who earn below the low-income threshold should receive aid in the form of direct grants rather than paying taxes. This allows heads of a family unit to use their financial resources as they best sees fit rather than being constrained by the traditional income assistance programs, which typically have means tests, time limits and other restrictions. Experiments using the negative income tax model have been completed in the United States in the late 1960s through the early 1970s.

The NIT model was also tested in Canada in the 1970s in Manitoba; it was called the Mincome experiment. It allowed every participating family unit to receive a minimum cash benefit, with every dollar over the benefit amount taxed at 60%. The results showed a modest impact on labor markets, with family working hours decreasing 5%. These potential economic costs can be offset by the opportunity cost of working. The opportunity cost of working more is spending less time with their families and on education. Mothers spent more time rearing newborns, and the educational impacts are regarded as a success. Students in these families showed higher test scores and lower dropout rates. There was also an increase in adults doing continuing education.^[7][8]

The second model that falls under the guaranteed annual income concept is the unconditional basic income also known as the universal demogrant (UD) model. This is a payment to all persons regardless of income. It is usually favored by those who see the GAI as a right of citizenship and whose believe in the goal of decreasing poverty through providing the basic income and more equally sharing the economic benefits of society.^[9]

Criticism

There are some obvious impediments to the implementation of a Guaranteed Annual Income in Canada. First, at the heart of the issue is whether or not work incentives would decrease and by extension, the eventual cost of a nationwide GAI would balloon beyond feasibility. Eliminating poverty can be a costly endeavour depending on the support levels and taxation rates that are chosen by the government.^[10] If individuals stop working economic growth and productivity may be jeopardized. Economic growth leads back to the cost issue, where substantial public revenue must be used to ensure basic economic security for all. Depending on the approach taken by the government there are ways to create a cost-neutral GAI.^[11]

Another obstacle to the concept of Guaranteed Annual Income would be single employer subsidization and an incentive for employers to reduce workers' wages, as the government will guarantee their employee's a minimum living standard.^[11]

A third obstruction to the GAI is the public argument of "why should the lazy be paid"? Those individuals that choose not to "work" insults the moral principle of reciprocity. The removal of a tie between income and contribution encourages parasitism.^[11]

Financial model

Financial Model

For any income earned up to a break point value, the government would provide a progressively small cash transfer. The concept is summarized by the formula B=G-TY where B is the net amount paid by the government to the citizen (if it is a positive value) or tax paid (if a negative value), G is minimum guaranteed payment, Y is the gross annual income, and T is the tax rate. As such, if a person has no income, they will receive a minimum guaranteed payment (G); all subsequent income is taxed at a rate T which is less than 100 percent. A classic diagram in economics illustrating this is shown in Figure 1. It is important to remember that while the y axis demonstrates increasing gross income, the x axis displays decreasing number of hours worked. With a negative income tax, individuals who have no income would earn a minimum amount (represented on Figure 1 as a value equal to 'C') instead of nothing (A). As part of a traditional welfare system, individuals receiving assistance would be taxed at a rate of 100% (demonstrated in the line connecting 'C' and 'D') and as such the net income level is unchanged. However, negative income tax provides an incentive for those receiving government assistance to work (as represented by the line C to D'), as they are taxed at a rate less than 100%. Last 'F' is the break-point value for annual income, above which an individual would not qualify for assistance.^[12]

Basic income in Canada today (2010-)

As of 2014, the Liberal Party of Canada,^[13] the Green Party of Canada,^[14] the Pirate Party of Canada,^[15] provincial party Québec Solidaire^[16] and former conservative senator Hugh Segal^[17] advocate for basic income in Canada. Mike Redmond, leader of the New Democratic Party of Prince Edward Island, supports a basic income pilot project in Prince Edward Island.^[18]

In November 2013, a poll commissioned by the Trudeau Foundation found that 46% of Canadians favoured and 42% opposed replacing current economic assistance with a guaranteed national income.^[19]

Canadian Prime Minister Justin Trudeau announced a new trial in March 2016.^[20]

Books and articles

See also

• Guaranteed minimum income
• Mincome Program
• Negative income tax
• Basic income

References

External links

• BIEN Canada
• The Case for Basic Income Canada