The Pearson Centre for Progressive Policy

Progressive Dialogue and Policy for a Better Canada

Progressives and Basic Income: Let’s Avoid Circular Firing Squads 

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May 20, 2020

Progressives and Basic Income: Let’s Avoid Circular Firing Squads 

By

(Image by dailykos.com)

by Terrance Hunsley

Last week the Broadbent Institute held a webinar focussed on Basic Income. Two respected analysts, Simon Black and Armine Yalnizyan, took on the topic. They provided useful background, pointing out that promotion of basic income can come from many political perspectives, and with different views of what it can accomplish. The webinar concluded with the concept being rejected as too expensive, and no path forward proposed.

My heart sank. I was cast back to the early eighties when the MacDonald Royal Commission recommended a form of guaranteed annual income that was a modest improvement over existing social programs. Their proposal was intended to improve social protection in company with their recommendation for Canada to adopt a free trade agenda. I was the director of the Canadian Council on Social Development and our board liked the proposal with some improvement. We held workshops across the country in cooperation with local United Ways and Social Planning Councils. The people who attended were pretty much all from the left half of the political spectrum. Many felt it was a good idea. The anti-poverty groups and women’s organizations liked it.

But many also trashed it. The most cogent and forceful opposition was from labour groups. I remember one very articulate person decrying that a guaranteed income would “let government off the hook of full employment policy”. There was no full employment policy in effect, and none proposed. (A short time later, Brain Mulroney was interviewed and by total coincidence, asked if he favoured a full employment policy. He said something to the effect of “Yes, of course. Everyone should work.”  Not long before on the campaign trail, he had warned his audience about social programs which threatened to “Swedenize” the country).

The upshot was that no momentum was generated to support a guaranteed income, or anything else. The progressives were unable to work toward a consensus position they could all support.

A decade later, social assistance support for people considered “employable” – which meant they could not prove a recognized disability – was dramatically reduced. It has never been fully restored. You might say it was successful in achieving full employment, as many people were forcefully shifted into precarious working poverty, or begging on the street. As was stated in the webinar, Canada has the distinction of having one of the highest percentages of low income workers in the entire OECD.

The ‘We Can’t Afford It’ argument

In the webinar, questions were posed about the amount of money involved, who would receive it, under what conditions, if it would be taxed, how would it be paid for. It became complicated, with no real focus.

There was an admonition to “be careful what you wish for” implying that nefarious politicians will seize on the concept to provide an inadequate base income and eliminate all of the special purpose subsidies that are bound up in tax credits and social assistance regulations. They fear the removal of things such as subsidized housing,  special transportation allowances,  moving allowances, child care subsidies,  tuition subsidies, special medical expenses, emergency needs, legal aid, bus passes, etc. These things are indeed all parts of a complex basket of benefits, administered with various degrees of equity and efficiency and visibility.

Although the Basic Income Canada Network has published a paper with clear and costed models of a basic income, the presenters did not analyze it. Armine based her opposition to the concept on the economic dependency ratio and the fear that we won’t have enough workers to support both the elderly and a basic income.

Since I spent a few years as a visitor in the Privy Council Office leading a multi-disciplinary team looking at demographic change and its implications for public policies and programs, I feel I should comment on this. Here is the graph she used, showing the ratio of children (blue) and the elderly (grey) per 100 people of working age.

First, lets notice that the dependance ratio in the 60’s was higher than now and about the same as the extrapolated level will be in 2060.The difference is that workers were supporting more children in those days.

Now and in the future, they are supporting more elderly. You might say though, “Aren’t the elderly more costly?” Doesn’t OAS/GIS and medical care cost more than raising children, paying for schools and community colleges and universities?  Well I don’t know if the answer is clear.  Children are pretty expensive, although perhaps more of their costs are paid privately. But many of the elderly have substantial incomes from pensions and savings, which they are drawing down and putting into the economy. (How would the banking industry have survived without all that RRSP money?) And they are in the process of handing down a trillion or so to the worker generation in inheritances.

As well, we can expect that the age of retirement will increase. Workers are starting later with more education. They should anticipate working forty years to build retirement credits. They will live longer,  so they won’t be cheated by an older retirement age.

Plus, labour productivity has been rising at about 2% per year for the past sixty years – that is the increase in production per worker, in excess of inflation. The increase was about 3% annually – until supply side economics and globalization came into fashion in the 1980’s, –  and at about half that rate since. Nonetheless if you take sixty years at 2% compounding annual increase, it turns out that the average worker today produces a lot more than he or she did sixty years ago. Of course, little of that increase was passed to the middle and low end workers. It stayed with the owners of capital. So maybe the workers can’t afford a big increase in social spending, but the economy can.

Also, with the baby boom moving into retirement, the labour market will tighten up. Employers will be wanting to invest more in innovation and automation, which should increase productivity, incomes, and wealth. We need effective and progressive taxation of income and wealth. Best get to that right away.

So could there be a compromise solution?

I like basic income as a concept and support it for that reason. But I am open to other alternatives, especially because a full scale implementation requires the provinces to cooperate with the federal government. I doubt we will have the political consensus for that to happen. My preference is to start at the federal level,  with an opening for provinces to fold in social assistance programs over time.

The federal government has three excellent mechanisms to use for components of a Basic Income Guarantee.  They are the Workers Benefit, the Child Benefit, and the Personal Exemption under the Income Tax Act.  They are all administered by CRA, with all of the information required. They just need to be tweaked.

The Child Benefit is quite good now and with a very modest increase should be sufficient.

The Workers Benefit can be made adjustable to bring every worker’s income to a floor of 3/4 of median (fulltime) hourly wage. I favour having the median calculated for the economic region of the work location, but other formulations are possible. So it would come out to somewhere about $16-22/hour depending on the region (a bit higher in boom economies). The normal federal-provincial split of income tax would be such that the provinces would pay about a third of this cost. There would be an incentive for them to raise minimum wages, which would be good, even if it encouraged investment in automation. So this would become a Guaranteed Working Income.

The third instrument, the Personal Exemption(1) (used in calculating taxable income) could be turned from a nonrefundable credit into a refundable one. It could be called a Basic Income Supplement – lets say $3 thousand for every adult, either deducted from taxes or paid out, depending on income. The federal government could lean on the provinces with moral suasion (backed by potential adjustments to federal-provincial transfers), to ensure that they don’t claw that money back from social assistance recipients. Again, the provinces would wind up paying a third of the cost, which sounds about right. The federal government could leave the door open to provinces who, over time, might want to have all income support programs integrated, at least administratively. That would save everyone some money. But it will take time.

So I think these steps toward a basic income could work for everyone. The costs are manageable, and every dollar paid out generates a return to government of about 35 cents in tax revenues, not counting the extra economic activity spurred by the spending. It would be a form of trickle up economic stimulus, which will be needed by the economy as we emerge from the pandemic shutdown. We can also afford higher taxes on high incomes, estates, and wealth.  Recent analysis by the Fraser Institute shows that effective marginal tax rates on families in the $30-$60k income rage are substantially higher than those at $300k or more. See the chart below (2).

But to conclude, it is not my model that I feel most strongly about. If progressive change is to be accomplished, it will require people devoted to improving social conditions to collaborate. If people who want progressive change could work together to formulate a consensus proposal, I would be solidly behind it.

(1) Robin Boadway at Queens has written about options for making the Personal Exemption refundable

(2) https://www.fraserinstitute.org/studies/marginal-effective-tax-rates-across-provinces-high-rates-on-low-income