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What About Just Guaranteeing Everyone a Basic Income?

Doing so for all Canadians could almost erase poverty, or dry up labour sources, depending on whom you ask.

By Katie Hyslop, 15 May 2012, TheTyee.ca

SFU economist Krishna Pendakur

'People like working' even when guaranteed a base income for no work, but will they work enough? asks Krishna Pendakur, an SFU economist who focuses on anti-poverty measures.

Related

British Columbia's lowest-paid workers finally got a raise last spring, with the first increase to the province's minimum wage in 11 years. But even with that hike, full-time workers earning B.C.'s minimum wage of $10.25 an hour don't take home enough to meet Statistics Canada's equivalent of a poverty line for families.

When it comes to countering poverty, economists and social policy groups have no shortage of ideas (See "A Glossary of Anti-Poverty Policies" that runs as a sidebar.)

For the Tyee Solutions Society, I've been checking out three of the most widely advocated. Part one of this series looked at the living wage; a future installment examines government wage subsidies.

Today, the contrarian case that a guaranteed annual income -- what some might call that economic phantom, the "free lunch" -- might just be the most cost-effective way to end poverty.

Shackled by 'deserving poor' notion?

Your parents probably told you, "Money doesn't grow on trees." Unfortunately they were right. But what if we made it easier for low-income people to cover basic needs by giving them money?

It's not such a far out idea: Alberta did something like it in 2006, when every man, woman, and child in the province received $400 from oil revenues. Alaska has been doing the same since 1982.

The purest form of giving away money this way is a guaranteed annual income (GAI): a payment from the government to its citizens simply for being citizens. It can be taxable or non-taxable, meted once or on a continual basis, monthly or annually.

Whatever the method, some anti-poverty advocates believe a GAI is essential to a comprehensive strategy for reducing poverty because it offers extra income, no strings attached. For a low-income person it can mean the difference between having to choose between rent and food -- or having enough money for both.

"We think that all Canadians deserve to have a basic standard of living just because they're Canadian. They don't have to be 'deserving' poor," says Donald Benham, director of public education at Winnipeg Harvest, a food bank distribution centre in Winnipeg, MB, which endorses a GAI. "We all believe in helping each other, and we think there should be a basic level [of income]."

Some economists disagree. They argue a guaranteed income could remove our incentive to work, increasing dependence on government-funded programs. The solution to our poverty problems, as they see it, could be the beginning of a labour crisis.

DAUPHIN: ONE TOWN'S ANTI-POVERTY EXPERIMENT

According to a report by Evelyn Forget at the University of Manitoba, the idea behind a GAI was born out of the civil rights movement in the 1960s. But its roots go back much further.

Over 200 years ago, American revolutionary Thomas Paine is said to have proposed a one-time payment to all American citizens simply for being American. French Emperor Napoleon Bonaparte's statement that, "man is entitled by birthright to a share of the Earth's produce sufficient to fill the needs of his existence," is often interpreted as endorsing a guaranteed income, though he did not introduce one.

In 1962, American economist Milton Friedman, popular among free-market followers, proposed a negative income tax and a flat tax to create a guaranteed annual income. Everyone would be required to file an income tax return, but those who fell below a specific income line would receive money to raise them to that line. Every dollar of earned income would reduce the benefit.

During the early 1970s several Canadian provincial and federal committees, including the Special Senate Committee on Poverty and Quebec's Castonguay­ Nepveu Commission, recommended a GAI to reduce poverty.

But neither U.S. nor Canadian governments were prepared to adopt such risky programs without testing them first.

"There was widespread interest across North America in 'rationalizing' income support programs, but also concern that good programs would lead people to reduce their work effort," Forget told The Solutions Society.

"[In the early 1970s] four experiments in the U.S. were providing data, but Canada wanted its own data. GAI was an interest of the Liberals in Ottawa and the [NDP] government in Manitoba."

With a cost projection of $17 million, Manitoba secured Ottawa's commitment to foot that majority of the bill for simultaneous projects in Winnipeg and Dauphin, dubbed MINCOME.

The Dauphin study is of particular interest to Forget because it was the only one where non-workers -- the elderly, unemployed, and disabled -- were also included.

An agriculture community with a population of about 12,500 including the surrounding rural area, everyone in Dauphin was eligible to receive 60 per cent of the low-income cut-off line for a family their size. Families with no source of income received the full amount. For those with an income source, every dollar of earned income reduced the GAI by 50 cents.

— K.H.

GAI creates healthier people: Forget

When you ask Canadian economists and social policy academics about this, they inevitably mention the MINCOME experiment. For a period in the 1970s, it paid every poor person living in Dauphin, MB, enough extra money for their incomes to reach at least 60 per cent of the low-income cut-off line (see sidebar).

Supported by the federal and Manitoba governments, MINCOME ran from 1974 until 1978, but only two years worth of labour data was collected from the test project. By the time it finished, public and political support for a GAI had waned. The data gathered dust until Evelyn Forget, a community health sciences researcher at the University of Manitoba, gained access to it in 2009.

"I've always been interested [in MINCOME] and knew little work had been done. I wondered whether the database I had access to might give us some answers," Forget explained in an email to The Solutions Society.

"We know that poverty is one of the biggest health risks. If we can address poverty, can we improve health outcomes and reduce costs?"

What Forget found was a significant decrease in the number of hospital visits during those years, especially for accidents, injuries, and mental health issues. Among two groups, access to a guaranteed income did reduce employment. Teenagers stayed in school longer instead of leaving to get work. And young mothers stopped working while receiving MINCOME benefits to care for small children.

They were the only two groups that stopped earning an income; and in both cases that decision may have paid social benefits later. Furthering teenagers' education may have qualified them for higher paying jobs after graduation. Mothers staying home cut down on childcare costs.

The findings are enough for Forget to endorse a GAI for Canada today: "I think that social programs have changed a great deal since the 1970s, so the GAI program would need to be re-designed, but the principles are still valid."

Forget says a living wage, an idea described in my first report in this series, puts unfair financial pressure on small businesses, or increases what they demand from low-skilled employers. But a GAI can work in conjunction with a minimum wage to increase people's income without penalizing small employers.

"A GAI supplements low wages without interfering in the market," Forget argues. "Small firms can hire unproductive people and pay low wages because that's all their labour is worth. But the GAI would ensure that [an] individual receives enough to live on. Minimum wage legislation still needs to be in place so people aren't exploited, but there is no need to ensure that the legislated minimum wage is enough to live and support children on."

Raising the base

For Benham and Winnipeg Harvest, a GAI is needed to ensure that every Canadian experiences a basic standard of living that meets their basic needs.

But unlike the MINCOME project, which in today's numbers would see a family of three in Winnipeg receive top-up payments to reach an annual income level of at least $17,058, Winnipeg Harvest has devised its own needs-based measure. After interviewing low-income people in Winnipeg who use food banks, Harvest released a report finding that an equivalent family of three today would really need a base income of at least $38,000 per year to make ends meet.

"That's about twice as much as what you get on welfare," says Benham. "Welfare is completely and utterly inadequate for feeding and sheltering and clothing a family of three in Winnipeg right now. That's what this report shows beyond a shadow of a doubt."

That might seem like a tall order for a province that has nudged up welfare rates by only a miserly $84 in 20 years. But Benham says it has the support of the Manitoba Chamber of Commerce, which would like to see low-income people become customers.

A GLOSSARY OF ANTI-POVERTY POLICIES

Economic jargon is hard enough to penetrate without encountering multiple names for the same ideas. Here is a glossary of terms to help cut through the economese.

Living Wage: an hourly wage that covers the essential costs of food, clothing, housing, healthcare, transportation, education, childcare and incidentals in the region where it applies.

Minimum Wage: the lowest hourly wage you are legally allowed to pay a worker in a jurisdiction like British Columbia. An exception in B.C. is the $6 "training wage" for new employees going through orientation.

Guaranteed Annual Income (GAI): A base income guaranteed to all residents of a country, regardless of employment status, and provided by the state to those who do not earn it in the labour market.

Other ways we do, have, or might support low-income Canadians:

Past:

Family Allowance: Beginning in 1945, the federal government sent a monthly cheque to the parents of every Canadian child to help with the cost of their care. Canada's first universal social program, it lasted for 33 years until a Liberal federal government replaced it with a selective tax credit in 1978.

MINCOME: A pilot project in Dauphin and Winnipeg, Manitoba, that provided a guaranteed annual income to people there from 1974-1978. Funded jointly by the federal and Manitoba governments. Only a select few Winnipeg workers received the benefit, but it was open to both working and non-working individuals in Dauphin.

Self-Sufficiency Project (SSP): A federal pilot project for a never-instituted national wage subsidy to keep single parents working and off welfare. Ran in British Columbia and New Brunswick for a decade starting in the early 1990s.

Present:

Guaranteed Annual Income Supplement: A federally issued income supplement that tops up the annual income of retired Canadian seniors. Calculated based on their accumulated lifetime earnings.

Universal Child Care Benefit: federal payments of $100 per month per child paid to Canadian families with children under the age of six. Intended to supplement childcare costs. Descendent of the Family Allowance program, Canada's first universal social welfare program, which gave all Canadian mothers a monthly, tax-free benefit from 1945 to 1973. Except in Quebec, where the cheque was issued to fathers.

Working Income Tax Benefit (WITB): A national federal government wage subsidy program for Canada's low-income workers. Workers typically apply via income tax returns, but there is a separate "advanced payment" form if tax returns are too far in the future. Cheques are issued four times per year.

Earned Income Tax Credit: A federal government wage subsidy program for American low-income working families. Unlike the WITB, which is open to individuals, recipients of the Earned Income Tax Credit must have children under 18.

Canada Child Tax Benefit: a monthly tax benefit paid to families with children under 18, regardless of parents' working status. Benefits are usually issued around the 20th of each month, from July to June. Benefits can be paid in one lump sum if under $240 annually. The benefit is clawed back based on the amount of income a family makes.

Envisioned:

Negative Income Tax: a way to guarantee annual income by paying a "negative" tax to people earning below a minimum amount. Payments decline the closer a recipient comes to the guaranteed income through their own means. Anyone who earns more than the base amount does not receive money, and pays taxes instead.

Universal Demogrant: another way to pay a guaranteed annual income where everyone, regardless of income or employment status, receives the same payment (the Family Allowance was a type of demogrant since all parents, rich or poor, received it).

Wage Subsidies: government payments to subsidize work-related income. Can be delivered as tax benefits like the existing Working Income Tax Benefit, or be added onto pay cheques at an hourly rate.

"Their members know exactly who [low-income people] are: 'these people never buy anything from me because they're on welfare.' If you just increase the shelter benefit enough so they can pay their rent and have money for food, then maybe they'd have enough extra money to spend on a bicycle for their kid," he explains.

GAI has other supporters in high places, too. Senators Art Eggleton (Liberal) and Hugh Segal (Conservative) led the Standing Senate Committee on Social Affairs, Science and Technology's research into poverty, housing and homelessness in 2009. The committee's report urged the federal government to "publish a Green Paper by 31 December, 2010, to include the costs and benefits of current practices with respect to income supports and of options to reduce and eliminate poverty, including a basic annual income based on a negative income tax [emphasis added]."

The government has since produced a green paper on retirement incomes, including the Guaranteed Annual Income Supplement given to retirees based on their lifetime earnings. But no green paper has appeared on reducing or eliminating poverty.

Creating economic, environmental sustainability

There's more to a GAI than boosting the economy by creating more shoppers or making life easier for the poor. Pursued far enough, it might also save the environment.

As Jim Mulvale sees it, the GAI's supposed Achilles' heel (it kills the urge to work) is really a silver lining: the more money we earn through a GAI the less we work, true. But the less we work, the slower our economic development and the more sustainable our society becomes.

"Historically, liberal democratic societies with advanced welfare states have relied on economic growth [and] rising tax revenues to meet rising social-service expenses for growing populations," observes Mulvale, an associate dean of social work at the University of Regina. "From an ecological point of view, we just can't go on supporting open-ended economic growth.

"We have to be thinking about moving towards true, genuine economic sustainability, which probably means a no-growth society, which probably means redistribution as opposed to a growing pie of which we've all got a larger slice."

Mulvale wants a negative income tax, which would provide basic income to any household that fell below a certain income threshold, the same model used for MINCOME (in contrast to the universal "demo-grant" model, where everyone, regardless of income level, receives the same amount of money).

Social policy triumvirate

Canada already has some GAI programs, like the Guaranteed Annual Income Supplement for seniors, the Universal Child Care Benefit, and the Canada Child Tax Benefit. Colin Busby, a senior policy analyst with the C.D. Howe Institute, says we have research into GAIs like MINCOME to thank for these policies.

But there is a delicate balance to achieving successful GAI programs, he warns. And governments have been struggling to create sizable benefits for low-income individuals, with low claw-back rates that government can afford.

"It's very difficult to have a large transfer to low-income individuals with low claw-back rates," says Busby. "The claw-back rates are important because they influence the behaviour of individuals in labour markets.

"You're taking about a very large government expense. Whatever it is you decide to do, you come across some difficult questions."

Krishna Pendakur, an economist and professor at Simon Fraser University, agrees with Busby's view on claw-backs. He also says a negative income tax could have a negative effect on the amount of work people do.

"You don't want to measure the number of people who drop out of work. You want to measure the hours [worked] response. People like working; it makes them feel like they're doing something right. You would not expect people to just drop out completely," he says.

The MINCOME data doesn't provide the information to dispute Pendakur. "No research was done on work effort in Dauphin. Some was done on the Winnipeg sample. People who worked full time made few changes to their work effort," says Forget.

Similar studies in America, however, found an overall 13 per cent reduction in work effort from families as a whole, with less effort coming from secondary and tertiary earners. This allowed many women the chance to take longer maternity leave than would have been previously possible.

Changing public policy is 'slow': Benham

Winnipeg Harvest has been meeting with Manitoba politicians since their first report on appropriate incomes came out in 1997. Politicians frequently agree that a GAI is a good idea. But, they say, it's out of their hands.

"We've had cabinet ministers say to us, 'Well, this might be the right thing to do, but it's not politically popular. What Winnipeg Harvest needs to do is mobilize the masses. Get everyone convinced that we need to do this, so that it becomes politically easier,'" says Benham.

Winnipeg Harvest has been trying. Along with the Winnipeg Social Planning Council they've started a Raise the Rates campaign to increase welfare rates; they organized a march on the legislature; they've run op-eds in local papers and made speeches pleading their case in public.

"It didn't work," Benham laughs. "It's a slow business changing public policy."

Mulvale, who calls himself a "social policy pragmatist," believes a GAI won't happen in the short-term. He says most people will be relying on a labour market income for the majority of their working lives. He also notes the federal budget 2012 decision to delay payment of the Old Age Security / Guaranteed Income Supplement program until workers are 67 means government is moving away from a guaranteed income, not closer to one.

The only federal party that's shown enough interest in a GAI to include it in their platform is the Green Party. But Mulvale sees benefits in a GAI that all parties would endorse.

"[In] societies where there's a relatively small gap between the wealthy and the poor, health outcomes improve, there's lower infant mortality, crime tends to be less, people complete school more often. And living in a society where the quality of life is protected through those good social outcomes, that benefits the wealthy as well as the middle class and the poor," he says.

With one central program to produce GAI cheques, there wouldn't be any need for provincial programs like welfare or child benefits. Money from those programs could be funneled into a GAI program for all Canadians. It would incur less overhead cost than delivering separate programs that vary in adequacy from province to province, town to town.

As Mulvale and Benham see it, much of the federal government's money shuffling -- cutting programs in favour of decreasing the deficit--would not be necessary with a GAI. But thinking for the long-term is a difficult sell for politicians hoping to be reelected in three years.  [Tyee]

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