Last week my colleague Andrew Coyne wrote in this section about the Parliamentary Budget Office’s new paper on the costs of a federal-funded guaranteed annual income (GAI). He is an enthusiast, and was pleased to learn that the “Ontario model” now being tested — in a regional experiment that got underway less than six months ago — would not be as costly as one might think.
The Ontario plan is giving randomly selected low-income working-age individuals $16,989 a year in free money. That’s the basic story, with the detail that couples are eligible for a combined $24,027. This amount replaces provincial welfare, employment insurance, or early Canada Pension Plan payments, dollar-for-dollar; Canada Child Benefit cheques are strictly separate, however, and if study members go out and earn some income, their payment is reduced by 50 cents for every dollar they make until the supplement hits zero.
This is the “negative income tax” model of guaranteed income, intellectually pioneered by the Austria-Mont Pelerin-Chicago strain of economic thought that is my personal heritage and Coyne’s alike. The conclusion of the PBO paper is that the total cost of such a program for the entire country, applied to this year’s economy, would come to about $76 billion.
Who but a monster would balk at paying a measly three extra points to end poverty?
The PBO estimates that the federal government’s existing programs and tax credits for low-income individuals, as such, come to about $33 billion. That’s money we can deduct from the $76 billion, leaving a net total cost of $43 billion. Coyne (not the PBO) guesses that the provincial welfare programs which could be eliminated run to another $20 billion or so, leaving Ottawa on the hook for $23 billion. “Roughly one per cent of GDP,” he adds, “or about three additional points on the federal GST. … Three points on the GST, to end poverty.”
Well, who but a monster would balk at paying a measly three extra points to end poverty? It was not that long ago that we were all paying seven per cent in GST anyway. Coyne has laid out all the math in his own column, probably much more carefully than I have here, and if you accept his premises as far as they go, it is hard to argue with three points being an insupportable burden. On the other hand, if $17,000 a year still sounds a lot like poverty to you …
It is traditional to observe at this point that there are people earning less than $17,000 because they don’t care to, desire to, or need to. Some are living off accumulated capital or crime proceeds, some are unpaid family caregivers or charity cases or Kato Kaelin-like “handymen,” and some reject the damnable material world on principle. Perhaps this is not a very serious concern — oh no! GAI will help some people who don’t want help! — but, then, our civilization, as matters stand, does not seem so profoundly awful at preventing outright starvation either.
Kevin Milligan, a UBC economist who is skeptical of GAI, often points out that GAI advocates face the challenge of reconciling three conflicting elements of such a program: we want it to have a reasonable overall cost, we want it to be generous enough to bother with, and we want it to impose a low “clawback” rate on earned income so as not to discourage that.
The “Ontario model” sort of resolves the “trilemma” by being soggy on all three fronts. The $17,000 basic amount was chosen specifically to come to 75 per cent of Statistics Canada’s “low-income measure”: it is a guaranteed not-even-low income. (At the same time, I notice that the basic personal exemption on federal income tax forms is just $11,809 this year. Before we hurl ourselves headlong at a new social program of a relatively untested nature, maybe we could explicitly just stop taxing the poor first?)
Three points of GST may seem like a reasonable overall cost, if it could be realized, but an entitlement such as this is bound to be a one-way street: by the time we decide we do not like the effects, it will have become the next thing to a sacrament. (Canada’s guaranteed federal income defines us as a country!) Meanwhile, the 50-per-cent clawback in the Ontario model is fairly dramatic, and, moreover, under the model, couples who begin cohabiting would stand to lose up to $10,000 a year of GAI payments between them.
A lot of the obvious or instinctive objections to a GAI involve the spectre of a dole-driven society and the concomitant ill effects: pathological idleness taking hold of entire neighbourhoods, or communities, or generations of families. Discouraging marriage is, I suppose, just a bonus. It is not easy to test for such social externalities on the basis of a “pilot program” like Ontario’s, which is an openly one-sided test of GAI.
You can bet it will show, assuming anyone cares to wait for the reported results, that people who already have low incomes like a GAI, and probably that they benefit from it, in the short run. But it cannot show what it would do to everybody else — perhaps gradually, and perhaps in unforeseeable ways — once it were made permanent.
http://nationalpost.com/opinion/guaranteed-not-even-low-income-a-leap-in-the-dark-and-for-what
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