by Harvey Stevens
In “Time for guaranteed annual income“ (Aug. 11, 2015), Noralou Roos and Evelyn Forget made the case for eliminating poverty and reducing health-care costs by introducing a national guaranteed annual income. They estimated a bare-bones program would cost $17 billion and a Cadillac version $58 billion. In either case, the net cost would be lower, once additional tax revenues and savings to health and social programs were factored in.
In addition to reducing poverty, introducing a GAI provides the opportunity to simplify the tax system and to make it fairer, with no increase in taxation rates. We could achieve these goals by eliminating most non-refundable tax credits and using the additional tax revenues generated to finance a single refundable tax credit that would be based on income. This single refundable tax credit would provide a GAI, in the form of a negative income tax.
In Manitoba, $1.23 billion in provincial income tax revenue could be generated by eliminating the following non-refundable and refundable tax credits: basic, age, married and married equivalent, caregiver and infirm dependants, disability, private pension income, fitness, Manitoba family tax benefit, education property tax credit, seniors’ tax credit, homeowners school tax credit and the personal/cost of living tax credit.
With this additional tax revenue, one could then finance a refundable tax credit that provided a single adult a maximum annual benefit of $6,000 per year. This benefit would be reduced as other income increased, disappearing when annual income reached $38,000. For those with a disability or infirm dependents, the maximum value of the benefit would be increased by an additional $1,000. The value of the maximum benefit would be adjusted according to Statistics Canada’s family equivalency scale, such that a family of two, four and six persons would receive a maximum benefit of $8,485, $12,000 and $14,697, respectively. The refundable tax credit would disappear once total family income reached 214 per cent of the market basket measure of poverty line for Winnipeg ($76,045 for a family of four).
As with any tax redistribution scheme, this proposal would create winners and losers. Overall, 32 per cent of adults would gain and 68 per cent would lose from the conversion of non-refundable to refundable tax credits. The winners would gain an average of $2,362 (or 16.3 per cent of disposable income) with the losers losing an average of $1,101 (2.5 per cent of disposable income).
The impact of this tax reform on the incidence and depth of poverty would be large. The incidence of poverty would fall by 36 per cent, from 12.9 to 8.3 per cent, and the depth of poverty would fall by 15 per cent, from 29.5 to 25.2 per cent. As a result, everyone would win because poverty reduction produces healthier and safer communities.
This is but one of many options for designing a refundable tax credit for Manitobans. Options offering a more generous benefit could replace most social assistance programs, resulting in program administration cost savings.
In conclusion, this approach to financing a GAI for Manitoba would result in a simpler and more equitable personal-income tax system and achieve a large reduction in the depth and extent of poverty in the province, with no increase in tax rates. It could be designed to replace all of the provincially funded income-tested benefits and most income-assistance benefits, resulting in administrative savings. It would create losers among the higher income groups, but their losses would be much less than the gains experienced by the lowest income groups.
It may well be a difficult sell, politically. However, its merits recommend it for serious discussion.
Harvey Stevens was a research sociologist with the Mincome Manitoba guaranteed annual income experiment from 1973 to 1976 and a senior policy analyst for the provincial Family Services and Housing department from 1990 to 2009. He is a professional affiliate with the department of economics at the University of Manitoba. This article was originally published in the August 17, 2015 edition of the Winnipeg Free Press.