Basic Income Some Options for Canada

Introduction Goal: A basic income that is progressively structured and progressively funded Report on options that Canadians can understand and have a say in

BICN evolution: raising awareness; The Basic Income We Want; feasible, financed policy options The Policy Options Project team: Kourtney Koebel, Jim Mulvale, Chandra Pasma, Toni Pickard, Rob Rainer, Sheila Regehr

Our Approach Security and dignity, more than poverty Progressive benefits and financing Costing and financing as two sides of the coin (gross vs. net cost) Many ways to pay for a basic income - and downstream savings possible

Our Approach Canada has basic income programs for seniors (Old Age Security and Guaranteed Income Supplement) and for families with pre-adult children (Canada Child Benefit) Canada tax system is complex, with regressive features Behavioural effects: we are not modeling these (little evidence or confidence that such models are meaningfully predictive)

Design Matters Universal or Income-Tested? (demogrant, or income-tested and, if the latter, at what benefit reduction rate) Individual or Family? (empowerment, horizontal equity) Maximum Benefit? Which government(s) responsible?

Design Matters What gets replaced or rolled into a basic income? (social assistance, other income security programs, tax expenditures) How will the basic income be paid for? (reallocations; current and new taxes, e.g., financial transaction taxes; sovereign wealth funds)

Guiding Principles Behind the Modeling Basic income to be universally available to all Canadians, permanent residents, and protected persons, regardless of employment status, family composition, availability for work, and wealth or savings

Guiding Principles Behind the Modeling Maximum amount of the basic income to be set at a level that ensures everyone is above the poverty line, after all taxes and transfers are accounted for

Guiding Principles Behind the Modeling Basic income to not be tied to paid employment, but when low-income basic income recipients undertake paid work, they should always come out ahead

Guiding Principles Behind the Modeling Any reductions in the amount of basic income should occur gradually as total income rises

Guiding Principles Behind the Modeling Basic income to be administered in a way that is responsive to fluctuating levels of total income

Guiding Principles Behind the Modeling Any reductions in total income to begin with the highest income earners; the highest income deciles to see a proportionally greater reduction than income deciles lower down

Guiding Principles Behind the Modeling Basic income and any changes in the tax structure to respect gender equality

Guiding Principles Behind the Modeling Basic income may replace a number of existing income security programs, but not at the expense of crucial social support programs, nor to replace contributory social insurance programs (e.g., Canada Pension Plan, Employment Insurance)

Guiding Principles Behind the Modeling Basic income to be national in scope, and may involve both federal and provincial programs

Options We Are Modeling Option One: An income-tested basic income, structured re: family composition and paid to working age adults only, keeping in place the Canada Child Benefit for children under 18 and Old Age Security and the Guaranteed Income Supplement for seniors

Options We Are Modeling Option Two: An income-tested basic income, structured re: family composition and paid to all adults 18+, keeping in place the CCB in place for children but replacing OAS and the GIS for seniors

Options We Are Modeling Option Three: A universal demogrant, structured re: family composition and paid to all adults over the age of 18, and keeping in place the CCB for children

Options We Are Modeling Option Four: A universal demogrant, with identical benefits paid to all adults over the age of 18, and keeping in place the CCB for children

Key Parameters of Each Option For income-tested and demogrant models, maximum basic income for a lone adult: ~$22,000 For income-tested models, maximum basic income for a couple: ~$31,000 For income-tested models, a Benefit Reduction Rate of ~44%

Example of the Benefit Reduction Rate ◄Turning Point ◄ Benefit Reduction Rate 1 Maximum basic income available ◄ Benefit Reduction Rate 2 Exit Point

Key Parameters of Each Option For family composition, using concept of the “nuclear family” = an adult or adult couple and their children <18, living together For income-tested models, using family net income for the calculation of the Benefit Reduction Rate

Assumptions Administration – short term responsiveness to changes in income Federal-provincial relations – assume cooperation No changes to other programs – social housing, drug/dental benefits, etc. Support for persons living with disabilities Externalities – paid work, physical and mental health, consumption, community involvement, political participation, etc.

Financing a Basic Income (Federal and Provincial)

Financing a Basic Income Challenges: Many decisions Complicated and intertwined tax system Existing tax and transfer system is very regressive Difficult to create progressivity in terms of losses Social assistance Upper-middle income elderly do relatively well in current system

Example: Non-Refundable Tax Credit Middle Income Tax Return Basic Federal Tax: $5,000 NRTC: -$1,000 Federal Tax Payable: $4,000 100% of the value of the NRTC captured Lower Income Tax Return Basic Federal Tax: $ 500 NRTC: -$1,000 Federal Tax Payable: $ 0 50% of the value of the NRTC captured

Example: Refundable Tax Credit Middle Income Tax Return Basic Federal Tax: $5,000 RTC: -$1,000 Federal Tax Payable: $4,000 100% of the value of the RTC captured Lower Income Tax Return Basic Federal Tax: $ 500 RTC: -$1,000 Federal Tax Payable: -$ 500 100% of the value of the RTC captured

Non-Refundable Tax Credits Percent of individuals claiming and benefiting from NRTCs by income quintile (Koebel, 2016)

Federal Sources of Revenue 1. Federal Programs: OAS/GIS ≈ $50B Basic Personal Amount (NRTC) ≈ $40B GST/HST Credit ≈ $4B 2. Personal Income Tax Changes: Tax fairness changes Small tax rate changes 3. Corporate Income Tax Changes

Federal Sources of Revenue 1. Federal Programs: OAS/GIS ≈ $50B Basic Personal Amount (NRTC) ≈ $40B GST/HST Credit ≈ $4B 2. Personal Income Tax Changes: Tax fairness changes ≈ $35B Small tax rate changes ≈ $8B 3. Corporate Income Tax Changes

Federal Sources of Revenue 1. Federal Programs: OAS/GIS ≈ $50B Basic Personal Amount (NRTC) ≈ $40B GST/HST Credit ≈ $4B 2. Personal Income Tax Changes: Tax fairness changes ≈ $35B Small tax rate changes ≈ $8B 3. Corporate Income Tax Changes ≈ $17B

Provincial Sources of Revenue Provincial GIS top-up ≈ $0.7B Social assistance payments ≈ $15B Non-refundable tax credits ≈ $30B Pension income splitting ≈ $0.6B 100% inclusion of capital gains ≈ $3B

Modeling a Basic Income

Designing our Basic Income Modeling both income-tested and demogrant versions Guarantee based on family composition Exclusion/inclusion of seniors Setting benefit amount and the benefit reduction rate – tradeoffs Jurisdictional considerations

Option 1 Income-tested based on family composition Working-age adults (i.e., excluding adults 65+) Cost ≈ $145B-$155B (excluding OAS-GIS ≈ $40B)

Option 2 Income-tested based on family composition All adults 18+ (including adults 65+) Cost ≈ $195B-$205B

Option 3 Universal demogrant based on family composition All adults 18+ Cost ≈ $800B-$810B

Option 4 Universal demogrant - not based on family composition All adults 18+ Cost ≈ $645B-$655B

Impacts We Are Examining Family disposable income, by family net income decile Average net impact on taxes paid for nuclear families, by income decile Average impact on family disposable income, by family types in the bottom decile Rate of poverty (LICO) and Gini coefficient, by family type Gender and regional analyses

Key Results of Modeling Significant increase in disposable income for poorest households Largest increase for working-age adults without children Significant reductions in poverty and inequality Progressivity achieved

Ongoing Considerations… Optimal size of a Basic Income Guarantee / optimal Benefit Reduction Rate? Treatment of seniors Gross cost of a demogrant (Universal Basic Income) Improvement over the existing system (Marginal Effective Tax Rates)

Sheila Regehr: sj.regehr@gmail.com Rob Rainer: rob@robrainer.com www.basicincomecanada.org Sheila Regehr: sj.regehr@gmail.com Rob Rainer: rob@robrainer.com Kourtney Koebel: kourtney.koebel@mail.utoronto.ca