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Guaranteed Annual Income: a Canadian analysis
April 26, 2014 11:15 PM   Subscribe

What the anti-poverty debate in Canada looks like. Conservative Senator Hugh Segal proposes a Guaranteed Annual Income: Scrapping Welfare. Jonathan Rhys Kesselman, a prominent Canadian economist and public policy analyst, analyzes the cost of three Guaranteed Annual Income options and concludes that they're not workable: A Dubious Anti-Poverty Strategy (full text). Armine Yalnizyan, an economist at the progressive Canadian Center for Policy Alternatives, comments.

More:

John Richards, Reducing Poverty: What has Worked, and What Should Come Next (PDF). Richards, like Kesselman, is affiliated with the Public Policy program at Simon Fraser University in Vancouver.

Conference on Inequality in Canada: Driving Forces, Outcomes, and Policy, held at the Institute for Research on Public Policy in Ottawa. More academic, and focused on inequality rather than poverty. Includes presentations from a number of prominent researchers, including Miles Corak and Kevin Milligan.
posted by russilwvong (54 comments total) 25 users marked this as a favorite

 
I think both the economists' arguments are about analyzing "minimum income as it would actually exist in Canada if implemented using the various current proposals"—which is perfectly important and relevant, in that their counterarguments e.g., a) how, specifically, the cash will get [mis-]consumed, or b) it won't solve income inequality, seem in this context to be reasonable and correct; however, minimum income as an idea in theoretical economics sounds interesting, and something worth rigorous study in its own right. I had a look at the Wikipedia pages, and while there's a huge amount of historical precedent, and highly politicized argumentation over the idea (not limited to but including important figures like Bertrand Russell and Martin Luther King, Jr.), I don't see much in terms of available, substantial modern scholarship on the subject.
posted by polymodus at 11:58 PM on April 26


It seems simple to me that you could:

- Give everyone citizen and permanent resident over 18 a fixed dollar amount weekly or monthly, probably something around 70% of minimum wage. This is regardless of working, study etc. Everyone gets it.
- Abolish all unemployment benefits, food stamps, and government old age and disability pensions (which this will replace).
- Increase taxes so that most middle class households are neither better nor worse off (increased taxes are offset by the new weekly payment).
- The vast bureaucracy of determining who is and isn't eligible for various welfare and pension payments is no longer required, with associated cost savings.

Would this work economically?
posted by dave99 at 12:42 AM on April 27 [4 favorites]


Give everyone citizen and permanent resident over 18 a fixed dollar amount weekly or monthly, probably something around 70% of minimum wage. This is regardless of working, study etc. Everyone gets it.
- Abolish all unemployment benefits, food stamps, and government old age and disability pensions (which this will replace).


And if 70% of minimum wage (That's about $10,550 a year) isn't enough for you to survive on, well, there's gutters to die in all over the place.
posted by Pope Guilty at 12:51 AM on April 27 [10 favorites]


Well, here in Australia government payments are around 70% of minimum wage.

You could even make the guaranteed minimum payment equivalent to minimum wage.

Any income you can get is on top of that.
posted by dave99 at 12:58 AM on April 27


Well, here in Australia government payments are around 70% of minimum wage.

Here in America the minimum wage is half of yours, though, you see.
posted by Pope Guilty at 1:13 AM on April 27 [4 favorites]


Yeah, my ex is a salaried manager at McDonald's and now makes about 77% of the Australian minimum wage per year. And that was a 25% raise over how much she made hourly a month ago. And it's still nowhere near enough to live on by herself, around here.
posted by kafziel at 1:52 AM on April 27 [2 favorites]


Here in America the minimum wage is half of yours, though, you see.

Which is true, perhaps, but the discussion here is about Canada, is it not?
posted by stavrosthewonderchicken at 1:54 AM on April 27 [13 favorites]




Yet again, Canada?
posted by Phlegmco(tm) at 2:56 AM on April 27 [3 favorites]


I've been thinking about labor scarring recently and how it might be different under a guaranteed income. The data suggests that means-testing creates barriers to re-employment, and we should take that seriously because long term unemployment is a lot harder than short term unemployment. It's not just a matter of degree, there's a phase shift at six months or so.

So a guaranteed income might help, but it's going to be an empirical question, and I haven't seen any work on the question since there have been so few experiments. Maybe something from Alaska....
posted by anotherpanacea at 3:16 AM on April 27


Which is true, perhaps, but the discussion here is about Canada, is it not?

Okay, and the Canadian minimum wage is ~66% of the Australian minimum wage, depending on the province.
posted by Pope Guilty at 3:50 AM on April 27 [2 favorites]


Efficiency is the code word that neo-liberals use to let evil sneak in to the speakeasy.
posted by srboisvert at 3:56 AM on April 27 [8 favorites]


I think that economists haven't get fully assimilated the tag-on benefits of a guaranteed minimum income.

Just one example. Being free to convert NYC housing projects to condos and sell them would let us pay down more than a hundred billion dollars of government debt in one fell swoop and create another few billion a year of net tax revenue due to the market rate residents paying far more taxes and consuming less non-welfare services. You probably get another billion a year on the velocity of money of re-employing the public housing functionaries in productive enterprise and former residents moving to places whose job markets better suit their skill sets, separate and apart from the general work incentive in GMI.
posted by MattD at 4:48 AM on April 27 [1 favorite]


Canadian senators are unelected political joke. You can ignore anything they say or do.
posted by blue_beetle at 5:00 AM on April 27 [3 favorites]


I have long agreed with dave99's thought that a welll-implemented basic income would allow you to eliminate a lot of programs that fiscal conservatives tend to dislike, and replace them with complete egalitarianism (I mean, Conrad Black would get the minimum income payment too).

I think the actual number would need to be more like 100% to 150% of current minimum wage. Even in Canada (though far less so than in the US) it still happens that people who work for minimum wage need to lean on some of the social programs this should eliminate. I feel like $20k per year is enough to give people the basic right to comfort and dignity they deserve while not entirely disincentivising working.

One thing that often gets overlooked when talking about the benefits of the basic income (from a conservative standpoint) is that it also lets you eliminate the minimum wage. I mean, sure, let Walmart pay their employees $0.25 per hour if they can find people to work for that.

Of course, the big problem will be defining and policing the boundaries of who qualifies for the basic income and figuring out what to do with those who don't. So, in that sense, the gross social dynamic of the welfare queen witch hunt will still exist, it will just be more xenophobic than ever.
posted by 256 at 5:03 AM on April 27 [9 favorites]


Being free to convert NYC housing projects to condos and sell them

They sold off the council houses in the UK a few decades back. How is the housing market there for middle-class folk and people earning minimum wage?

former residents moving to places whose job markets better suit their skill sets

I can only go by what I know in Canada, but everyone I know that moves to hot job markets complains the high cost of housing eats up a tonne of their new income. Also, not everyone can just up and move. Often there are comiplications and relationships to consider. If my husband suddenly decided the only way to get a job was to go up to Fort McMurray, I'd have to give up my incredibly secure and well-paid job, I would lose my existing child care arrangements (which took about eight years to get working effectively) and we would lose all the friend/family connections we enjoy on a daily basis. Very few people in social housing are young, able-bodied, and single - who are the people most likely to successfully "move where the jobs are". For most people in social housing, their skill sets aren't being underutalised, they just are valued skills in our society regardless of where they live.
posted by saucysault at 5:06 AM on April 27 [10 favorites]


I feel like $20k per year is enough

Just curious, how do you calculate that? Is that for each person over 18? So a mum with three kids who is disabled (and thus needs cabs to go to the grocery shop each week) is going to get the same $20,000 as an 18 year old living in his parent's McMansion basement? Will it pay for living expenses and tuition for a 20 year old in downtown Toronto? That $20,000 is less than what people currently receive on EI or CPP-d or ODSP, or OW (in some cases). So it is a step back, especially for people who are paying over $1,000 a month rent because it is the cheapest broken apartment they could find. $20,000 a year is only enough if the existing programmes also supplement it, like Trillium in Ontario. But a bare minimum basic income would be used to justify dismantling all of those programmes.

The most effective model has been to allocate resources according to need. The baby bonus used to be given to every mother and I know several friends who's parents put that monthly cheque in a bank account and gifted it to them when they reached adulthood as the downpayment on their first house at 21. My parents used the baby bonus to buy me food. The situational CCTB for working parents is much more fair. Harpers $100/month for daycare to all kids under six regardless of parent income would have had a greater impact in providing subsidized daycare so single parents could work (babysitting runs $20/hour in my neighbourhood - so Harper is paying for five hours a month of childcare)

The point of guaranteed income as proposed is to appear to level the playing field, then when middle-class people notice their friend's eighteen year old pot smoking son is bumming at home, the conservatives use the "outrage" to eliminate the "wasteful" programme and basically replace it with nothing/US-style welfare.
posted by saucysault at 5:31 AM on April 27 [3 favorites]


Canadian senators are unelected political joke. You can ignore anything they say or do.

Sometimes. But right now they're the one of the reasons why the terrible election bill is being reconsidered.
posted by mobunited at 5:41 AM on April 27 [2 favorites]


Being free to convert NYC housing projects to condos and sell them

That's something I hadn't considered before -- if the minimum income replaces all the direct poverty programs like food stamps, etc, would it also replace things like public and subsidized housing? Public transit subsidies? Where does this stop?

My guess is that the effective implementation would be as a supplement to other programs, rather than as a total replacement. Some things would work better with a minimum income, but other things are still going to need other kinds of interventions.
posted by Dip Flash at 5:53 AM on April 27 [1 favorite]


This is interesting because right now in Ontario a minimum wage hike is about to happen, followed by a proposal to automatically link increases to (IIRC) the CPI. Great idea, right? Maybe not, because minimum wage *with* the increase will still be too low, and after that, automatic increases will be too low, uh, forever.

Any guaranteed income scheme will be subject to the same problems. If it's pegged too low, it will never be increased to a reasonable income level and will become a constant target for cuts. Ontario has seen a massive increase in poverty from the previous Conservative regime's slashing of welfare benefits and successors' failures to significantly roll these back. Combined with the ludicrous price of housing in Ontario, this has fostered the growth of awful rooming houses and other exploitative arrangements that combined with the system's requirement to burn through virtually all other personal assets, has dropped a significant chunk of the population into effectively inescapable poverty.

To provide a sense of what this means, in 1994 when I was on welfare, I was able to afford a sub-bachelor apartment in Toronto (room and bathroom with a hot plate and bar fridge). After that and utilities, I was left with under $200 for all other monthly expenses, which with some discipline, I was able to deal with. The current individual maximum is $626--less than it was 20 years ago *without inflation.* A comparable apartment in Toronto now costs $800, and even a decent rooming house is around $500.

I am for a guaranteed minimum income, but there's a gap between what would be politically viable and what would work. Social planning groups in my town have estimated the survival wage at about $16.50. That's the target. If you don't get near that, then this becomes oppressive like flat tax proposals.
posted by mobunited at 6:03 AM on April 27 [3 favorites]


You can guarantee this would become a privatization fest, in the same way that R D Laing's (and others') ideas of a caring community became the brutal Care in the Community under Thatcher.
posted by scruss at 6:53 AM on April 27 [1 favorite]


Average rent for a bachelor in Toronto that is not 1) in someone's basement, 2) infested with bedbugs and/or roaches, and/or c) within spitting distance of accessible transit is ~$1100-1200 (exclusive of utilities), and that's a reach.
posted by cotton dress sock at 6:57 AM on April 27


Yup, we're moving to TO later this year and looking at rental prices--and mind you, our income is pretty decent--near all the things that cotton dress sock lists above, we're looking at $1400 at a minimum. Mad props to people who relocate there and have more things to factor in when it comes to housing--kids, for one--because I'm already sweating about how we're gonna do once we get there.
posted by Kitteh at 7:07 AM on April 27


(Sorry, should read "is" near decent transit. Good luck, kitteh!)
posted by cotton dress sock at 7:14 AM on April 27


Guaranteed minimum income schemes are simply a way for corporations to pay below poverty level wages and have the government make up the difference. No wonder conservatives are on board with this.
And the scheme that pays the same minimum income to everyone, regardless of wealth or earned income, and attempts to claw it back through taxes is just inviting tax loophole exploitation and outright tax evasion.
The only workable answer lies in a combination of higher minimum wage, lower taxes at the bottom brackets, higher taxes at the top brackets, higher tax on corporate and business profits, and taxing investment income at the same rates as earned labour income (it's currently taxed at 50% of other income)
posted by rocket88 at 7:47 AM on April 27 [6 favorites]


Which is true, perhaps, but the discussion here is about Canada, is it not?

And Australia, apparently. So what? The real issue of interest is whether it is sensible.

higher tax on corporate and business profits

Don't they simply pass on the cost to the consumer? So it's basically a sales tax only it sounds more palatable to the man on the street because he thinks the Man is getting stuck to it.

Unless I'm missing something, which is entirely possible.
posted by IndigoJones at 8:07 AM on April 27


Average rent for a bachelor in Toronto that is not 1) in someone's basement, 2) infested with bedbugs and/or roaches, and/or c) within spitting distance of accessible transit is ~$1100-1200 (exclusive of utilities), and that's a reach.

Well, I was pegging my estimate to a place like I actually lived in in the 90s, which had no kitchen or tub--just a shower and hot plate near St. James Town. Plus, this was before the return of the bedbug to Toronto. Damn, I can't even imagine what the city is like for lower income folks now that they're back.
posted by mobunited at 8:37 AM on April 27


The piece of information that always seems missing from these debates in Canada: The Manitoba Mincome Experiment
posted by nubs at 10:13 AM on April 27 [5 favorites]


Not to put down the mincome experiement, but I believe a big user of mincome were new mothers in stable relationships. Those women would now most likely be eligible for maternity/parental leave of 12 months through EI. A second big user group were students in the last year of high school, again, I believe the retention rate in high school is now much larger than it was 35 years ago and there is less need for financial support of teenagers by society. The third group, people that used hospital services/mental heqalth services abosultely need more help as the current patchwork of services is too slow and too confusing to navigate even for the healthy.
posted by saucysault at 10:21 AM on April 27 [1 favorite]


I'm cautiously in favor of guaranteed income proposals. I tend to think this form of argument is right:
I have long agreed with dave99's thought that a welll-implemented basic income would allow you to eliminate a lot of programs that fiscal conservatives tend to dislike, and replace them with complete egalitarianism (I mean, Conrad Black would get the minimum income payment too).
(Of course, safety net programs can't be totally eliminated, because there will always be people who will need them even after the guaranteed income. And there will have to be allowances for disability etc. But they could be reduced tremendously.)

I don't think this kind of concern is that troubling:
Guaranteed minimum income schemes are simply a way for corporations to pay below poverty level wages and have the government make up the difference. No wonder conservatives are on board with this.
Because guaranteed incomes allow people to say, "No," to demeaning, unrewarding work, if the level is set high enough:
I mean, sure, let Walmart pay their employees $0.25 per hour if they can find people to work for that.
The dream is that we can finally move closer to Keynes's "Some Economic Possibilities For Our Grandchildren" (84 years later!), and stop treating work as an end in itself. For some of us, work is part of a good life, but I'm not sure the work of a Walmart greeter (e.g.) fits into that schema. If we adopted a guaranteed income and relaxed the minimum wage, a wider range of low-wage work would become available, allowing people to make better compromises between their physical needs and their quality of life. For example, it might be better to receive a guaranteed income and earn $2/hr as a musician, coach, or bookstore clerk, than to make $9/hr as a Walmart greeter and depend on it for your livelihood. Conversely, Walmart would have to compete for its labor with a wider variety of low-wage employers, and with leisure supported by the guaranteed income. Walmart might become a much better place to work, or Walmart as we know it might vanish.

I am most worried about concerns like this one:
when middle-class people notice their friend's eighteen year old pot smoking son is bumming at home, the conservatives use the "outrage" to eliminate the "wasteful" programme and basically replace it with nothing/US-style welfare.
It's a real problem. The program's virtues don't count for anything if it's not politically sustainable -- and it must be politically sustainable at a high enough level to make a difference, with increases to track cost of living. So despite its promise, guaranteed income just might not be a good idea, especially in societies like the US and UK where receiving social benefits is looked down on. This kind of political-economy worry might mean that we are stuck with work, because otherwise everyone's entitlement to their living is politically vulnerable.

Then again, there may be cause for optimism: giving everyone a guaranteed income might give it built-in political support. Even a well-off family is going to welcome another $20K/yr, and you'd need to go pretty high up the income ladder before the extra taxes eat up the benefits. Better-off people sometimes see programs targeted at the poor as handouts. But they take a different attitude to programs targeted at them. So Social Security in the US enjoys very wide support, even though it is a redistributive program, because everyone is entitled to it. Perhaps a similar strategy could work for guaranteed income. It would be most valuable to the poor, but it could be seen as a nice backstop for everyone.

But there's another big advantage that's missing from this debate so far: the existing patchwork safety net (at least in the US) serves as a lever for controlling the lives of the poor. Food stamps can only be spent on approved items; public housing is subject to intrusive restrictions; drug testing is becoming a condition for almost everything; work (meaning a shitty low-paying job) is a requirement for many benefits; etc. The list goes on, and each instance is another case where people's lives are made the object of bureaucratic scrutiny and regulation. As long as the safety net is a basket of goods and services, the censorious among us will want to make sure that only the most morally upright goods and services go in the basket. Should poor people be able to buy contraception? Abortion? If we move to a cash entitlement for everyone, the hope is, such questions are no longer political questions.

To the extent that the current sort of program can be replaced by a basic income, it might do a lot for the liberty and dignity of the poor.
posted by grobstein at 10:51 AM on April 27 [27 favorites]


(This might also hasten the replacement of many low-skill, low-wage jobs with mechanization. Low-wage retail is already giving way to machines, and this would be sped up if there wasn't an army of people who badly needed the work. But mechanization seems like a good thing if the workers who are replaced receive a decent income anyway.)
posted by grobstein at 11:00 AM on April 27 [4 favorites]


That $20,000 is less than what people currently receive on EI or CPP-d or ODSP, or OW (in some cases)

That $20K is significantly more than people on ODSP (Ontario Disability Support Program) ($1086/mo $13 032/yr, if you are receiving the maximum allowable amount, without added benefits such as food costs for certain medical conditions (a whopping $100) or transportation passes (an amount that is actually less than the passes cost), dependents, single) or on OW (Ontario Works; welfare; $7 512). You are permitted to make a certain amount of money per month when on support; they start clawing your benefits back after $200 (that's 5hrs/wk at minimum wage, for comparison) when you're on ODSP, you lose $0.50 for every $1 earned; I can't remember the number for OW. I mean yes obviously it does make a certain amount of sense to claw back benefits when someone on support is making money, but with the rates so low as they are, it forces people into under-the-table, illegal unemployment where they can't possibly complain about the wages or conditions because if they do, they not only lose their job but their benefits as well. It's subsistence survival, at best.

You can see a comparison of those benefit rates as of Nov 2011 here. They have not gone up by much and have in fact been reduced or eliminated in some cases (some housing benefit budget shenanigans at the provincial level that I honestly do not remember the details of, for example).

In fact, the only way to gross over $20K on either ODSP or OW is if you are an adult couple with a child. I suggest, with respect, that the amount of money you think people on social assistance receive is wildly out of whack, and that's part of the problem: so very many people think that social assistance recipients are getting enough money to live on. I mean, look at that scale: that maximum a single person on welfare can receive in housing payment is $372. (It has gone up a total of $27 since then).

Nowhere and I mean nowhere in Toronto are you finding a healthy living situation that costs that little unless it's in your parents' basement. So you have to eat into your whopping $227 of support (or $56.75/wk) just to pay rent. Then you need to pay for a telephone and transit--you're probably not living anywhere near any available jobs, and of course to receive benefits you must be engaged in an active job search. You'll need to have clean, decent looking clothes to wear for interviews. And that's before you've done any grocery shopping--and if you live in an apartment where electricity or heat are extra...

Healthcare, obviously, is not a big problem. If you are on OW you qualify for Trillium coverage for medications, if you are on ODSP all prescription medications are automatically covered, all physician visits are covered for Ontarians anyway.

Minimum wage in Ontario is $10.25/hr, and it's about to go up fifty cents I think. A full time minimum wage job would, assuming full time hours (35hr/wk), gross you $19 218.75. Minus EI and CPP deductions, minus income tax.

And it's virtually impossible to live with health and dignity in Toronto on minimum wage. Even if you're living way out in the burbs somewhere that takes an hour to get to on the TTC, in a not great but not awful building, even if you have a roommate, after you've paid rent, food, transportation, and utilities, you're probably close to $800-900 in the hole. At least.

You can see here (page 17 of the PDF) the average market rents all over the GTA, and where each area refers to.

The average bachelor apartment now costs over $900.

Don't even ask about how long the list for social housing is.
posted by feckless fecal fear mongering at 11:08 AM on April 27 [5 favorites]


fffm, my husband is eligible for ODSP due to a serious health issue. He is entitled to $26,000/year. Except I work and earn a little more than that, so every dollar is clawed back despite his monthly (non-OHIP covered) medical expenses being thousands of dollars. I was raised working class, have many friends on OW, and I have intimate knowledge of the social service sector in Ontario. I am well aware of what each and every service offers. Most people that discuss one-fits all schemes like GAI dis-regard that so many people don't fit into that one size and their special circumstances DO warrant additional entitlements. But the creation of GAI under conservatives would most likely be as a "one-size fits all" type as justification for dismantling the staffing and infrastructure that are (mostly) efficiently delivering the current services as a "cost-savings" of implementing a new service. Meaning the most vulnerable - single parents, the ill, the newly arrived would not receive the benefits and be worse off.
posted by saucysault at 11:21 AM on April 27 [2 favorites]


(ah, Here (it's a .doc file, sorry) is a list of current OW and ODSP rates. You can see how little they've changed in the past two years.

This link may also be of use as background and current policy. And here (pdf) is a direct side-by side comparison of benefit rates in Peterborough versus a) actual rental costs, and b) the government's own public health unit's assessment of what a healthy food basket would cost per month.

You'll notice that everyone on OW has, according to both market reality and government-issued research, negative money for dealing with anything but food and a roof. Transportation, communication, clothing--nope.

Certain classes of people on ODSP do end up with a little money for some of the other essentials, but it's really not much.

In case you hadn't guessed, I am 100% behind a permanent minimum income scheme for every Canadian over the age of 18. Not sure exactly how to peg the rates, but why don't we try giving people enough money that they don't live below the poverty line?

You would still need specialized people delivering specialized services--disability case management, help finding work, job retraining, etc.

saucysault, your husband is an outlier. Look at the statistics.
posted by feckless fecal fear mongering at 11:30 AM on April 27


(This might point out the poverty line problem rather better).
posted by feckless fecal fear mongering at 11:31 AM on April 27


saucysault: "when middle-class people notice their friend's eighteen year old pot smoking son is bumming at home, the conservatives use the "outrage" to eliminate the "wasteful" programme and basically replace it with nothing/US-style welfare."

grobstein: "The program's virtues don't count for anything if it's not politically sustainable"

So consumer spending is about 55% of GDP for Canada. There is an argument to be made that a significant portion of the economy is driven by consumer spending. Thus, giving people money, even if they are being lazy bums and spending it on reckless purchases, will still keep the economy moving.

There just needs to be a convincing argument that spending money is as important to the economy as producing goods.
posted by LizBoBiz at 12:01 PM on April 27


There just needs to be a convincing argument that spending money is as important to the economy as producing goods.

There are two sides to every transaction, anything that money gets spent on needs to be produced, so this is not really a distinction.
posted by moorooka at 2:41 PM on April 27


There are so many problems with these half-baked schemes, not that it means we shouldn't discuss them. One to consider is what happens when a person is worth $20k/year automatically for being alive - no job to show up to, no discounted transit to use, no personal heating bill to discount. It sure sounds easy to turn people into a steady income stream through intimidation -- effectively, a new kind of slavery. Doubly so if people on the fringes of society like immigrants can be used to receive benefits. The potential to commit a crime like this increases the more ubiquitous and anonymous is the program, so small test projects probably wouldn't reveal it in advance.
posted by michaelh at 3:05 PM on April 27 [1 favorite]


There are two sides to every transaction, anything that money gets spent on needs to be produced, so this is not really a distinction.

With the amount of automation in today's manufacturing sector and the potential for future productivity gains through technology, it is very possible that there are or could be almost no people employed in the production of goods, save for a few machine operators. So there is a distinction between a person spending money in the economy and a robot that does not get paid.
posted by LizBoBiz at 4:36 PM on April 27


Sure, but this isn't really a question of whether expenditure or production is more 'important'. If the robot is producing stuff that nobody can buy (because nobody's earning any income since they've been replaced by robots), then production will be scaled back due to lack of demand. If this happens to the economy as a whole then things will just grind to a low-production, low-expenditure, high unemployment equilibrium. Until either new non-roboticized sectors emerge to utilize idle labour, or the ownership of the economy's capital stock gets redistributed to those whose jobs have been replaced by robots (which I think will have to happen eventually, with proposals like this guaranteed income thing being a movement in that direction).
posted by moorooka at 4:52 PM on April 27 [2 favorites]


I don't think that the general public sees it that way. That's why people have problems with people getting income for no work. A guaranteed income would be more politically viable if it the public could be persuaded that spending money is just as important as producing/working.
posted by LizBoBiz at 5:39 PM on April 27


In case you hadn't guessed, I am 100% behind a permanent minimum income scheme for every Canadian over the age of 18. Not sure exactly how to peg the rates, but why don't we try giving people enough money that they don't live below the poverty line? [$20,000 per single adult, $30,000 for a two-person household]

The problem that Kesselman points out is that it's hard to see how the numbers can work.

He considers three different options. The third option is a basic income, given to everyone (no means-testing, no withdrawal of the benefit as your income rises), so there's no effect on marginal tax rates.

Let's say the basic income is $10,000, well below the poverty line. In total, that's $350 billion, which is larger than current total federal spending. It's about 20% of annual GDP ($1.8 trillion).

The money to fund the new benefit has to come from somewhere. Let's suppose it comes from higher taxes on the top 10% of the income distribution. Since they only make up 1/10 of the population, that means that they need to pay an average of an additional $90,000 in taxes each year! (Note that the cutoff to be in the top 10% isn't that high: in 2010, total income of more than $80,000 would put you in the top 10%. Source.)

I think the problem is that although it's possible to redistribute income from the top to the bottom, it's not possible to redistribute from the top to the middle--there's simply too many people in the middle.

Kesselman's conclusion is that anti-poverty spending needs to be targeted. The Guaranteed Annual Income is appealing because of its simplicity, but it's not workable.

Another option that comes to mind would be to fund a Guaranteed Annual Income from a giant sovereign wealth fund. (Canada already has a sovereign wealth fund, the $180 billion CPP Investment Fund, which invests the CPP surplus.) We would need to run surpluses for many decades, first to pay off existing public debts, then to build up this new fund. How big would it have to be? To fund a basic income of 25% of GDP per capita (about $12,000 today), if the real rate of return is 5%, then it would have to be 500% of GDP (about 9 trillion dollars today). Also not a workable option.

A couple concluding thoughts:

Anti-poverty spending needs to be targeted, supporting the elderly, disabled, and working poor as well as the unemployed.

Policy should be aimed at maintaining full employment, whether we're talking about monetary policy (the interest rates controlled by the Bank of Canada), fiscal policy (running deficits during a severe recession), labour policy (expanding the Temporary Foreign Worker program in BC and Alberta while the overall economy is weak is a good example of what not to do), reducing marginal tax rates on the poor, subsidizing low-wage earners, or direct employment by the government. It's much easier to supplement someone's earnings to bring them above the poverty line than to try to provide their entire income, and there's also negative social effects from concentrated unemployment (for example, see William Julius Wilson's When Work Disappears).

Simple and appealing ideas don't necessarily work in practice.
posted by russilwvong at 7:25 PM on April 27 [1 favorite]


The money to fund the new benefit has to come from somewhere. Let's suppose it comes from higher taxes on the top 10% of the income distribution.

Where does this 10% stuff come from? Of course that wouldn't make sense. You'd have to increase taxes far more broadly by that, so that the extra guaranteed income would be netted away by extra taxes by the time you reach someone of average income. Then it might make good budgetary sense, considering all the other welfare programs that would be no longer needed.
posted by moorooka at 8:02 PM on April 27 [3 favorites]


Oops, I forgot another key policy area: housing. The rising cost of housing is a big problem, both for poverty and for the middle class. (I'm not sure why it's not showing up in Canadian inflation statistics.) Matthew Yglesias has been arguing for years that building more housing would lower prices and thus raise real incomes. The federal and provincial governments could also build housing directly.

In Canada, the cost of health care is already shared, and post-secondary costs haven't risen the way they have in the US. Saving for retirement is still an issue, though--something like 20%-30% of people aren't saving enough for retirement, meaning that we could see a surge in poverty among the elderly. Kesselman and others have been arguing for expanding the CPP.
posted by russilwvong at 8:10 PM on April 27


moorooka: the root problem is the total amount we're talking about, 20% of GDP. Spreading the cost over the top 50% of the income distribution (people with income of $27,000 or higher) would still mean collecting an additional $10,000 in taxes from half the population. And that's with a benefit level of $10,000, well below the poverty line.

We don't spend anything like 20% of GDP today on anti-poverty programs. Total spending on social services at all levels of government was about 10% in 2009 (source).
posted by russilwvong at 8:19 PM on April 27


I don't think that the general public sees it that way. That's why people have problems with people getting income for no work. A guaranteed income would be more politically viable if it the public could be persuaded that spending money is just as important as producing/working.

This is why I think that policies like these shouldn't be discussed in terms of a "guaranteed wage or salary". Instead, the debate should framed around redistributing ownership of society's capital stock. People don't seem to have trouble with shareholders receiving dividends without "working". Call the thing a "basic dividend" or something.
posted by moorooka at 8:19 PM on April 27 [2 favorites]


Call the thing a "basic dividend" or something.

Again, I think that would make sense if you had built up a giant sovereign wealth fund, but it'd have to be truly huge: on the order of 500% of GDP, or about $9 trillion today.
posted by russilwvong at 8:22 PM on April 27


moorooka: the root problem is the total amount we're talking about: 20% of GDP. Spreading the cost over the top 50% of the income distribution (people with income of $27,000 or higher) would still mean collecting an additional $10,000 in taxes from half the population. And that's with a benefit level of $10,000, well below the poverty line.

I didn't mean that you'd spread the cost over the top 50%, I meant that by the time you reached the middle, you'd already be breaking even - you could start clawing the thing back well before that point. And yes, you're adding a lot to taxes, but part of what you're taxing is the free income (which even the rich are getting which is why the whole thing is so expensive in the first place). So a huge part of this spending is not real spending at all; it circulates directly from the government back to the government and becomes a trivial accounting entry.

(Actually I recognize that to do something like this properly enough to be able to withdraw other social spending would be very difficult and quite expensive, but I don't think it's quite as unrealistic as you're making out).
posted by moorooka at 8:29 PM on April 27 [3 favorites]


Again, I think that would make sense if you had built up a giant sovereign wealth fund, but it'd have to be truly huge: on the order of 500% of GDP, or about $9 trillion today.

Or you could just socialize the means of production!!

As I said; "redistribution of the capital stock".
posted by moorooka at 8:30 PM on April 27


moorooka: (Actually I recognize that to do something like this properly enough to be able to withdraw other social spending would be very difficult and quite expensive, but I don't think it's quite as unrealistic as you're making out.)

I think Kesselman makes a pretty strong argument. That plus the fact that Armine Yalnizyan agrees with his analysis--she also points out that the additional income in combination with a more or less fixed housing supply could just end up raising housing costs--makes me think that the Guaranteed Annual Income is a dead end. I'll keep an eye out for other counter-arguments, though.

The other thing I found amusing was that here we have a Conservative Senator pushing the proposal, and the left-wing CCPA saying hey, this doesn't make sense. It's almost completely reversed from what you'd expect to see in the US. (Of course Hugh Segal is a Red Tory, not a Harper-style cut-spending-and-taxes conservative.)

I didn't mean that you'd spread the cost over the top 50%, I meant that by the time you reached the middle, you'd already be breaking even - you could start clawing the thing back well before that point.

So this is the second option that Kesselman analyzes: phasing out the benefit as income increases. The problem is that you end up with 75%-90% marginal tax rates.
The most commonly proposed benefit-reduction or tax-back rate is 50 per cent, and I use this figure in my illustrations. Such a scheme has a guarantee amount that is paid to a household with zero income and a break-even income level at which the benefit is fully phased out; with a 50 per cent tax-back rate, the break-even income is twice the guarantee amount. Thus, the goal of guaranteeing every Canadian an income above the poverty line entails a break-even income level equal to twice the poverty line applicable to that person.

The standard measure of poverty lines is Statistics Canada's Low Income Cut-Offs (LICOs), which vary by family and community size. For a four-person family residing in a metropolitan area of 500,000 or more, the before-tax LICO is about $45,000 in 2013. Accordingly, achieving this target would imply a break-even income of $90,000 for families of four in larger cities, or well above median family incomes. (For single individuals in larger cities, the corresponding break-even income would be $48,000.)

The implications of this illustration for a guaranteed income are striking. First, more than half of all Canadian households would be recipients of some net benefits, even if the benefit amounts would be small for many. Second, the enormous increase in the number of beneficiaries would sharply increase the budgetary cost of the program. Third, the guaranteed income's tax-back rate of 50 per cent would apply not just to the poor but would encompass more than half of the population, with significant disincentives to work, save, invest and comply with the benefit and tax systems.

Most Canadians would be beneficiaries and taxpayers simultaneously, subject to both the 50 per cent tax-back rate of the guaranteed income plus marginal rates of income tax and payroll taxes in the 25 to 40 per cent range. Their total "marginal effective tax rate" on incremental earnings would thus fall in the 75 to 90 per cent range. And these figures ignore the need for increasing income tax rates to finance the huge costs of the guaranteed income. A similar oversight about the overlap between tax-back and income tax rates beset an ill-fated proposal for a guaranteed income by the Macdonald Royal Commission in the 1980s.
Or you could just socialize the means of production!!

Good luck with that!

I occasionally think that maybe the City of Vancouver should do the same thing that Singapore did from 1960 to 1965: build huge amounts of public housing. But the amount of money involved would be colossal.
posted by russilwvong at 9:13 PM on April 27


Kesselman's conclusion is that anti-poverty spending needs to be targeted. The Guaranteed Annual Income is appealing because of its simplicity, but it's not workable.

"For every complex problem there is an answer that is clear, simple, and wrong."
posted by Pope Guilty at 9:16 PM on April 27 [1 favorite]


I am neutral on a minimum income, but a lot of these arguments start from faulty assumptions.
Sure, your $10k or $20k isn't going to go far in Toronto, but that is a substantial incentive to find a lower cost address, with concomitant benefits for the lower cost area you settle in.
Without doubt there will be some individuals who are unable to move, but if the minimum income is enshrined, there will be a continual, long term incentive to optimise your life with it as a factor.
And remember the idea is it is paid to all.
A certain percent of people will decide to retire early, and shift to a low cost lakeside fishing town (or whatever floats their boat), plus a bunch of low income people currently forced into the big city housing markets for proximity to their workplace will have much less reason to remain, with a consequent lowering of property demand.
Consider also that the minimum income isn't given after your 40 hours a week work.
If I have time for gardening, fishing/hunting, brewing, cooking from scratch and a bit of informal bartering with the neighbors a large slab of my living expenses just decreased markedly compared to buying takeaway food, liquor, big box shopping etc. and I am free to pick up a part time job if I want more cash.
A lot of the analysis abstracts away effects on the housing market, tax base, employment rates etc, for reasonably good reasons - the mincome and other experiments didn't last long enough to drive big lifestyle changes. But I think it is short sighted to say that if we inject $x into the system the outcome will be everything as it is today, but with some extra cash redistribution.
In Australia, where admittedly the weather is nicer, the outcome of a generation or so of guaranteed welfare safety net has seen those likely to depend on it long term to disproportionately change their living arrangements.
In this case, to move to coastal towns up and down the seaboard outside of the capital cities for pensioners. I suspect a minimum guaranteed income would accelerate this, as for many people the hurdles of remaining on welfare would be removed, allowing them to plan for a stable future.
This granting of agency to people who would otherwise live at the whim of welfare regulation is one of the attractive aspects of a guaranteed income.
posted by bystander at 9:27 PM on April 27 [6 favorites]


I'm not really sure why anyone should be complaining about a 90% marginal tax on money they're getting for free (money being fungible and all), but I suppose I'll need to RTFA before I can tell whether the arguments make sense, intuitively I don't see why it should necessarily cost more than social programs with equivalent coverage - the only difference is how it's accounted for.

The whole whole thing could be cheap or prohibitively expensive depending on the parameters of the maximum benefit and the rate at which it drops off - clearly if right wingers are keen on the idea it's because they want to implement a miserly version which would cost less than the current social safety net, leaving room to reduce taxes on the rich.

(I do think there's a false distinction here between an income that gets phased out as you earn more and one that doesn't: if you assume that the thing has to be paid for, and that the higher earners have to pay for it, then it's effectively getting phased out at some point, so the two different scenarios you're describing are simply the same scenario with different parameters).

Ultimately I think that given the tendency of capital to concentrate in ownership and the increasing obsolescence of labour that some form of "capital redistribution" is the only real solution, and we should quit mocking the idea and start treating it seriously. It's hard to pay a guaranteed income to everybody if it's coming out of other people's incomes but if it's coming out of the returns to society's capital stock then it's a much easier prospect.
posted by moorooka at 10:14 PM on April 27 [1 favorite]


moorooka: marginal tax rates matter.

If I have a 90% marginal tax rate, the incentive to raise my income is very low and I have huge incentive to commit tax evasion by hiding any additional income I receive.

Why should I take a job that pays $6000 more if I'm only going to see $600 for it, and the job is harder/longer hours/etc? Why should I even work full-time, in many cases?
posted by Neuffy at 1:17 PM on April 30


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