Easing into Basic Income

by Terrance Hunsley

I had a nice conversation with Joe Foster, a retired engineer who is part of the Ontario Basic Income Network.  We chatted about the results of a recent Angus Reid Survey, which showed that about 60% of Canadians would support a Basic Income, so long as it was paid for by the rich. But most did not support a general tax increase and a majority felt it was really too expensive. And there is not likely an appetite for long term government borrowing to support it after the pandemic, even if it would make a good economic stimulus. 

The poll also showed that people have a lot of questions about how a basic income might work (although the pandemic CERB of $2000/month is a good working example), and whether people would stop working. We agreed that given the current situation and the range of questions, it would be good to find ways to phase into a basic income. But not by running experiments, as it takes a long time to fully evaluate them, and the factors are complex. Plus, as we have already witnessed in Canada and elsewhere, economic and political situations can change dramatically while the experiments are being run.  

So how to go about it in a way that would build knowledge and confidence, correct mistakes, and not break the bank?

One piece of low hanging fruit that we agreed on is the request from the Prince Edward Island legislature to the federal government to help with a Basic Income program for PEI.  PEI was open to it being either a pilot or an ongoing program. We don’t know what they suggested for a cost-sharing formula, but chances are a net infusion of funds from other areas of the country was not considered unwelcome :-).

How phasing in could work

The federal government could support the proposal in PEI with the proviso that it would be an ongoing program, but the first year or two would be used to adjust and fine-tune it so it could be expanded across the country as other provinces buy in. 

A Basic Income program will relieve provinces from paying a good part of their social assistance budget. They should, of course, retain their supports for families, people in crisis, and for people with disabilities. 

In the medium term perhaps income redistribution should  become a federal responsibility, with the costs rebalanced through the tax system. That would be a good idea because redistributing income also has an effect of redistribution from richer to poorer regions of the country. With the Canada Child Credit having been recently increased, part of that cost has already been shifted to the federal government.

Adjusting the program in early stages is important, so that a number of thorny issues can be dealt with.   

Adjusting the impact on the workforce

One issue that bothers many people is whether people will drop out of the labor force.  To make sure there is an effective incentive, it might be wise for the program to tax income above the Basic Income level, (say $2000/month) by 25% for the first $10,000 or $15,000 of earned income, then increase the tax more sharply so that the net subsidy reaches zero in the middle income range. This will maintain an incentive to work, although I don’t think that would be a big problem. 

Addressing tax evasion

Perhaps more importantly, it would reduce the incentive to work under the table. Increasingly there are kinds of work which take place outside of normal employment relationships.  People who do fee for service, gig work, platform work and odd jobs, have more opportunities to avoid paying taxes. This is occurring even without a Basic Income.  In the past, governments didn’t really worry too much about that because most people preferred employment with benefits, and those who worked under the table would not have paid much tax anyway, either because their earnings were low, or because they could have claimed business expenses to minimize their taxable income.  

But with increasing platform work and fragmentizing of more high skilled work, it could become a bigger problem.  Governments may need to increase the penalties for tax evasion for both the purchaser of the labour and the worker.  Those who contract for work outside of employment should also be required to pay a social benefits contribution – perhaps 25% of the work fee – to an account maintained by CRA for that individual. That will add to the incentive to stay in the formal economy.

Who should qualify?

Others at the Basic Income Network and Joe might consider me an infidel for this, but I really think we should hold off on Basic Income until the age of 25.  Until then, people should be considered to be in the student age range. Although it may be a good life experience for young people to go off hitch hiking around the world for a year or two, it should probably not be encouraged by a Basic Income. For one thing, each year that a student extends his or her period of study deprives the economy of a skilled worker earning money and paying taxes. This is no small issue, with two million students moving through the postsecondary education pipeline. 

Very generous student loans which cover all costs, with low interest rates and a percentage forgiven for each year that full employment taxes are paid thereafter, is a better support system for students and the incentives work in the right direction.

Enhancement of the lives of the disabled

A quid pro quo that the federal government could negotiate with PEI, is for the province to really upgrade services to people with disabilities. The Basic Income will put them on much better footing than current social assistance disability benefits, but they still need benefits for disability-related costs, special training assistance, and help to find work opportunities. And employers need to be assisted to organize their work in ways that people with disabilities can contribute. The new technology can go a long way to help. 

In provinces without Basic Income

Beyond PEI’s boundaries, the federal government can take a preparatory step toward a Basic Income by ensuring that people who work receive a living wage. The Canadian Centre for Policy Alternatives calculated recently that on average across Canada, a person would need to earn $20.20 per hour to afford a one-bedroom apartment with enough left over for basicis.  

That amount is about 80% of the national median wage for a full-time worker.  Unfortunately, Canada has about 19.4% of its labour force earning less than 2/3 of the median wage (the OECD measure for low wage workers). This is a very poor reflection on our system, since it suggests that our living standards rely on a class of underpaid workers. Kind of like a slave economy. The OECD average is 15.3% and some countries can boast that only 10% of their workers earn less than 2/3 of the median wage. 

So the federal government can either try to entice provinces to raise minimum wages to something like 75% of the median wage in the region, or use the Canada Workers Benefit to subsidize their income to that level. It would help to keep people working in the formal economy, and it would reduce the costs of a future Basic Income. 

Potential impact on Low Wage Jobs

People will ask if either a Basic Income, or an increased minimum wage will have the effect of destroying some low wage jobs.  The answer could be yes, even though recent experience with minimum wage increases have shown minimal job loss. Nonetheless, we are entering an era when employers are going to be replacing many jobs through automation and AI-assisted work. 

That is not something to panic about. Deploying new technology raises the productivity of the economy, increasing the amount of investment available and creating new opportunities. And jobs that cannot pay a living wage should not be called jobs. They could be called underpaid labour. If it turns out that the economic disruption to come does not produce enough work for all, then what better time to adopt a four-day work week for everyone, or better yet – a nine-month work year? Think of the new opportunities that would provide!

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