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A dubious antipoverty strategy

Guaranteeing incomes for the poor is politically unfeasible and financially unsustainable

by Jonathan Rhys Kesselman

4_iStock_000014942228Poverty is conventionally defined as the lack of some minimum level of income, so the “obvious” policy prescription is to shift more incomes to households deemed poor. Many observers spanning the full political-ideological spectrum have advocated scrapping the welfare system and instituting a broad program of cash transfers to eliminate or at least alleviate poverty.1

Proposals include British writer and politician Lady Juliet Rhys-Williams’s credit income tax in the 1940s; conservative economist Milton Friedman’s negative income tax in the 1960s; liberal economists James Tobin, Paul Samuelson and John Kenneth Galbraith’s 1968 call for a guaranteed income; and British economist James Meade’s citizen’s income. Conservative economist Friedrich Hayek stated, “I have always said that I am in favor of a minimum income for everyone in the country.”2 Other examples include the economic philosopher Philippe Van Parijs’s basic income in the 1990s and Canadian Senator Hugh Segal’s recent call for a guaranteed income. The U.S. Green Party has also promoted a guaranteed income. A Basic Income Earth Network holds biennial congresses and sponsors a scholarly journal Basic Income Studies; many countries have affiliates including the Basic Income Canada Network/Réseau Canadien pour le Revenu Garanti.3

Proponents of a guaranteed income or basic income generally share a distaste for the intrusive and paternalistic welfare bureaucracy, the pernicious distinctions between “worthy” and “unworthy” beneficiaries and the discretionary and often arbitrary aspects of the current medley of cash and in-kind transfer programs. They cite the various disincentive features of existing programs (while overlooking or downplaying the potential disincentives of their own schemes). They also critique the complex web of programs each with its own tangle of rules and regulations. For example, in an essay for the Literary Review of Canada, Senator Segal asserts that the problem demands a simple and direct solution: transferring the requisite incomes to those living below the poverty line.4 Complexity, he complains, is just society’s excuse for not addressing the problem.

I take a sharply different perspective from that of the proponents of an all-cash solution to poverty. My analysis leads to the conclusion that schemes to eliminate poverty purely by cash transfers are beset by many problems. A basic or guaranteed income that would raise all households above the poverty line carries severe hurdles of economic incentives, public finance and political feasibility that proponents typically neglect.5 A more multifaceted approach will be not only more effective but also much more likely to obtain the public support essential for progress. Complexity is unavoidable and indeed is the essence of the policy problem: better to face reality than deny it. 

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About the Author

Jonathan Rhys Kesselman
Jonathan Rhys Kesselman holds the Canada Research Chair in Public Finance with the School of Public Policy at Simon Fraser University in Vancouver. His research specializes in taxation and social policy.




3 Comments


  1. A few questions …

    1. You describe the “Fill-the-gap” approach as “a total disincentive to work.” Are there studies? How much of a disincentive is it really? And wouldn’t low-wage employers be forced to increase wage rates?

    2. You say that “The most commonly proposed benefit-reduction or tax-back rate is 50 per cent” and “I use this figure in my illustrations.” You then describe the calamity that ensues. What if the rate were 20 or 30 per cent?


    • Rhys Kesselman

      Arthur, Quick replies to your two queries:

      1. “Fill-the-gap” is how most traditional welfare systems operate; this method is used by most provincial income assistance programs with respect to individuals deemed “employable” (some provinces offer a very small exempt amount of earnings to provide a bit of incentive for the beneficiary to take limited part-time work). So the studies and evidence are there: “fill-the-gap” AKA welfare provides little or no incentive to work, since ever dollar earned results in one dollar of benefits lost. I.e., nothing in your pocket after a hard day’s work!

      2. I hope that this point was clear from my article. The break-even income level for a guaranteed-income type of program (the level at which the benefits phase out to zero) equals the guarantee amount (what an individual gets if they have zero income) divided by the tax-back rate. Let’s take the current before-tax Low Income Cut-Off levels from StatCan for persons living in a large metro area (population 500,000+): $24,000 for a single individual and $45,000 for a family of four. Now assume a tax-back rate of 20% to minimize the disincentive effects (but that still adds on top of personal tax rates and payroll tax rates, so most folks would face total marginal tax rates of 50% or substantially higher). The break-even income levels would then be $120,000 for singles (that is, $24,000/0.2) and $225,000 for families of four ($45,000/0.2). These are far above median incomes, so that the great majority of the population would be receiving some amount of the guaranteed-income benefits. Thus greatly increasing the total program cost, necessitating increased income (and other) tax rates, raising disincentive effects (including evasion) across the entire working and coupon-clipping population. Calamity indeed!


  2. Did you read Stephanie Nolen’s article, in The Globe (http://www.theglobeandmail.com/news/world/what-would-robin-hood-do-how-cash-handouts-are-remaking-lives-in-brazil/article16113695/?page=2#dashboard/follows/)?

    It’s about Brazil’s Bolsa Familia, a conditional cash transfer. “To get it, families have to enroll, bring their children to public health centres for regular checkups and vaccinations, and keep those kids in school until they finish high school. If a student drops out – once a huge problem in Brazil – then the per-person grant for that child is cancelled.” Apparently, it (and similar programs in other countries) have been quite successful. … To enroll, a family has to fill out an exhaustive questionnaire … and are assigned a social worker. The grant lands in the bank account of the designated women in each family each month.”

    According to Nolen, it has it’s critics, “especially in the middle and upper classes. They deride it – on television chat shows, in cafe conversations – as handouts that will “make people lazy” and give them licence not to seek work.”

    These seem reminiscent of Kesselman’s criticisms of GAI. The Bursa seems like a GAI with conditions. Could we not apply conditions appropriate to Canada? Could we not build on efforts like those of Hugh Segal, rather than tear them down from the comfort of our (your) tenured university seats?



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