GLI will replace OAS, GIS CCTB and NCB. The core proposal is a NIT of - 33% on income up to $60k per year. This means a cash grant of $20k to those with no income, that is gradually "clawed back" to a 0 net benefit at $60k income.
The general affordability of UBI
In Canada, $72.2B (2014) is paid as transfers to persons, from a revenue base of (130.8B personal income tax, $21.8B EI premiums, and 30B other revenues primarily CPP) $182.6B, and so 40% of all payroll deductions are already used as transfers to persons. Eliminating those programs is equivalent to a 40% tax cut. This jumps to 60% of all payroll deductions when "other transfers" (primarily social services including aboriginal programs) is included.
While most low and middle incomes pay high taxes, RRSPs dividend and capital gains rates, and other schemes available to the knowledgeable higher income earners, results in Canada collecting only 10% of GDP in personal contributions to national revenue, and 6% net of personal transfers.
The core affordability principle of UBI is that those who pay taxes also get the same personal transfer as those who don't, and so the tax burden is calculated net of that personal transfer.
The Green Party has also called for important coordination of service (cuts, and so UBI funding contributions) from the provincial and municipal levels, and this is actually a very important source of funding as housing, homeless/social programs, and police prisons are very expensive programs at those levels of government. Poverty also raises the cost of education.
UBI/GLI of $15k instead of $20k
The $20k per year amount is justified by the green party as the poverty level determined in Ontario. I propose that $15k is sufficient to get out of poverty. Options include having roommates, marriage, moving somewhere cheaper/smaller. $15k as an amount is also the magical figure that is higher than all other entitlements (mostly OAS+GIS) and so no entitlement promise made to anyone is broken. More importantly, a $15k GLI figure is being used because its funding comes entirely from the existing federal budget that the Green (and/or other supportive) party will control. $5k can come from other sources.
The other reason for a $15k GLI is that it makes possible a sane NIT scheme. Instead of -33% NIT on the first $60k, -25% NIT to create a 0 benefit threshold is possible. A sane NIT scheme is one where the tax rate above the NIT threshold is equal (making it equivalent to UBI with flat tax) or higher (progressive) than the tax rate below the threshold.
These -33% and -25% rates are there just to cover the GLI. Higher rates are needed to also pay for other government services, and to pay for those with net transfers of income.
A 44% flat tax on income up to $60k with $15k GLI would be enough to give someone earning $60k a net tax cut (25% of the tax goes to paying down their GLI benefit, while the remaining 19% is roughly equivalent to their 22% marginal federal tax rate above $32k and deductions and lower rates below that threshold.
But a 44% federal tax rate on income above $60k would be a substantial tax increase. This cliff is primarily why NIT schemes are generally a bad idea compared to UBI, but we can still try to fix this without reducing the tax rate on income above $60k.
The benefit of a $15k income safety net to those who don't use it today
Even for those with high employment income, $15k UBI is higher than the EI entitlements they would be allowed to draw if they lost their job, especially considering that the UBI does not expire in 6 months. So, we can replace the 5% paid (including employer contribution) in EI premiums with a 2.5% mandatory salary increase on those who are subject to such payments and a 5% point tax increase. Everyone is better off. Arguably at a 7% tax increase, everyone is still better off due to long term unconditional benefits that do not require permission or loss of employment conditions. Supplemental private EI can exist if there is demand.
CPP can similarly become optional, and replaced with a 5% salary increase and 10% point tax increase. No effect on takehome pay for employed individuals. The UBI safety net allows retirement earlier if people wish, and private savings and home ownership can supplement ultra comfortable lifestyles.
Where the UBI/GLI safety net is extremely valuable is for those who earn investment/business income instead of employment income. Their income is extremely similar to gambling income, and so highly variable, and highly needed to have a safety net. They don't have to pay EI and CPP, but get supreme enjoyment from UBI/GLI. By replacing EI and CPP payments with equivalent tax rates, it raises taxes on investment income, but the safety net expansion to business owners and investors is a huge boost to their safety net, and makes startup and small business more sustainable and survivable.
The elimination of tax credits for investment income (such as dividends and capital gains) is also a fair bargain for the investor/business class given this new safety net that applies to them. Increasing corporate tax rates to the top personal rate, while simultaneously making dividends paid a tax deduction to the corporation allows corporations to pay 0 tax but overall tax revenues to grow substantially by transferring the tax obligation to individuals, and eliminating the most common corporate tax avoidance strategies. For an entrepreneur risking his time and money on a new business, UBI/GLI is of far more significant assistance than tax avoidance schemes involving salaries vs. dividends.
The most important aspect of taxing investment income is that tax rates never discourage investment. If someone with money thinks he will make more money by investing then he chooses to. Otherwise he buries it under his mattress. Taxes on investment income are only paid when those investments make money.
A final benefit of a $15k unconditional safety net is that it is a substantial improvement to the lives of those making $60k in employment income (and subject to all previous mentioned payroll deductions). $15k GLI is more than the EI benefits they expect to collect, and the benefits are unconditional.
Tax rates at $60k/year and $61k/year
We're trying to have a tax rate for income above $60k to be at least as high as income of $60k. With the above safety net benefits and elimintation of EI and CPP, 22% + 15% = 37% tax rate on income above $60k is revenue neutral to those tax payers. A surtax of 13%, bringing the total to 50% federal tax would be enough to have everyone who makes under $115k in employment income have a net tax cut compared to what we have now. Including if the tax rate was raised to 54% on income above $88k (as our current brackets do).
This highlights the better general plan of UBI instead of GLI/NIT. It doesn't force any discouragingly high tax rates on low incomes.
A 50% tax rate is acutally 35%
The proposed flat tax rate on income up to $88k is 35% + 15% from converted EI and CPP payroll deductions, and a 7.5% mandatory salary increase for those who were paying EI and CPP with near 0 net effect on payment of those, but substantial revenue collection benefits as a result of capturing an extra 15% tax on investment income.
From 35% tax to 30% tax rates
the 15% extra tax on investment income is multiplied by fully taxing dividend and capital gains income. RRSPs and TFSAs can still exist to protect the medium rich's investment income and act as replacements for CPP. This very high revenue generator combined with the Green Party's carbon tax proposals can be enough to lower the tax rate on income below $88k to 30%. (45% tax rate after EI/CPP equivalents)
A 45% tax rate to 37.5%
Canada's tax system likes to take a little out of many boxes so as to appear not to be taking too much. It treats Canadians as idiots, by assuming they cannot math. The 45% tax rate may still seem relatively high, but with Candian math, its actually just 37.5% on employment income. The employer will effectively pay 7.5% of your taxes, because your salary automatically goes up by 7.5% as a result of the elimination of EI and CPP. Compared to your old/existing salary, the tax rate is 37.5%, and compared to previously separate EI and CPP, it is 30%, or just 8% above the old 22% rate.
The $10k income earner
Currently receives few if any benefits. Currently taxed at 15% for just EI and CPP. ($1500 in payroll deductions. Would receive $15k UBI, $750 in statutory raise, and pay $4837 in total payroll deductions. Net after tax income: $20,913. Net federal benefit increase: $12413.
The senior with $2k in other income
Currently receives $13k in OAS+GIS. Does not pay payroll or other taxes on his income. Net after tax income: $16.1k. Net federal benefit increase: $1.1k. (More than 0 and so reason to support)
Currently pays 30% federal deductions on income above 12k. 15% on first 12k. Currently pays (1.8 + 6.9) 8.7k in payroll deductions. Would receive $15k UBI, $2650 in statutory raise, and pay $16,931 in payroll deductions. Net after tax income: $35,729. Net federal benefit increase: $9429.
The $60k income earner
Currently pays 30% federal deductions on income from 12-44k. 15% on first 12k. 37% on income above 44k. Currently pays (1.8 + 9.3 + 5.92) 17.02k in federal deductions. Would receive $15k UBI, and $4500 statutory pay raise. and pay $29025 in payroll deductions. Net after tax income: $50975. Net federal benefit increase: $7995.
$44k capital gains income earner
Currently pays 30% federal deductions on income from 12-44k. 15% on first 12k. 37% on income above 44k. Currently pays (1.8 + 9.3 + 16.28) 27.38k in federal deductions. Would receive $15k UBI, Statutory pay raise of $6600, and pay $42570 in payroll deductions. Net after tax income: $67070. Net federal benefit increase: $5450.
Currently pays 30% federal deductions on income from 12-44k. 15% on first 12k. 37% on income between 44-88k, and 41% on income above $88k. Currently pays (1.8 + 9.3 + 16.28 + 11.07) 38.45k in federal deductions. Would receive $15k UBI, statutory pay raise (capped at) $6600, and pay (42570+16415) $58985 in payroll deductions. Net after tax income: $77615. Net federal benefit increase: $1065.
Same income comparisons as single person, and ignoring spousal deductions and income splitting: Would receive $30k UBI, (15000 more to spouse). Net after tax income: $77615. Net federal benefit increase: $16065.
Fears of work disincentives do not matter
The employment rate for Canada working age adults (and OECD) is 60%. With 0 income contribution from the investor class and seniors, that would make the average job salary needed for sustainability (42,22 / 0.6) $70366. There is contributions from seniors and other investors that lowers this number, and importantly the number is still below expected personal income per adult under age 65.
Another option is to take these expected revenue surpluses and use them to fund a variable dividend together with carbon tax income. Supplemental UBI based on surpluses as they materialize.
How can such high tax cuts be affordable?
A $5400 tax cut on incomes of $88000 will be surprisingly high to many people concerned about the affordability of UBI. Surely people making close to the 80th income percentile would have to pay more than before to make UBI sustainable, no?
The key reason UBI is affordable in Canada is that 60% of all personal taxes/EI/CPP payments go towards personal and non education/health transfers. Of the $27380 in federal contributions that are made on a 88k salary today, $16428 can be placed into the UBI fund. Money that it used to collect for general operations. Another $7040 is contributed by the 8% clawback rate.
The special tie in with carbon taxes
I advocate for a $4000 tax and dividend on fossil fuel energy here. That amount is scary high to many people, but the only reasonable argument against it is to bring up a poor potentially fictional rural dweller who needs to drive long distances in a gas guzzler for anything, and who is incapable of life choices (car pooling, hybrid/electric vehicle, moving to next town) that would cut his energy consumption. This is generally false as the $4000 dividend is enough for a vehicle upgrade.
But a tie in between UBI and a carbon tax-dividend is exceptionally symbiotic. The cost of housing is much higher in urban areas, while urban areas have less need to travel long distances and economic justification for practical mass transit. So the carbon tax-dividend benefit goes toward subsidizing higher urban housing costs, while the UBI dividend goes towards subsidizing rural fuel costs.
The naive/alternative Green party proposal
I mentioned that I am no affiliated with the Green Party. This tax plan is my own based on the thematic lines the Green Party highlighted. Its likely that their plan is simpler. A 33% flat tax on incomes below $60k (+ payroll taxes). No change to tax rates above $60k. Basically the rest of the government becomes funded by those making over $60k. This would not seem possible in a budget balanced manner, unless those making $60001 pay the exact same taxes they do now on the first $60k income, while those who earn exactly $60k or less pay 0 taxes.
Reasons this would be inferior politically and economically:
- No benefit for those earning $60k or more means no motivation to support it.
- 3% higher taxes on income below $60k than this plan.
- Significant feelings of jealousy by those making $1 over the limit, will lead to people refusing work to avoid an extra $17000 in taxes payable.
- The investor class gets a fantastically valuable safety net without having to pay for this huge gift.
- No reform for fair investment taxes means that the gradual all-level tax increase to avoid the $17000 tax cliff at $60k, would need to be much higher than 8%
- EI will no longer be needed. We shouldn't force Canadians to keep paying for it, but we can honestly roll in its revenue contributions through equivalent taxes.
- A similar argument for CPP exists. To make the scheme affordable, the tax rates I used are needed. CPP contibutions would add to the payroll deduction burden.
- The proposed tax plan results in a significant surplus from which child or WITB benefits can be funded... or fine tuned with lower taxes. Up to parliament.
- The $120k cutoff for a net tax advantage is enough to make the proposal obviously attractive to 90% of Canadians. If there was no benefit to Canadians earning 60k or higher, then a substantial portion of Canadians would not care enough to show up and vote.