Monday, March 21, 2016

Manitoba Green Party Basic income proposal: $6300

The Manitoba Green party's platform includes a very specific basic income plan that is very prominently displayed as their platform $6300 per single adult resident (more based on children, senior, disability status all implemented through regular tax forms).  Cost of only $1.4B.  Roughly $1400 per adult.  But revenue neutral in that this $1400 cost is eliminated tax credits:  $4900 net tax benefit to anyone that was enjoying those tax credits.  A 16% clawback (reasonably modest) rate pays for the benefit, with the tax disapearing after UBI benefit is repaid.

This is the best complete and specific basic income plan ever presented by a political party.  The link above has complete specifics.

A great start
A $6300 UBI is not sufficient to eliminate every social program, and not sufficient to allow someone to pursue personal or business development independently of other income support or earning obligations, but it is an amount that helps everyone pursue whatever they want, more than not having any BI amount.

Universally, every funding-required idea a politician has to help some group, has the better alternative of using that funding to help everyone equally through a higher basic income amount.  A benefit that also goes to the taxpayer base that would be funding the targeted help lessens the tax burden of the helpers to the point that more help can be funded.

For instance, a program that would cost $1000 per adult to give 1000 chosen companies a $1M tax break ($1B benefit to companies) in the hopes that they create jobs, could instead, for the same cost, give every adult $2000, which would likely generate $2B in extra spending spread as a benefit to all companies, requiring them to employ people to collect it, helping people and companies even more, and all the while, still helping those unlucky to be chosen to participate (employment) in the economic stimulus basic income creates.

The argument that $6300 is an inferior alternative to a larger amount is an argument that you make after you implement the $6300 starting amount.  Note that this $6300 GAI is a clawed back benefit that achieves nearly 0 cost from those above the threshold rates (other than loss of home renovation and kids sports programs tax credits).  Its not exactly UBI (which is funded by more universal tax increases rather than surtaxes on low income)

The core idea $6300 UBI almost achieves
The Manitoba Green Party says that this GAI program will reduce welfare caseloads by 18% partially funding the program by $130M.  The most obvious improvement to the amount is to set the UBI level to a sufficient amount to reduce welfare caseloads by 100%.  The complete elimination of the welfare bureaucracy would create much more savings than 4x of a 20% caseload reduction as it repurposes buildings and management hierarchies as well.  The MGP proposal incorporates a reduced welfare payment (33% of existing) that supplements their BI plan.  Which makes the savings compared to welfare very modest.

I do not know Manitoba's welfare system, but a key target UBI amount would be the welfare benefit level + existing low income tax credits.  I imagine that $9000 is slightly higher than that amount, and I understand that it is the appropriate level for Ontario.  (An amount slightly higher than the exact equivalence gains support and "buy-in" from those affected).  The extra $2700 per adult could also accompany $1.2B (made up: 8x $150M) in extra welfare savings ($900/adult), and so a net cost of $1800 per adult.  Prior to accounting for this cost is a $2700 tax benefit to every adult not receiving welfare services, and tax initiatives to recover that $1800 should be palatable.

I am getting ahead of myself and of the Green Party here.  The $6300 plan, no matter how obvious improvements appear, allows for an orderly slowdown of the welfare department.  It gives time for the apoplectic political reactionaries to shriek a little less loudly and with less resonating substance regarding the end of their hegemony.  It allows a more gradual change with fewer ruffled feathers ruffled more slowly.

A defect of the plan IMO, is the choice of entirely paying for it from the lowest income individuals, but at least the repayment rate of 16% is reasonable.

Great benefit to welfare clients
Even if the UBI amount is not greater than the maximum benefits that can be obtained through welfare services, there is a substantial benefit to welfare clients when the UBI amount is equal to that maximum.

Welfare clients are relieved of the anxiety, and time wasting, of relying on authoritarian bureaucratic permission granting access to their assistance and survival.  Including anxiety over complying with arbitrary rules that may burden them for a lifetime with criminal consequences, or deny them assistance for what might appear to be unfair reasons.

High clawbacks on earned income are a substantial deterrent to accepting part time and low income work, which is the socially understood first step on a path to eventual full time and higher income work.  Eliminating these clawbacks eliminates the deterrent.

This last point makes an equal UBI to welfare benefit amount a substantial increase in the potential income of welfare recipients including raising the likelihood of graduating to permanent contributing taxpayer status.  Combined with the taxpayer savings of the program makes the policy even more obvious.

Much better than a pilot program
A UBI pilot program can be a delay and avoidance tactic that is designed to fail.  It gives the appearance and PR value of anti poverty concerns, while at best delaying the full rollout of UBI.  The history in Canada and elsewhere of politicians ignoring, suppressing, and mischaracterizing scientific research even, and especially, when that science is government controlled, is surpassed by the danger of designing the pilot to fail from the outset.  All 4 of the absolute precondtions to a pilot UBI program outlined in this paper must be observed.

In the rest of that paper, the requirement that there is a focus on the key economic and social benefits of UBI is also stressed.  A dishonest pilot may fixate on employment participation ignoring the greater economic benefits, and all of the social benefits.  Sabotaging a UBI pilot would be a media venture opportunity.  Many people will find any UBI amount insufficient to purchase everything they would like to.  The usual right wing smear campaigns against poverty would show how easy it is for a reporter to panhandle for 15 minutes (spoiler: he goes back to reporting job afterwards), and would show black people buying name brand ketchup, and seen inside a whole foods, browsing.

The $6300 UBI starting plan is a commitment to UBI starting with the most unanimously supportable benefits in a manner that commits the province to the UBI path and to making it work rather than a token gesture of delay subject to manipulation.  The results of the $6300 UBI start can help guide refinements and expansion.  When high and middle income tax cuts get implemented, no one apoplectically complains about the inflationary pressure on Yachts or whether families might take the opportunity to spend more time with each other.  Yet, such fearmongering dominates conversation when the topic is ending slavery.

$6300 provincial amount is a spectacular subsidy towards a full Canadian UBI
 I've costed a UBI plan for Canada that gives every adult Canadian $12000 from a nearly identical Federal tax system (+ $4000 from a new carbon tax and dividend) for a total of $16000. 
If Provinces can afford $6300 through budget changes, then the Canadian national plan would need to simply afford an additional $8700 with no carbon dividend ($15k total UBI), or $7700 with a $2000 carbon tax and dividend. ($16000 total credits, but $1000 net carbon benefit to most low income recipients).

With a $4000 carbon tax and dividend, only $5700 in diverted federal funding needs to be raised to afford a universal $16000 payment.  A high ($4000) carbon tax and dividend is still the recommendation as part of an overall universal dividend plan, because rural cost of living (driving considered more essential) issues get balanced with urban (housing more dominant) cost of living aspects.  A carbon tax is the only possible policy to combat climate change.  Using the carbon tax revenue to directly fund a dividend to citizens ensures that the tax is net painless, and allows it to be much higher than if the funding were to be diverted to crony pet projects.  Nevertheless, lets cost out an $8700 diversion of federal revenue to obtain a $15k UBI without carbon dividend.

The linked Canadian plan ($12k total UBI+GMI) includes a $4000 Guaranteed income clawed back at 10% of earnings up to $40k.  The static cost of that component is only $19.8B.  Replacing the $12000 (GMI+UBI) with an equivalent UBI only plan would cost the same with a $9000 UBI.  While this is more than the $8700 funding requirement we needed, that national $9000 UBI plan does include about $2000 in provincial savings/diversions.

Modification of the Canadian national UBI plan
The linked UBI plan is modified as follows:
  1. total $15.1k annual citizen-resident's dividend. ($1250/mo).  Excluding any carbon dividends.
  2. $6300 Provincial funded "UBI". (NIT with 16% clawback) paid to residents.
  3. $6000 Federal funded UBI paid to citizens.
  4. $2800 from Negative Income Tax (NIT) clawback (surtax) of 7% on income from $10k to $50k.  Paid to citizens.
  5. The tax code changes advised in the paper apply, and no tax rate changes are needed.
This unfortunately fails the limit of 20% maximum clawbacks criteria.  But one fix is to turn the $2800 NIT of 7% to a $2800 NIT of 4%.  This makes the phaseout income levels $10k to $80k ($70k of income is subject to 4% surtax).  A better system not described in detail is funding through taxes on higher incomes instead.

The Manitoba plan acknowledges that non-Candian citizens are humans too, and experience poverty with similar negativity.  While I prefer the citizen's right to dividend as equal share of tax revenue justification for UBI, having a portion of basic income comparable to existing social assistance levels be resident based alleviates poverty more universally, with social benefits for health and judicial costs.

Recommended tax policies for Manitoba $6300 plan
The Green Party's Manitoba GAI plan includes a net tax cut to those below threshold income amounts (as low as $40k for single Canadians, but can be much higher for larger families).  Tax changes could either increase the average net tax cut, and/or increase the UBI amount.

Senior benefits
Canada's Liberal Government recently made the very positive announcement of returning the age of OAS (old age security) eligibility back to 65 from 67 for Canadians under 58.  Equal to what it is for everyone else, and equal to what it was prior to the previous government's deplorable and unjustifiable generational warfare attack on younger Canadians.  While the previous Conservative government's theft of 2 years of survival entitlements from younger Canadians is an act of clear political evil, the justifications addressed a legitimate problem, namely: The long term sustainability of the retirement system funding given low birth rates.

The Manitoba plan achieves an impressive 0% poverty rate for seniors.  Both OAS and the  $4900 UBI benefit given to seniors above that poverty level could be subject to clawbacks at income levels below the current $72k that applies to OAS benefits, and still provide a substantial benefit to most seniors and still achieve the 0% poverty rate.

The MGP plan intentionally sets senior benefits that appear to differ slightly than for non seniors, and so the potential changes they may not have considered to their policy is OAS benefits to high income Canadians.

Reclaiming federal benefits and credits to fund additional provincial UBI
The basic federal deduction of 15% of first $11500 of income is $1725.  Replacing it with a Manitoba tax creates an almost revenue neutral means to increase UBI by $1725.  Revenue neutral would likely be around $1650 UBI increase (not subject to any clawbacks).  In the case of dividend tax credits and Capital gains preferential rates, nationally, over $2000 of UBI funding can come from normalizing investment income, $1500 of which comes from just dividend and capital gains normalization (without needing clawbacks).  A $9300 UBI plan, would mean a net tax benefit to those earning up to about $60k in capital gains (though reduced with Manitoba 16% clawback formula which I am ignoring).  Results expected from a $2M investment portfolio.

Cancelling federal tax credits that are unfair under a basic income plan that benefits both rich and poor Canadians can be used to increase the provincial UBI.  For instance, this would permit the full UBI level needed to eliminate the welfare service.  At substantial additional savings to the province compared to the $6300 plan.

Target UBI levels
 At $9300 UBI, not only can welfare be completely eliminated, but the GIS (guaranteed income supplement) for seniors could also be eliminated and improved with this version of UBI.  An effective way to control costs for the senior portion of the program is to make UBI part of the clawback formula of GIS.  Thus a $9300 UBI would reduce GIS by $4000-$5000, still achieving the 0% senior poverty level, but allowing federal savings to be transferred to the province.

The next levels are those that would replace disability and higher education assistance.  That is the strongest argument for going up to $15k per year (which also is sufficient for eliminating the EI system, obtaining $1100 in UBI funding.).  The Manitoba program does appear to roll in disability insurance as a $1000 surplus to the BI amount.   The disability surplus may not be warranted/needed at the $9300 level.

Manitoba's market based housing assistance program
A unique program that exists in Manitoba is universal housing assistance.  It is also a tax form rebate process.  What makes it universal is that everyone who qualifies (income based) receives it, and they can live wherever they wish, as its paid to reinburse theoretical rents (though rent must be paid).  To be fair, it is almost universal as it is not purely income based and my praise ignores the qualification fine print.  Ontario, by comparison struggles with affordable housing with over 8 year waiting lists to settle in government managed income based rent ghettos.

While Ontario cannot afford Manitoba's universal 25% of net income rent subsidy, it might be able to afford 50% of net income (welcome to Toronto) with the same comparison to benchmark 75% of median rent levels.  Toronto community housing has been condemning units as beyond repair, and there are reports that people stay in substandard housing for fear that complaining would result in condemning their homes (with no room to be housed elsewhere).

In addition to moving towards market based tax form housing assistance, Ontario should (as link recommends) build more inexpensive (small) housing in order to provide actually affordable housing and lower the median rent.  The policy encourages people to spread out in Ontario more rather than insist on being in Toronto.

A tax form based housing assistance formula also integrates well with UBI.  The housing assistance subsidy can be directly lowered as a result of UBI.  It also makes adjustments for multiple UBI homes and larger families.

My biggest recommendation for altering MGP's GAI plan
Over the few sections, I've repeated a $9300 UBI figure.  $3000 over the MGP's $6300 number.  This $3000 is understated it comes from:
  1. $1650 recapture of federal basic amount credit.  Paid to MB government. (Benefit only to those who make under $11000)
  2. $1500 from normalized federal and provincial treatment of investment income.  Paid to MB government.  Benefit to everyone who does not have significant capital gains and dividend income.
  3. Some recapture of OAS from high income seniors. (perhaps seniors with $50k earned income would have net 0 gain from GAI and UBI, and OAS phased out around $72k instead of $120k).  Potential to divert recapture of federal GIS payments int MB revenue. .  Benefit to non high earning seniors
  4. Some recapture of rent assistance programs (Use GAI + UBI as part of income based repayment formula).  GAI+UBI benefit is still greater than lost rent support.  Benefit to everyone.
That is $3150 in firm totals.  Perhaps $3400 (conservatively) including the last 2 items.  $9700 total BI.  The most important feature of the $3400 is that it is not inherently clawed back.  For those earning over $11k who are not seniors with high income, and do not have significant capital gains and dividend income, it is a $1750 tax cut/refundable credit without any applied clawback formula.  There is some benefit for anyone not in all 3 groups.

A final item might be $1000 per person UBI from savings by closing welfare services completely.  I believe the GAI logic was that 33% of existing welfare amounts were necessary to help achieve its poverty reduction targets, but $4400 in extra non-clawed back benefits would be of much more assistance both in the percentage meeting the poverty reduction targets, and direct help to those just above the imaginary line.  The only people who do not benefit by this are those who enjoy their welfare service bureaucracy jobs.  Their disappointment can be mitigated by generous one time severance package, EI benefits, and the long term support of being able to stretch their severance with $10700 GAI+UBI annual amount if their reemployment process is a long term endeavour.

The important features these changes achieve:

  1. Even better poverty reduction statistics than $6300 GAI alone.  Even without extra $1000 from welfare services elimination.
  2. Net tax benefit to nearly everyone.  Because there's a UBI component.  Even those with $10M in employment/farm/busines income get a net tax cut.  A better received plan that ending poverty is ending poverty with a tax cut to the individual voter's benefit.
  3. The $1B in health and justice savings the MGP projects from GAI is made even stronger.  As those savings materialize, that amounts to $1000 additional UBI.  Even stronger poverty and financial stress reduction.  $1B in health and justice savings should also be understood as $1B+ in avoided misery that results from not needing to consume health and justice services.  The most stressful and depressing events in anyone's life.
Even those who get no direct tax benefit from this plan due to high investment income or OAS clawbacks, will have significant benefits.  Investments in MB will do better due to economic stimulus of UBI.  They are likely to have spouses, children or grandchildren, and their UBI+GAI reduces the direct financial support that might be requested or offered by/to them.  Relying on investment income is an inherently variable income stream.  For every high income year there may be low or negative income years, and the $9700 or $10700 UBI+GAI benefit could be enjoyed in full in those years.  Even if you don't use a safety net such as EI, healthcare, fire insurance or UBI/GAI each year, there is substantial value in the safety nets.

There would be no legitimate reason for high income individuals to leave MB as result of UBI+GAI, and there may be many reasons for even high income individuals to come.

1 comment:

  1. An informative post indeed. Its good to see that you decided to write on such an important topic. Looking forward to reading more of your informative posts.