Refundable tax credits
Most tax credits in Canada are non-refundable: If they bring your income tax balance below 0, you do not get a refund. A refundable credit is a tax credit that pays a refund even if your income, and thus tax bill, is too small to be larger than the credit.
The 2016 Canadian Budget: refundable child tax credit
The recent budget includes a fairly generous refundable tax credit.
It has an associated 2 tier linear clawback tax rate. The liberal government and other prominent politicians have characterized this as a form of basic inccome. Normally, targetted clawbacks violate basic income principles, but this program is pretty good in that the clawback/tax only starts at $30k income, and there is a somewhat gradual cutoff at relatively high income rates.
Liberal Pronouncements on deserving, less deserving and undeserving Canadians
- There was no call for a pilot study or social research prior to implementing this refundable tax credit, to determine who deserved what amounts the most, or determine economic consequences .
- Non parents are undeserving of aid. Parents with fewer children are less deserving.
- The kink in the curve from $30k to $70k income is regressive, and insists that lower middle class income parents are less deserving than higher income Canadians. (they deserve a higher clawback rate)
- Highest income parents do not deserve to pay for any part of the program (get 0 benefit, but don't have a negative benefit/tax)
- A straight line can be drawn from the 0 benefit point and $6400 benefit point, and it would perfectly overlap the benefits from $70k to $185k income. Thus, the cost of increasing the benefit to the deserving under $30k income parents is entirely borne by punishing parents earning $30-70k.
- A different straight line that is steeper but provides a higher benefit at 0 income could have been drawn, and therefore, low income Canadians are fundamentally less deserving for not having a straight line benefit.
- One such straight line would cross the old conservative program (dotted line) at 28k income and $120k income. It would cost less than the Liberal program, but provide more for everyone under $120k income (compared to dotted line), and more than the proposed for every parent earning under $18k income.
- That line could be shifted up with the same slope (clawback tax rate) until its cost is identical to the proposed program, and would result in even higher basic child benefit, and even greater benefit to those earning under $20k and $70k.
The inescapable conclusion is that the Liberal government loves parents more than Conservatives, but has a special deep love for parents with incomes between $18-30k and $70-140k, and special deep contempt for parents with income below $18k, between $30-70k, and over $140k.
The value of progressive child benefits
From the perspective that raising children is a gift to society and necessary for its future prosperity, it is justifiable to offer progressive or flat tax benefits to support such choices. Yet every kink in the above curve that decreases in slope is a regressive kink placing more tax burdens on lower income groups below the kink. Their claimed goal of eliminating child poverty is insincere if they fail to understand that parents with income below $0-25k need more help than those with income of $30k. A perfectly straight curve (flat tax) better achieves poverty elimination, and doesn't demand an explanation for why the Canadian government hates people in the extra punished groups.
Does the Canadian government hate single Canadians aged 18-65?
Its not the case that this group does not receive tax credits and programs, and so just because they are outcast from some programs is not an expression of hatred from their government. CPP is a direct benefit to the contributor. OAS promises to one day free you from the slavery-equivalent-life-pressures you must experience until 65. EI, disability, welfare, housing assistance, and labour laws (minimum wage, overtime) are fundamental acknowledgements that dystopian slavery pressures must be counterbalanced with conditional dignity patchworks. Earned income tax credits, and student assistance are other conditional programs meant to encourage constructive social participation.
Replacing programs and non-refundable tax credits one at a time
Any program or tax credit can be replaced with a refundable tax credit at equivalent cost. As a simple example the basic and spousal Canadian federal tax credits are equivalent to $1750 each clawed back at 15% of income. As non-refundable tax credits these just work as if taxable levels of income start at $11500 for singles or $23000 for couples. A refundable tax credit of the same amount would not affect those who earn over those levels, but would benefit those who earn less. An equivalent social cost amount might be $1650 refundable tax credit to account for the slightly higher tax expense of providing refunds to those currently ineligible. Canada has a patchwork of antipoverty programs, some with considerable administration cost and waste, and so noone has the (public) view that the poor should not receive aid. If enough tax credits and programs can be eliminated (replaced with refundable tax credits), then poverty can be directly eliminated as well, all without bureaucratic burden on the poor or tax payers.
The US Food stamp program (SNAP)
Is a department of agriculture program, that by definition serves the agriculture industry, and provides those with income below $14000 and cash balance below $2000 (higher for larger families) that allows recipients to purchase agricultural goods with stamps. An average benefit of $133.08/mo cost $76.6B (in total direct benefits) implies 48M Americans received the benefit in 2013.
These costs don't include policing individuals and businesses for failing to comply with Agricultural industry' subsidy mandate. It is for instance, illegal to trade them for cash, or to try to buy toothpaste and tampons with them. There is bureaucratic overhead as well. The direct cost to 100M US taxpayers is $766/taxpayer/yr. With policing/bureaucracy, lets pad this to $1000/taxpayer, for a benefit that averages $1600.
Replacing the program with a $1000 refundable tax credit would have equivalent cost, but would upset current recipients since it involves a $600 benefit cut. However, that refundable tax credit would be $1000 tax cut to tax payers, and a $2000 refundable tax credit instead accompanied with a $1000 tax increase, would still be an average $1000 net tax cut ($2000 - $1000) to tax payers, and an average $400 benefit increase (2000 - 1600) to SNAP recipients. All without bureaucratic and restriction hassles. A $1600 refundable tax credit with $600 average tax increase is a net 0 cost/benefit option other than bureaucratic and policing hassles inflicted on people. A $2000 or $2300 option better reflects the maximum possible SNAP benefits. Each individual refundable tax credit policy replacement contributes to a holistic program that permit other programs and laws designed ot protect the vulnerable from a harsh world to be reduced or replaced when permission burdens for survival in the harsh world are reduced.
Profit potential in income equality
Those who work depend on as many people as possible being able to afford their wares. Billionaires only want one car, phone, meal. The largest and most profitable companies all depend on many small transactions to earn their income. Income equality through taxes and redistribution directly enhances the profitability, amount and usefulness of work. It helps those with the highest incomes the most, because by definition, they have the highest share of the economy flowing through them.
Useful alternatives and supplements to UBI
The SNAP replacing refundable tax credit proposal is a pure basic income. Any tax hikes to pay for the refundable tax credits are general and universal.
GAI (Guaranteed Annual Income) is a refundable tax credit with a reasonably low targeted clawback rate that brings the benefit to 0 at a certain income level (The Canadian child benefit above is a GAI-structured refundable tax credit). Compared to UBI, poorer residents pay a larger portion of the program. And its less expensive. I recommend a $4000 GAI (as supplement to UBI and other progams) with 10% clawback from incomes of 0 to $40k or $10-50k.
ULI (Unconditional Loan Income) is somewhat similar to student loans with income based (royalty) repayment terms. There is no application/purpose criteria (other than perhaps citizenship), and additional loan amounts (the ULI limit) can be withdrawn each year. This is even less expensive than GAI for the same royalty/clawback rate as more of it is repaid individually over a lifetime. It can be partially funded by private and financial sector, and is eligible for central bank intervention/funding instead of fiscal funding. I recommend that ULI (with maximum 2% interest, and 20% royalty rate) be used to supplement minimum income alternatives such that expensive and wasteful programs (whose justifiable income support threshold is too high to achieve through UBI alone) can be eliminated: Student loans, affordable housing, R&D/Entrepreneurial tax credits and programs, farm and other corporate welfare assistance. Business ULI would be a personal loan whose proceeds are used for direct business investment. The personal responsibility avoids all scamming potential.
Citizens Income is a refundable tax credit for citizens only. Refundable tax credits in general apply to residents (who have tax applicabilty independently of citizenship). Nationalist appeal prefers a citizen only payment, and it is the best use of excess tax revenue collection. I recommend a variable citizen dividend supplement over and above core minimum poverty and welfare replacing refundable tax credits. It can also be used to repay personal ULI balances thus making that program even cheaper and private funding friendly, and without a citizenship criteria.
Carbon tax funding is singled out from other tax funding options because providing a refundable tax credit based on driving up the cost of gasoline to $6-$10/gallon and fossil fuel based electricity to 20c/kwh is an antipoverty program that directly incentivizes conservation, renewable electricity, and electric/alternative fuel driving. There is no need for research promotion, or special renewable credits. Simply, everyone interested in saving money/pocketing the carbon dividend just makes the individual choices necessary to save the planet and improve their individual economic outcome simultaneously.
Flat tax is singled out because refundable tax credits do not grant net cash to high income earners. Only low income earners. A flat tax with substantial refundable tax credits creates a more progressive tax system than we currently have: negative net tax rates for low income earners, 0 for middle, and positive tax rates that increase with highest incomes. It does so even when lowering the highest marginal rates. A flat tax doesn't prohibit traditional tax credits but they are discouraged.
Elimination of investment income tax credits along with equalization of corporate and flat personal tax rates, business expense deductibility for dividends, and cashflow based tax accounting. A substantial funding generator that lowers tax rates and increases refundable tax credits.
Surtax on investment profits is another substantial funding generator, that offsets better/fairer deductibility of investment losses.
Elimination of payroll taxes is justified by funding social safety nets from general taxes rather than personal insurance schemes. UBI is a safety net that applies to people with all income sources, and so should not be funded purely from lowest income employees, and businesses should not be penalized for hiring employees rather than machines or contractors..
Recommended mix of policies
Combined Canadian Federal and Provincial tax collections as a percent of income is only 15%. With the above tax changes and a 28% federal and "average" provincial tax rate (before consdiering investment surtaxes that lower this rate), $8k UBI/refundable tax credits and $4k additional GAI is funded for 21M Canadians, and without program elimination (or change to senior benefit programs). ULI instead of GAI, would allow the GAI/ULI amount to increase to at least $8k at same cost. Excess social revenue resulting from direct economic growth and earnings stimulated from refundable tax credit programs, would be paid as a social dividend that repays any ULI balance. Savings from the elimination of EI, welfare, disability, cpp, business and student welfare can fund the social dividend and $5k extra education and business restricted ULI that could include coverage for text books, computers, and tools.
While it scares many people, a carbon tax sufficient to fund a $4000 dividend should be used to fund primarily non-citizen restricted refundable tax credits. Though lower amount may be substituted. EITC and child benefits have not been touched, though IMO, they should be lowered in exchange for higher general refundable tax credit.
Smaller plan options
While my plan achieves well in excess of $21k annual refundable tax credits and unconditionally-accepted loan access sufficient to eliminate poverty in all family sizes and budget discipline circumstances, refundable tax credits of any size are beneficial with the critical mass improvement point beginning at the level that eliminates the conditional welfare system. The Manitoba GAI program at just $6300/yr is an excellent example of this.
Modifying federal tax credits at the provincial and municipal level
Refundable tax credits can be implemented at the provincial or municipal level by modifying/removing tax credits applicable at "higher" levels. There is no obligation to follow federal or provincial tax policy, and leadership on refundable tax credits is required that likely necessitates correcting perversions maintained at other taxation levels.
No pointless delay pilot-study/research tactics
If you lean towards cautious, patient, and deliberate approach to UBI/refundable tax credits, then support introducing fewer of them initially, and then increase them as you become more convinced.
Opposition to refundable tax credits fundamentally is one in support of oppression and slavery
From the left, insisting on bureaucratic empires that determine deserving aid recipients, and on unions, minimum wage and other labour laws to combat employer oppressiveness, is still insisting on an oppressive system that needs to fund you to protect the rest of us if we ask for your permission nicely.
From the right, insisting on a harsh brutal world that forces the most desperate to beg for your permission to employ them, or give them credit, entirely on the terms you command, and terms made less generous the more harsh and brutal the world, is also more direct support for oppression.
Slavery is not evil because it affected black people or provides the owner the right to piss on you.
Slavery is evil because it allows the slaver unfair market control over the slave's labour.Not only is promotion of unfair markets evil, but so is accepting slavery but wanting to regulate it to an 8 hour work day with strict limits on the frequency of whippings.
Refundable tax credits sufficient to allow people to survive without the need for others' permission inherently provides a fair labour market with the power to refuse employment offers and compete, and a fair society without undue king's authority.
Beyond evil, opposition to UBI is economically stupid. Taxes and redistribution do not harm the tax payer, as the funds flow indirectly (but assuredly) back to them. That it is economically stupid, should not cause us to understand that mere education is needed to convince opponents. Power, command and control thirst for small self centered empires can be more valuable to the self than participation in greater social financial success.
The fear of laziness
Both those who want to work and those who do not are better off with refundable tax credits. Everyone that works has always had all of their income indirectly paid by those who can't or don't want to do the work. The more people who choose not to work due to UBI being sufficient for their needs, the more work is available to those who wish to work.
Even if inflation results from laziness, this substantially benefits workers, and incentivizes a sufficient number of work indifferent people to take easy to find well paying jobs. So society gets all of the workers it needs.
Self driving trucks promise 75% cost savings. Taxis and public transportation could save 90% if self driving. Technology will fill in any labour supply shortages, and just as you prefer to live life without the need for manual collection of water and firewood, you do not want manual driving imposed on you. If wages rise as a result of choices not to work, then automation that saves us all from work, gets accelerated.
Opposition to automation presumes the nonsensical desire to return to manual water and energy collection. Generally, opposition to automation is an insincere euphemism for protecting the empire of work that you are trained to do. For actual work that you want to do or have done, in comparison, technology and processes that make that work easier or faster are always welcome.