GUARANTEED INCOMES: THE FINE PRINT.

Facebook’s Mark Zuckerberg along with other captains of Silicon Valley industry have called for a guaranteed basic income to help families once robots and artificial intelligence start throwing scores of workers out of their jobs. Those more familiar with history might advise avoiding such doom and gloom predictions: undoubtedly, technology will displace some jobs, but innovation has always ultimately led to more jobs, not fewer. The bigger problem is trying to shift laid off workers into new occupations rather than leaving them idle and living off a minimum government income.

More sensible arguments in favour of a guaranteed income aren’t related to robots but to the goal of poverty alleviation. The ragtag assortment of social assistance programs, pensions, housing subsidies, unemployment insurance and other low-income supports result in inefficient delivery, costly administrative expenses and poor incentives to work and save. Surely there must be a simpler way of consolidating support programs for those in need, under a single stipend.

The idea of a guaranteed income is far from new. Proposals from those on the right and left go back five centuries. In 1516, Thomas More proposed a basic income to reduce robbery, but it was his friend, Johannes Vives, who first proposed a guaranteed income to reduce income a decade later. Famed University of Chicago economist and Nobel Laureate Milton Friedman made the most revolutionary proposal in 1962, recommending a “negative income tax” as a radical simplification of the welfare state and tax system. Under his scheme, a grant would be provided to each household financed by a flat income tax on personal income, without exemptions or tax credits. Those on the left might prefer a different approach to taxation, they found Friedman’s guaranteed income as a replacement for welfare programs appealing.

So how would Friedman’s proposal apply to Canada today? Currently, federal, provincial and local governments fund over $200 billion in social benefit programs — roughly $15,000 per household (an average household has 2.5 members). So we could cancel various socialbenefit programs such as social assistance, free dental care and drugs, old age security, child benefits, and employment insurance by replacing them with a refundable negative tax credit of $15,000 per household (even those with incomes below that would thus get a refund to top them up to $15,000). The flat income tax required to pay for it, as proposed by Friedman — one covering not only the minimum grant but also the deficit arising from insufficient taxes to cover the remainder of government expenditures, about $9,000 per household — would need to be levied at a rate of 31.9 per cent. These calculations do not take into account any savings in administrative costs with the cancellation of various welfare programs.

But if we’re alleviating poverty, $15,000 seems below the poverty line for the average household of 2.5 people who have no other income. For what poverty activists consider a “living wage” of $15 per hour — or roughly an annual payment of $30,000 per household — the flat income tax rate would need to rise to 52.1 per cent to balance the books. The flat-income-tax payments would come to $560 billion enough to cover $420 billion minimum-income payments (at about a fifth of GDP) and the rest of the public deficit.

As appealing it seems, Friedman’s negative income tax is not so simple to implement. Obviously, minimum payments would need to recognize different households’ characteristics. Single individuals would get less than those families with multiple adults and children. Households with a disabled parent or child should be given more to cover additional costs. Those temporarily out of work, after earning a higher income, might need replacement income that would be significantly above the minimum payment. So once we start differentiating people by their needs, we get back to many current programs — and the bureaucracy — to determine eligibility for various benefit payments.

The idea of just giving out cash to relieve poverty also raises eyebrows for many voters who have to pay tax on their earnings from work. And there’s the unknown labour-supply effect: how many recipients might choose to stay at home, receiving $30,000 cheques, rather than work? And cash alone isn’t a panacea for helping all lowincome families: we would still need social workers to support those with mental or other health issues, social problems or who lack the basic skills to contend with daily life.

Nor is it clear the voters would support the flat tax part of it. Lower and middle-income voters won’t stop pushing for lower tax rates than higher earners. Voters could also resist the elimination of tuition tax credits, property tax credits, pension and RRSP deductions, age credits, and other targeted relief measures. Politicians won’t like giving up their own pet tax policies. Ultimately a much higher marginal tax rate would be needed than 52.1 per cent to make up for special preferences. But such high marginal tax rates would discourage work, saving and risk-taking, ultimately eroding support for a guaranteed income.

That’s why guaranteed income proposals seem like a grand idea — until you get into details. At least their supporters are probably right about the potential for reducing economic and administrative costs by consolidating as much as possible our patchwork of social programs, co-ordinating federal and provincial programs, and fixing clawbacks that result in high marginal rates on certain benefits. But dismantling such a befuddled tax-welfare system is a much taller order than today’s champions of a basic minimum income seem willing to admit.