National Post (National Edition)
Going up the `welfare wall' in Canada
According to the newspapers Justin Trudeau is a shoo-in if he calls a snap election. After all, his performance in office has been so, well, performant. As in, he sure promises up good and deliverology is for fools. Too bad if you're poor or something.
Actually I could list an amazing range of areas where you'd think the PM was a bigger disappointment to friends than foes, from UNDRIP to electoral reform to transparency. But let's focus here on intelligent government assistance to the less fortunate, surely among the least controversial public policy ideas, and the most familiar.
So why are we doing it so badly? Monday's Post said “Newly released documents show Finance Department officials calculated that workers near the bottom of the income ladder are dinged hardest for extra earnings than anybody else, including those at the top.” And now you cry “What? The marginal tax rate between $25,000 and $34,000 is even higher than above $114,570? What manner of folly is this?” Or words to that effect.
This manner: If you're in roughly the top five per cent of earners, you pay $402 for every extra $1,000 you make. Or so the story claimed, though the idea that everyone's marginal tax rate is the same strikes me as odd. But if you're just climbing out of poverty, you pay $413, a 41.3 per cent marginal rate. Not primarily because of upfront income tax but because as income rises, you lose some or all of various anti-poverty benefits like the Canada Child Benefit.
If you're wondering what idiot created this system, it's either nobody or all of us. Because it's not sloppy program design. It's that all kinds of measures intended to relieve poverty tell if you're poor by seeing whether you earn much money, give you some if you don't, and take some back if you start to. What else?
Years ago it was popular in some circles to denounce “welfare cheats” because then you could cut spending without hurting anyone nice. But while there are dishonest poor people just as there are dishonest rich ones, cheating was not and is not the problem. Incentives are.
As the story observed with touching naiveté, “Officials noted that being not much better off, or faring even worse, after a boost in earnings could be a disincentive for taking extra work for those employed, and could keep others out of the job market.” Really? Poor people aren't dolts? They respond rationally to circumstances? Why weren't we told?
Actually we were. To be blunt, anybody who cared to has known about it for decades. While some eat-therich types shunned analysis for invective, John Richards at SFU and others were all over this issue 30 years ago. Including me.
Nothing has changed. I literally knew what the story would say before I read it. So why didn't the Liberals, and why didn't they act years ago? Because it's hard. As in insoluble. The problem has three heads and you can't cut them all off.
Head one: to relieve poverty, benefits must be generous. Head two: to “claw back” benefits, a nice neutral metaphor like the invariable “slashing” of spending, creates high effective marginal rates for poor people. Head three: to offer generous benefits and not “claw” them back breaks the bank. (As for relying primarily on more flexible private charity instead, this being Canada people helping one another is apparently too disgusting to contemplate.)
The Post cited Elliot Hughes, former adviser to ex-finance minister Bill Morneau turned consultant, that “a sweeping review of the tax system seems like a must to see how the country can make sure those who need support get it, while also not creating disincentives to work. It's politically problematic, and likely would take two years to get done, Hughes said, but `I don't know how you avoid one now.' ”
Oh, that's easy. Just refuse to think about the issue. Especially as it actually can't be resolved by cleverness. Among other delusions, our society is gripped by the “illusion of technique,” the notion that any problem including death has a technical solution with no drawbacks or trade-offs. But life isn't like that.
The “welfare wall” isn't the result of bad program design or lazy bureaucrats. It exists necessarily, because programs that mostly do relieve poverty, combined with rational thresholds for what constitutes poverty, must reduce benefits as people start to do better. All are desirable in principle. But they inherently interact undesirably. (BTW a “negative income tax” or “guaranteed annual income” would do all three even better, making the underlying problem even worse though, on the plus side, far more visible.)
Our challenge is to face this unpleasant reality and decide what balance to strike among known, unavoidable trade-offs. Or look away from the problem, and the poor, for a few more decades.