-----Original Message----- From: S. Lerner [mailto:[EMAIL PROTECTED]] Sent: Sunday, July 01, 2001 9:19 AM To: Basic Income/Canada Subject: Fwd: [workfare] Did somebody mention GAI? >Delivered-To: [EMAIL PROTECTED] >Delivered-To: [EMAIL PROTECTED] >X-Sender: [EMAIL PROTECTED] >Date: Sat, 30 Jun 2001 01:44:30 -0400 >To: [EMAIL PROTECTED] >From: [EMAIL PROTECTED] >Subject: [workfare] Did somebody mention GAI? >Sender: [EMAIL PROTECTED] >Reply-To: [EMAIL PROTECTED] >Status: > >A GUARANTEED ANNUAL INCOME? FROM MINCOME TO THE MILLENNIUM > >Derek Hum and Wayne Simpson > > The federal government's postelection trial balloon about a guaranteed annual > income or negative income tax is not the First time such a policy has been > considered in Canada. In the 1970s a federal provincial social policy >review led to a large scale negative income tax experiment, called mincome >" in Manitoba. The results of that experiment showed that the disincentive >effects were minimal: participants generally did not reduce their labour >supply. On the other hand, there are still questions about program design >and about the possible effects on family structure. > >The idea of a guaranteed annual income (GAI) is back in the news. After >winning his third straight majority government last November, the Prime >Minister is reported as wanting "... to leave his mark with a cradle to >grave program of guaranteed annual Income," in order to 'create something >of significance." (Ottawa Citizen, 9 Dec. 2000). Predictably, Opposition >Leader Stockwell Day promptly accused Jean Chretien of having a hidden >agenda on GAI. The PMO confirmed the government's "war on poverty" the >next day (National Post, 12 Dec. 2000). The war of words has begun, and >they are reminiscent of past debates including fear that such programs may >be too costly and too destructive of work incentives. The Ottawa Citizen >(12 Dec. 2000) was quick off the mark in an editorial, writing that "a >guaranteed annual income would require spending to cover not just existing >needs but the new ones a reduction in work would create." > >Without the details of what is being proposed, if indeed anything is being >proposed, it would be foolish to estimate program costs or even comment on >how a national GAI might be administered. What is possible at this early >date is to remind ourselves that Canada has had an intimate (but little >known) historical experience with the GAI. In the 1970s, this country >undertook a major experimental test of the guaranteed income to research >the consequences of such a radical alternative. The trial program was >intended to answer the many questions about the cost of reforming welfare >in this way, and, most sensitive of all, about the extent to which a >guaranteed income might induce Canadians to work less. Unfortunately, this >episode of our policy history is little appreciated for its audacity and >innovativeness, and even less for its findings concerning work reduction >and program delivery in a Canadian context. Consequently, the purpose of >this short article is to sketch this historical background to what may or >may not become a 2 1 st century debate on the GAI. > >Whatever else may be true of it, everyone understands intuitively that >poverty is associated with a lack of money income. The poorest 20 per cent >of Canadians only receive about four per cent of Canada's total money >income. By contrast, the richest 20 per cent receive more than 40 per cent >of total income, a division that has been virtually constant during the >postwar period. To look the numbers another way, the top fifth of income >earners has more than 10 times the income the bottom fifth does. > >These numbers are well known now, but in 1968, when the Economic Council of >Canada reported in its Fifth Annual Review that poverty was widespread >beyond belief, Canadians were quite shaken. Governments responded by >declaring war on poverty and introducing a number of antipoverty programs. >The notion of guaranteeing an annual income for all Canadians was popular, >but so many questions were raised about this unconventional idea that >viewpoints were understandably divided. > >The GAI had its origin in the United States. The negative income tax >fascinated those charged with developing a strategy for Lyndon Johnson's >"War on Poverty," though the question of work disincentives the idea that >if people were guaranteed an income they would simply stop working was an >important stumbling block politically. In order to investigate the size of >the disincentive effect, beginning in 1968 the United States conducted four >large scale social experiments to test a guaranteed income plan. > >The War on Poverty and the various proposals that evolved as part of it did >not go unnoticed in Canada. The Canada Assistance plan (CAP) came into >effect in 1967 and for almost three decades was to be a centerpiece of >Canada's antipoverty efforts. As mentioned, at about the time families were >being enrolled in the first US guaranteed Income experiment in the summer >of 1968, the Economic Council was reporting the extent of poverty in >Canada. In November 1970, the Department of National Health and Welfare >emphasized the potential of a guaranteed income as an antipoverty measure >but called for more study of the experiments under way in the United >States, correctly pointing out that fear of the impact on productivity >would be the main deterrent to the introduction of a general guaranteed >income plan. > >The next year, 1971, the report of the Special Senate Committee on Poverty, >which became known as the Croll Report, after committee chairman Sen. David >Croll, recommended that a GAI be implemented on a uniform, national basis, >financed and administered by the Government of Canada. In the same year, >Quebec's Castonguay Nepveu Commission report also appeared in 1971. It >suggested an innovative two part guaranteed income program: one plan with a >high support level and high tax rate for those unable to work, and a >second plan with a lower support level and a lower tax rate for those with >a significant attachment to the labour force. > >As is often the case in Canada, however, the real impetus for >experimentation and reform actually came from a different quarter: federal >provincial relations and the Constitution. > >In 1971, a federal provincial conference was held in Victoria in an >attempt to "patriate" the Canadian Constitution. The provinces and Ottawa >appeared to reach an agreement but Quebec subsequently declared that it >could not support the 'Victoria Charter' because, In part, It failed to >provide for a jurisdictional settlement in the field of social policy~ and >no patriation of the Constitution would be possible until those concerns >were satisfied. The discontent that characterized federal provincial >relations following this failure surfaced In 1972 at the conference of >provincial welfare ministers. Federal disappointment over the missed >opportunity to patriate the Constitution was deep. For its part, provincial >dissatisfaction was fueled by the federal government's unilateral changes >to Unemployment Insurance In 1971 and its proposed reform of Family >Allowances. There was also resentment over federal intrusion into >provincial jurisdictions with what many provinces felt were ill conceived >and uncoordinated programs. When the conference of provincial welfare >ministers unanimously called for a joint review to develop better >mechanisms for achieving a rationalized social security system in Canada, >the federal government quickly agreed. > >The resulting review sought to eliminate duplication of effort between the >two levels of government, reconsider jurisdictional questions, and find new >arrangements for sharing the cost of income assistance that would replace >the Canada Assistance Plan (CAP). Still, the idea of a guaranteed income >for all Canadians was never far from center stage in these >intergovernmental negotiations. > >With the social policy review underway, the Manitoba government of Ed >Schreyer indicated its interest in testing the guaranteed income approach >with a demonstration project. On June 4, 1974, about a year into the >review, Canada and Manitoba agreed to conduct a GAI experiment subsequently >called Mincome. > >The social security review and Mincome were plainly linked in purpose and >timing. In fact, the National Council of Welfare bluntly asserted in 1976 >that the entire goal of the social security review was the establishment of >a guaranteed annual income. The joint federal provincial news release (22 >Feb. 1974) announcing the final approval of the GAI experiment by Canada >and Manitoba was as clear, though somewhat less ambitious, about the role >and purpose of the test: "The Manitoba experiment is expected to make an >important contribution to the review of Canada's social security system..." > >Unlike the American efforts however, which all eventually released final >reports and findings, the Canadian project ultimately languished. No >official findings concerning the labour market response of participants >were ever published, and the vast amounts of data collected remain >archived. The project itself died a quiet death In 1979. The social >security review had ended by then, and with the onset of post OPEC >stagflation, there was no political support in the country for sweeping >reforms of the type promised by a guaranteed income. Although the GAI had >lost its allure, the Mincome project provided many useful lessons about >how, in a more receptive political and economic climate, it might be made >to work. > >A guaranteed annual income or negative income tax (NIT) works as follows: A >family with no income gets a minimum cash benefit (G). If the family then >goes out and earns additional income its benefit is reduced at the >"taxback" rate of (t)where t is between 0 and 1. In other words, for every >dollar of income the family earns, it loses t times $ 1. Because it can >never receive less than the amount G, this is tantamount to guaranteeing it >a minimum payment. Hence the term "guaranteed annual income." > >Advocates of a GAI have emphasized the following benefits: its objectivity >in determining eligibility and benefits, its avoidance of stigma, its >efficiency in targeting payments to the low income population, and, >finally, the possibility of integrating the GAI/NIT with the "positive" >Income tax System. > >Two of the GAI's potential drawbacks are its cost and its potential effect >on work incentives. The more generous the GAI program, whether as a result >of high support levels (G) or low taxback rates (t), the more it will cost. >This occurs for three reasons: First, nonworkers receive larger payments: >second, low income earners keep a larger fraction of their earnings; and, >third, a larger proportion of the population receives money, since high >guarantees and low taxback rates have the effect of raising the eligibility >threshold of the program. Similarly, generous GAI benefits might induce >individuals to work less, especially if the individual perceives the >combination of leisure and guaranteed payment to be superior to that >achieved by working. But that is an empirical question. Economic theory >cannot on its own furnish accurate estimates of the work disincentive >resulting from a GAI which is a main reason Canada and Manitoba conducted >Mincome. > >Mincome selected families from Manitoba (though mainly from Winnipeg) and >assigned them randomly to different GAI plans for three years. The sample >took into account family structure, as well as normal income received. It >also excluded families earning above a predetermined amount (approximately >$13,000 in $1975 for a two adult, two child family). Three support levels >(G) were used: $3,800, $4,800, and $5,800 (all In $1975) for a family of >four. These support levels were adjusted for differing family size and >structure and given the inflationary environment of the day were increased >annually. Three taxback rates (t) were used: 35 per cent, 50 per cent, and >75 per cent. The most generous and least generous (G, t) >combinations($5800, 35 per cent) and ($3800, 75 per cent), respectively >were not tested. Mincome also enrolled a control group who were not >eligible for purposes of comparison. The presence of a control group and >the random assignment of recipients to GAI plans allow strong research >inferences. > >On the whole, the research results were encouraging to those who favor a >GAI. The reduction in work effort was modest: about one per cent for men, >three per cent for wives, and five per cent for unmarried women. These are >small effects in absolute terms and they are also smaller than the effects >observed in the four US experiments, a result that once again confirms the >importance of not simply importing US research results and applying them to >the Canadian context with its different labour market institutions, >practices, attitudes and social support programs. > >On reflection, the small effect on work effort may not be surprising. GAI >taxback rates, while substantial, may still be less than the taxback rates >involved in other social programs. For instance, in the mid 1970s It was >not uncommon for provincial welfare programs to feature a 100 per cent >taxback rate: The rule generally was that no outside earnings were >permitted at all. By contrast, a taxback rate of "only" 75 per cent may >encourage work. In any case, given the small effect on work incentives, the >onus of proof Is shifted to those who argue that a GAI would lead to an >"excessive" work disincentive response. > >Apart from testing disincentive effects, Mincome also taught us a good deal >about the mechanics of delivering a GAI in Canada. A GAI Is certainly >feasible. Monthly cheques or direct deposits that respond to the changing >financial circumstances of families in a timely fashion can be delivered. >Payment amounts can be reconciled with the tax collection system. >Overpayments can be corrected. Adjustments can be made for recipients' >special needs, or to integrate the system with other In kind benefit >programs such as public housing, student aid, and the like. > >Mincome also taught us about some of the unanticipated complexities of >operating a GAI, such as the difficulty of delivering it to the self >employed, to farmers, and particularly to those who change location or >family structure frequently. Keeping track of families that split up or >combined and recombined, and calculating the payment that was appropriate >for them was a complicated task, certainly more complicated that anyone >initially envisioned. > >In fact, family structure emerged as a major issue. American studies >initially reported that the GAI tended to encourage marital dissolution >among recipient families. Families that stayed together solely for economic >reasons were no longer compelled to do so, since individual members could >continue to receive the GAI separately after a marriage breakup. Research >is still undecided in this area, but the Canadian evidence does suggest a >moderate response of marital dissolution to a GAI payment. This leads us to >believe that any future debate over the GAI is likely to shift towards the >effect on family composition, rather than work disincentives. In fact, the >research director of one of the US experiments once commented to one of us >(Hum) that had a fifth US experiment been financed, it would have focused >on differing responses to various administrative options rather than on >labour supply. > >The end of the social security review did not usher In a GAI for Canadians; >It did not even revamp the Canada Assistance Plan, the cost sharing >agreement which was the object of the reform exercise. The 1980s did see >new developments on the GAI front, however. Against a background of >worrisome deficits, high unemployment, and a general call for restraint in >social expenditures, the universality principle, that traditional hallmark >of Canadian social programs, was openly challenged. In 1985, 17 years after >the Economic Council reported the disquieting figures on poverty, the Royal >Commission on the Economic Union and Development Prospects for Canada (the >MacDonald Commission) advocated a major revamping of our social security >system. It proposed a Universal Income Security Program (U1SP) which, in >essence, amounted to a guaranteed annual income for all families. Canada >had apparently come full circle. The outrageous idea of the 1960s that >government should provide a guaranteed annual income to everyone was now a >centerpiece recommendation of a Royal Commission. In the end, of course, >Brian Mulroney's Progressive Conservative government implemented the >Commission's other major recommendations Canada US free trade agreement but >ignored the UISP. > >In the 1990s, Canada attempted to reform its social safety net yet again. >On Oct. 5, 1994, the Minister of Human Resources. Lloyd Axworthy, tabled a >discussion paper that suggested changes in unemployment insurance, social >assistance and the funding of post secondary education. His goal was a >complete revamping of Canada's social transfers, including federal >provincial financial arrangements. Of course, this had also been the aim of >the social security review of the 1970s, which eventually had came to >naught. > >In fact, there were striking similarities between the earlier social >security review and the Axworthy review. Both were spearheaded by Liberal >governments; both featured reform of the Canada assistance Plan and a new >cost sharing arrangement as important centerpieces; both followed >significant failures on the constitutional front; and in the end both were >unceremoniously truncated by the agenda of the federal finance department. > >But an Important difference between the social security review of the mid >1970s and the Axworthy review 20 years later was that in the more recent >discussions the option of a GAI was hardly mentioned. In the one page >(p.75) of the Axworthy review on which it does appear, it is included only >under the heading of "longer term approaches," and the paper goes on to >assert both that a GAI was "not practical" and would be far too "costly," >and that "more importantly, limited government money can probably be spent >more effectively through better targeted programs," presumably including >the Child Tax Benefit (CTB) that was introduced In the mid 1990s. The >discussion paper's logic is strange: A GAI can be shown to differ merely in >language from a system of refundable tax credits, such as the CTB. The new >millennium inaugurated a fiscal era free of deficits, a strong economy, and >rapid growth of employment, but also by a discourse on fighting poverty >that was framed less insistently In terms of helping the working poor >through a guaranteed income than in terms of alleviating child poverty by >expanding the CTB. > >The last three decades were witness to an awakening of consciousness about >social justice in Canada. In the 1960s, widespread poverty was considered a >national disgrace and programs to eliminate it became urgent priorities. >Moreover, the optimism and perceived affluence of Canadians during the >1960s made this goal realistic. > >But prosperity Is seldom uninterrupted and the will to finance social >programs rarely unbounded. Just as Canadians began to appreciate the >dimensions of poverty In Canada, and were stirred to concern and action, >the economy moved into a period of high inflation, rising unemployment, and >slowing growth, culminating In 1982's infamous "triple double": double >digit inflation, double digit unemployment, and double digit interest >rates. The mid1980s recovery was impressive, but by the time it came the >zeal to eradicate poverty seemed less intense and the war on poverty was >now waged with fewer resources. > >For their part, the 1990s were all about tight monetary policy, deficit >reduction and diminished expectations. Only at the turn of the millennium >when at last federal surpluses had begun to appear did the debate turn to >whether these new monies should refurbish social programs or be given as >tax cuts. It is hardly surprising, in the economic context of 2000, that >the idea of a GAI should be floated again. > >Will the guaranteed annual income again be a du jour? In some sense, so >long as Canadians seek to improve the lot of those who are economically >disadvantaged it will always be on the table. Whether it is taken up again >is obviously hard to predict. But, as was not the case during the social >security review of the 1970s, when the idea of a guaranteed income for all >Canadians was first seriously examined, we do not need to start afresh. As >a result of the Mincome experiment, we know more than we did then. We have >better and more refined estimates of the work incentive effects. We know >about some of the unexpected consequences and difficulties in merging a >program such as the GAI with our tax system. We know about accounting >difficulties In trying to reconcile the aims of social assistance with >those of tax collection. We have concrete experience of how a guaranteed >Income, with all Its attendant problems and administrative complexities. >might actually operate in a Canadian context. We know more about family >dynamics and marital relationships. > >We don't know everything, however. The most pressing unresolved issues >surrounding a GAI are likely to Involve questions about program design, >administration and delivery, federal provincial arrangements, and >behavioral responses other than those having solely to do with work >reductions. > >Why, if we do know all these things, Is what we know not part of common >policy knowledge in this country? Why have Mincome's findings been so >little publicized? Why was there never a final report? In Canada's small >community of GAI experts, much myth surrounds these questions. In fact, the >explanations are not mysterious and have mainly to do with mundane factors >such as money, timing, changing policy preferences, and new governments. >The original budget was spent, and new governments at both the federal and >provincial level were disinclined to provide more funds, especially for a >policy test that was now becoming less relevant as Canada entered harder >economic times and different issues began to dominate the policy agenda, >namely, higher oil prices, accelerating inflation, wage and price controls, >and growing deficits. The time was out of joint for the GAI Idea. > >Now, however, at the turn of the millenium, it seems the time may be more >propitious. Let the debate begin again. > >Derek Hum ([EMAIL PROTECTED]) and Wayne Simpson >(simpsonftc.umanitoba.ca) are professors of economics at the University of >Manitoba. Hum was the research director of Mincome, Canada's guaranteed >annual income experiment. > > > > > > > > > > >[========================================================================== ===== >=========] > > (<*>) Quote of the Week (<*>) > > >"The only possible alternative to being the oppressed or the oppressor is >voluntary cooperation for the greatest good of all." > --Errico Maletesa > > > """""""""" > [ <*> <*> ] > (. .) > O > > >[========================================================================== ===== >=========] > > > > >-------------------------------------------------------------------- > Workfare-defeat: a list for discussion about the international > resistance to workfare To subscribe, post to <[EMAIL PROTECTED]> with > "subscribe workfare-defeat" in the BODY of the message > ** This material may be freely distributed, provided this ** > ** footer is included in full. **
