On Thursday Nov. 15 the Ontario government released their economic outlook, which included spending measures meaning it was a mini-budget. As always there is a lot of interesting stuff in the outlook, but a main measure that jumped out at me was the low-income individuals and families tax (LIFT) credit.
You may remember back in the election that Ford promised to eliminate taxes for minimum wage workers which was in exchange for halting the next planned minimum wage increase from the current $14 to $15. That is, Ford promised to leave the minimum wage at $14 but to compensate, it would ensure anyone earning minimum wage would not pay Ontario taxes. In this way they would get some benefits, just not all that they would get from the $15 increase.
I blogged at the time about how this all could unfold here. I also made a proposal in detail here. Of course there were lots of debate about how Ford could possibly target minimum wage workers. I knew that this was not at all possible and said so. He only has the tools to target income, not wages. While some poo-pooed my thoughts on this, I now smugly point to an income targeted tax credit…for whatever winning such a technical tax implementation argument is worth.
For those of you interested in this tax credit, the full benefit (elimination of Ontario personal income taxes not including the Ontario Health premium) applies to individual income under $30,000 (equivalent to income of full-time full-year minimum wage worker) or family net income under $60,000. The tax credit is phased out at a rate of 10% for income above these thresholds.
There are a few things to note or question with the LIFT tax credit.
First, Ontario already has the Ontario Tax Reduction (OTR) credit which fully eliminates taxes for those with income above the basic exemption and below $~14,840 and is fully phased out at an income level of $~19,500. It is unclear how the LIFT works with the OTR. Is the OTR being replaced or is the LIFT applied just above the OTR thresholds? I’d hate to see the tax system made even more unnecessarily complex.
Second, the OTR is factored into withholding, meaning that a low income workers obtains the benefit on each pay cheque as opposed to waiting until tax time. There is not indication of if the LIFT will be similarly factored into the withholding and if so, how, since it is based on family net income. If the LIFT is not factored into withholding then individuals or families will have to file to obtain the benefit, yet filing rates among low income Canadians is problematic. How does the LIFT work with withholding and what plans does the Ontario government have to increase filing among the group targeted by this tax credit? Will the LIFT be automatic or does the tax filer have to check a box to ask to apply?
Third, both the existing OTR and the proposed LIFT are household based. The OTR is such that only the spouse with the higher net income can claim the OTR, with no requirement that the benefits from the application of the OTR be shared within the household. The LIFT applies to adjusted family net income, meaning that a low income worker may not derive any benefit at all from the LIFT, depending on their household income. While many advocate for household based system, such determination makes serious assumptions about power and sharing within a household assumptions which are becoming more like dinosaurs in terms of their actual practice. It also means that the LIFT has serious gender concerns and is at odds with achieving economic independence. Of course, some of you tell me that considering gender in designing and delivering policy is pandering, but those of you telling me that know what I have to say to you.
Fourth, the LIFT and similar programs mean that low-income worker keeps more of their income through tax reduction. This means that, because the actual income is not increasing, they continue to qualify for existing benefits like the Trillium Tax Credit or the GST/HST tax credit. However, a wage increase means that worker gets more actual income while reducing their reliance on tax benefits. And therein lies a real tension with public policy. Do we want workers to be more independent and able to live off their income or do we want workers to be more dependent and only able to live off their income plus their benefits? This is a ill-discussed tension, though a point in a recent interesting paper. Those who lobby against wage increases, highlighting potential economics costs, point to the tax system to make up the difference instead. But those we make up the difference are the tax payers in the province through higher taxes which have efficiency concerns as well. There are costs and benefits to either approach, yet the costs of the minimum wage are discussed to great fan fare without considering the costs of the alternative.
Fifth, the LIFT does nothing for those we already do not pay tax due to the OTR, earn below the basic exemption, or who are unable to work (notice how I did not use the word unwilling). These folk are already reeling from the sudden cancellation of the basic income pilot and are probably concerned about the direction this government will go with their needs. These folk will have to wait the outcome of the social assistance review, the results of which are, I think, being announced next week.
Overall, since the government was hell bent on cancelling the planned minimum wage increase, it is worthy to note that this did not come without benefits. However, the LIFT is no panacea either, more so with the implementation path chosen by the Ford government.