On Wed, January 15th there was a Twitter discussion about the idea of a basic income supplement with economists Stephen Gordon (Laval), Kevin Milligan (UBC), Mike Moffatt (Ivey) and myself facilitated by the twitter account, @bis_pilot. To kick off that discussion, I had a blog post that provided some background on the concept. The main items of the twitter discussion itself are featured in this storify and the full discussion can be read by searching #bispilot on Twitter. I would like to follow up on this discussion with some more fulsome thoughts on some key issues.
As an economist working in a School of Public Administration I have now been well schooled by my public admin colleagues about the importance of implementation. Before moving to the School, I was your typical economist who did not consider such issues. But now implementation is so important to me that it has spurred a whole research agenda. Implementation is the reason why good policy ideas fail (e.g. HST, congestion charges, tax reform). Implementation has been dubbed the ‘missing link’ of policy analysis yet this is what transforms a policy idea into successful delivery. Implementation is not just what happens after an idea or policy design, implementation overshadows policy from an embryonic idea all the way through to evaluation.
With my implementation hat on, what are some key things that really need to be outlined as part of this BIS proposal?
1. Objectives: What objective(s) or goal(s) is/are to be achieved by the policy? What exact problem is the policy attempting to resolve? Objectives outline the desired result to be achieved and give a sense of direction by providing guidelines for activities. Proponents need to be clear about why they are advocating a BIS and to reflect this in clear and transparent objectives. The primary objective(s) need to be paramount during design and implementation and communicated to the public to make sure they fully understand what is being proposed. There are two caveats to this. First, too many objectives and the policy becomes confused. Second, lots of people agree with an idea because they insert their own objectives into it. Their objectives, however, may not be yours. A lot of mistrust and confusion can arise when objectives are not stated in advance of implementation.
How much a BIS might cost is very dependent on setting out these objectives. Typically, the objectives of a BIS is to help lift at risk groups out of poverty. This requires us to agree on a definition of poverty, who are poor, and to what level to lift them. Do you target only the working poor or all poor? What about those on reserves? What about kids? What about the homeless? What about regional differences? How fair is it to provide $18k to everyone when the costs to live vary by regions and family conditions? Lots of questions need to be answered in order to be able to operationalize this objective.
2. Jurisdiction: Once it has been determined that BIS is the preferred policy instrument for the identified policy problem, the next step is to consider jurisdictional authorities. A BIS either needs to work in conjunction with or replace our existing social assistance and tax benefit programs. Such programs are delivered by NGOs, municipalities, provinces, and the federal government. Any structure would need to have unprecedented cooperation between all these players. While many people point to the fed-prov agreements for delivering child income support, I would like to point out that these agreements have not done much to reduce child poverty in Canada. In addition, if the notion of a BIS is delivered as a Negative Income Tax (NIT) by a province rather than Ottawa, than all due respect must be paid to the tax collection agreements.
The key considerations of cost and size of benefit is dependent on knowing how the BIS would work with our existing programs and tax system. It is also key to understanding where the funding for a BIS might come from.
3. Tax considerations: The BIS being advocated is that which takes the form of a Negative Income Tax (NIT). The advantage of delivery the program through the tax system is that it avoids the social stigma that many of our social programs have. In addition, it would force people to file a tax return in order to benefit. But in that lies the rub. For many, particularly the poor, having the knowledge and the trust to fill out a tax return is no small hurdle to over come. It makes me wonder what companion policies need to go hand in hand with the BIS? An expansion of the CVITP? Perhaps even pre-populated tax forms?
We also need to think about what incentive the BIS would have on our old nemesis, tax evasion. The BIS creates very real incentives for those with the ability to under-report their income to maximize their BIS payment. Consider even just those with tip income or those with self-employment income. Tax evasion in the presence of a BIS creates real distortions and challenges with achieving the stated objectives yet overcoming tax evasion is not easy.
The last tax item I will consider for this blog post is those who earn income from non traditional sources like personal corporations and windfalls. WRT to personal corporations these individuals can choose how much they pay themselves and how to pay themselves. How would dividends and other payments factor into the calculation of the BIS? Further, many of these individuals can choose to leave their money in the corporation, extracting it only from the share sale of the business which, low and behold, is tax free assuming a CCPC structure. These individuals can benefit both from the BIS and from the income earned from the corporation. How do you deal with these very real realities of our existing tax system?
In Canada, windfall gains (also prescribed prizes which will be a topic of a future blog post) are not considered income. A windfall gain is a type of payment that is unexpected or unplanned and usually does not recur, such as a lottery. So someone could win a lottery or take home the pot from gambling and still get the BIS unless we explicitly change our treatment of this gain such that it is reported, and perhaps even taxed. But again, this requires tax reform for which there seems to be little political appetite.
These are just some of my concerns, not with the idea of a BIS, but with the implementation of a BIS. You cannot implement a BIS without breaking some eggs and changing a lot of other policies. Other concerns were raised during our discussion like cost, benefit levels, affordability, labour market attachment, and revenue sources. Settling these and other issues matter a great deal for my acceptance of any particular proposed program. I worry that the good folk pushing the Basic Income System (BIS) do not fully understand that by leaving “such details to the experts” the idea is likely to once again not get off the ground. After all, the devil is indeed in the details.