During COVID-19, the Canada Emergency Response Benefit (CERB) was designed to quickly and easily reach a large segment of the Canadian population and many have called for it to be transformed into a Basic Income. Whether or not a basic income is a good idea is not the subject of this blog post and I am not going to weigh into that debate at all.
I am also not going to weigh in on what a basic income is. There are many, many models of a basic income, based on a 13 by 3 choice matrix. That means everyone using the term basic income likely means something different and they are not making clear what model they have in mind in talking about a basic income. I will, however, remind everyone that a basic income is not just another cash transfer. And anyone who thinks that that is all a basic income is has not actually read the voluminous literature on a basic income. If all you are designing just another cash transfer, stop calling it a basic income.
I am also not going to weigh into the conversation of how do you integrate, layer, or replace the current system with a basic income. This is actually something I have considered in detail. However, I know that most people have not. For example, many basic income advocates are calling for the CERB to be transformed into a basic income. Does that include how the CERB beneft was defined as income? If so, do you understand how that interacts with existing programs in unintended and perverse ways? If not, what definition of income should this new basic income benefit be? Why? And what implications does this have for the whole system? You can read my coauthored piece here on just some of the perverse implications of the CERB on social assistance beneficiaries. This is not just a technical detail to be left to the technocrats like me.
What I am going to weigh in on is that the entire tax, transfer, reporting, and income support system needs to be fundamentally changed BEFORE we even consider the merits of a basic income. Why? Two reasons.
First, administratively our entire tax, transfer, reporting, and income support system is so archaic that it layering a basic income on top of it would mean that those who need and deserve the support from a basic income the most would most likely be left out.
Second, philosophically our entire tax, transfer, reporting, and income support system is based on principles and values that are diametrically opposed to those of a basic income that layering a basic income on top of this existing system would mean that the basic income would simply replicate the fundamental problems in the current system that basic income advocates say the basic income would solve.
This is not to say there are not other issues, but rather here are two things that need to to change first and foremost. And these two things that I am going to outline are things that I have said for years now and do not represent any new critiques. Further, these two things are things that NEED to change regardless of whether a basic income, of any type, is pursued or not.
We begin by acknowledging a simple truth: In Canada, the tax system is not just used to raise revenue; it is also an important instrument for achieving various social objectives. As a result, the tax system is now closely intertwined with the income support system: many key income support benefits are either delivered through the tax system, like the Canada Child Benefit (CCB), or are dependent on information provided by the tax system, like the Guaranteed Income Supplement (GIS). Further, many are now calling for the creation of a basic income and for the tax system to be the core administrative structure for such a program. As a benefit administration tool, the tax system has advantages; however, it is also problematic for several reasons, not least because the onus to file tax is on the individual and filing is not, generally, legally required.
Applied in the context of benefit delivery, such an approach thus risks missing many eligible recipients. While on average, 12% of working age-adults do not file taxes, the incidence of non-filing is even higher among the most vulnerable. As laid out in this piece, 97% of the homeless population do not file their taxes, 33% of social assistance recipients do not file their taxes, 40% of eligible first nations families do not receive the Canada Child Benefit because they don’t file taxes. Therefore in the context of a basic income that needs a list of Canadians, needs an administrative structure including a delivery vehicle, and should there be an tax mechanism to recover the benefit, this issue with filing needs to be addressed. Can it? Yes, through deemed filing and auto assessment, as has been done in Estonia, Denmark, and the United Kingdom. This is a method of tax filing that transfers the onus of tax filing from the individual to the tax administrator, as well as to ensure that all citizens are auto-assessed for income support benefits.
Also currently, information on tax filers and their income is only received once a year, at tax time when individuals file a self-assessed tax return for the previous calendar year by April 30. This means there is no regular reporting of information to ensure that benefits can be responsive to within year income shocks. This was actually a substantial critique from Albertans who were affected by the oil price shock but whose benefits were delivered based on income reported prior to the oil price shock. This means all means tested benefits are delivered as refundable tax credits and not a negative income tax. Could the system be changed for more regular reporting, like monthly? Yes. Currently, most employers in Canada report aggregate information on wages, withholding, and payroll taxes to CRA regularly, yet in Australia, Ireland, and the UK, for example, employers report this information in real time to the tax authority on an individualized basis . This enables the real-time interaction of tax and benefit systems, which, in turn, ensures that income supports are modified as income changes. And that is what a negative income tax is. Canada cannot currently deliver a negative income tax and all those calling for a negative income tax type basic income are not presenting details on how this can be done. It can only be done if we change and we should change our reporting system regardless of whether a basic income is implemented or not.
As alluded to above, our income tax system currently relies on self-assessment., which means the onus is on the individual tax filer to provide complete and accurate information to the government on the income taxes they owe and, as a results, the benefits they are eligible for. The self-assessment process happens once a year, at ‘tax time’, when individuals must file a self-assessed tax return for the previous calendar year by April 30. This self-assessment is then verified by the tax authority using matching or third party reporting. Third-party reporting, or matching, is a tax policy concept according to which a third party (i.e., neither the individual nor the tax authority) conducts an impartial verification of income. For example, all employers are required to report to the tax authority on a T4 information slip the wage income of their employees, on or before the last day of February of the year following that to which the income information applies. Yet, in Canada not all income—notably, self-employment income—is subject to verification, meaning that such a process fails to capture a growing segment of the Canadian workforce: those employed in precarious, non-standard, and contract work. This raises concerns, not only about increased tax non-compliance, but also about a growing burden on tax filers to keep proper records and learn complex tax information. Can this be addressed? Yes! SAF-T in Europe and South America are both using blockchain to automate the current income matching process. Blockchain then allows for the matching process to be expanded to all forms of income—particularly self-employment income—, as well as payments, transfers, and even assets in a real-time environment, thereby also improving compliance and the ability to auto file and assess individuals for benefits. If blockchain is added to a system that stores information on individuals’ digital footprints then this data can be used across their life-cycle to improve tax, transfer, reporting, and benefit delivery in Canada, as is already done is Estonia. In Estonia, X-road assigns a unique digital identity to every Estonian that is used to access more than 600 government services, including voting, medical services, and tax filing. And such a system would that overcome the fact that in Canada there is no super-database of all Canadians, their bank accounts, and addresses is maintained, which if it did exist could be used to issue quick payments in times of crisis.
The list presented here is not exhaustive, but these are essential changes we must make in order to not only bring our tax, transfer, reporting, and benefit delivery system, especially in the face of the changing nature of work. In this context, digitization and the digital economy hold significant potential to revolutionize not only day-to-day tax and benefit administration, but also the provision of emergency income support during times of crisis. And these are not ‘nice to have’ changes. These are essentially modernization changes we must make to even have a chance of achieving the principles of a basic income of simplicity, respect, economic security, and social inclusion. And these ideas represent those ideas I am flushing out for a paper that I am co-authoring for the Canadian Tax Journal.
Now think about these principles of a basic income: simplicity, respect, economic security, and social inclusion. How far away from these principles is our current system? Well pretty much light years. How do we know? Well you could have spent the last two years, as I have, studying the current system in all its current detail or you can simply extrapolate this from the calls for a basic income. Why in the world would anyone think that this system could just be eliminated and these values not embedded into the basic income system? Consider, for example, the principle of respect. If the basic income is delivered to households then you will be bringing into the basic income system ‘boots under the bed audits’ simple because of the beneficiary unit. These audits are particularly targeted at women, and particularly racialized and vulnerable women. Instead, we have to first bring the current system, which is at the opposite end of the spectrum from a basic income, closer to the principles and value of a basic income so that we don’t replicate the current features of the system in a basic income design.
This just outlines real, hard, and fundamental changes we absolutely have to make to our current system, with or without a basic income. And we absolutely have to make these changes in order for us to have any hope of implementing cash transfers that are aligned with the principles of a basic income. But in doing do, we are going to run up against different values of all of us in society. Are we ready to do that? Are we ready to have that discussion? I hope so, because we need to have it in order to move forward and address the lessons we learned in this pandemic, lessons though that many of us knew needed to be learned even before the pandemic even hit.