I’ve long appreciated the idea of a universal basic income. A simple transfer of money to make sure that everyone in the country can pay for rent and groceries. Everyone would be eligible, so no complex administration, just send CRA your banking info or an address where you can pick up a cheque.
So when Stephen Gordon challenged twitter to put forward a more detailed proposal than “progressive tax will pay for it,” I thought I’d take him up on it.
It’s…umm…well. It’s not impossible. But a lot harder than I thought.
The scale is surprising. I’d hoped it would be possible to turn something like CERB into a permanent, universal, program. It seems like it should be possible. $2k/month isn’t much in the grand scheme of things.
Turns out that a universal benefit HALF that size requires doubling the size of the Federal government.
So that sounds like fun, let’s get to it.
I’m not going into a wealth tax or other methods that would require a lot more knowledge than I have to analyze. I’m going to work with a simplified version of revenue tools we already have. In particular, an idealized income tax where everyone earns the bottom income on each line from Stats Canada Table 11-10-008-01. Except the top group, who will all earn the average income of the top 1% in 2017, which was 477,700.
And there’s no tax credits except the basic personal one.
Turns out my starting point with these assumptions was within 10% – about $15b – of actual income tax revenues for 2017, so I’m going with it.
Let’s Tax the Rich
So the structure I went with was that everyone’s marginal tax rate would double below $100,000, and go up 120% for those above. This is a HUGE shift in our economy and makes the tax code EXTREMELY progressive. Someone in the top bracket would pay 73% of a marginal dollar earned to the federal government. Which means someone in this bracket in Nova Scotia could face a 95% marginal tax rate.
And this raised…$274B of the $330B cost of the program.
So it works. You can also double Corporate Income taxes for another $45B and put the GST back to 7% for another $14B.
And BAM! It’s paid for.
But, should we?
I went into this exercise pretty confident that a UBI was a good idea. Now, I’m not so sure. The scale of the problem really astounded me.
On principal, I’m fine with 1%ers paying 95% tax rates. They can afford that, it’s only on the top part of their income, anyway. In practice, though, rich people have options, and what exactly is the fallout of them packing up their bags and leaving? I don’t know. It’s a big change, and it’s not clear to me if $12k per person is enough to make it worthwhile. Particularly since even people that we want coming out ahead – those in the general vicinity of the median – will end up paying around half the UBI back in increased taxes.
Shouldn’t We be Saving on Social Programs?
A major pro-UBI argument, particularly on the right, is that it can replace a lot of social programs since everyone should now be able to afford the bare minimum, and need less help from other programs that cost a lot of money just making sure their recipients qualify.
This is sort of true, if our only goal is to make poor people just as poor as they are today, but with less administrative burden. But it’s also the equivalent of spiking the tax rate at the bottom end, and making the poorest people pay most of the cost of the UBI program.
So, no. Not doing that.
Either way, Dr. Gordon is wrong
One point Dr. Gordon was trying to make is that it would require a 100% marginal tax in order for him, a 95%ile earner, to not come out ahead with a UBI. That’s clearly not true. We can raise marginal tax rates across the board and leave anyone in the upper quintiles coming out behind.