Guaranteed Annual Income (GAI), Basic Income (BI) and the Manitoba

Basic Annual Income Experiment (Mincome)

Wayne SimpsonDepartment of Economics

University of Manitoba

Key Points:

• GAI and BI are not the same thing (and there are important differences for policy)

• Mincome GAI Experiment was much more than Dauphin (contrary to Wikipedia)

• GAI is gaining acceptance in many forms

What is a Guaranteed Annual Income?

– an income guarantee (G) based on a family low income/poverty level, e.g. the Statistics Canada Low Income Cut-off, the Government of Canada’s Market Basket Measure. A family with no other income would receive G, e.g. the LICO was $22,361 for a family of 2 in 2008

– a (negative income) tax rate (t) that reduces the amount of the benefit paid as income is earned, e.g. at a 50% tax rate a family that earns $10,000 would receive a benefit of $17,361

What is a Basic Income?• a specific amount paid to each individual and

subject to tax• Alaska pays a Basic Income out of saved oil

revenues ($2,069 in 2008, $1,174 in 2011); Western Australia considering similar scheme

• Canadian examples:– Old Age Security used to be paid to everyone

over 65, regardless of income (like a BI); now it is clawed back (like a GAI)

– Family Allowance used to be paid to all mothers; now the Child Tax Benefit/Supplement are clawed back

GAI vs. BI• The Guarantee G: GAI targets poverty, as we

measure it, based on family income, where BI does not

• The tax rate t: GAI targets poor households by “clawing back” benefits as incomes rise, while also providing incentives to work; BI goes to everyone (pure income transfer) and is taxed in the normal way

• BI does not target poor families as well and is much more expensive than GAI

Manitoba Basic Annual Income Experiment (Mincome) 1974-79

• A GAI experiment (not BI)• 3 components:– Winnipeg dispersed sample of low-income

households with 3 levels of G x 3 levels of t– Dauphin “saturated site” sample with single G, t– Rural dispersed sample (never analyzed)

• Mincome comparable to four U.S. Negative Income Tax Experiments

• but Dauphin sample unique

Mincome(Winnipeg)/U.S. results

• “25 word summary”: “Few adverse effects have been found . . . Those adverse effects found, such as work response, are smaller than would have been expected without experimentation” (Hum and Simpson, Journal of Labor Economics, 1993)

• no examples of “full blown” GAI but the concept of income-test (targetted) benefit programs is now widespread:

GAI has been gaining acceptance in social policy programming

• programs like the Guaranteed Income Supplement for seniors, the National Child Benefit, and the GST credit are based on family income and clawed back as income rises

• should think of Social Assistance programs in terms of the level of the guarantee, G, but also the nature of the claw back, t, in terms of the incentives provided (e.g. work and the “welfare wall” of high claw back rates)

Yukon House Motion Nov 27/07• THAT this House urges the Yukon government to research

and develop a policy on a guaranteed annual income, as recommended by the Royal Commission on the Status of Women, the Macdonald Commission, the National Council of Welfare, the Special Senate Committee on Poverty and the federal working paper on social security, that would:

• (1) be a simple, non-taxable basic income available to all adults;

• (2) be recoverable through the personal income tax system for those earning over a certain amount;

• (3) eliminate or significantly reduce the social assistance system;

• (4) simplify administration and reduce administrative costs