Is Canada Ready for Real Poverty Reduction through a

Universal Guaranteed Basic Income? A Rejoinder to

Kesselman's "Can 'Self-Financing' Redeem the Basic Income
Guarantee? Disincentives, Efficiency Costs, Tax Burdens, and
Attitudes"

Harvey Stevens, Wayne Simpson

Canadian Public Policy, Volume 44, Number 4, December / décembre

2018, pp. 438-446 (Article)

Published by University of Toronto Press

For additional information about this article

https://muse.jhu.edu/article/716966
 Is canada ready for real Poverty
reduction through a universal
Guaranteed Basic Income? A rejoinder
to kesselman’s “can ‘self-Financing’
redeem the Basic Income Guarantee?
Disincentives, efficiency costs,tax
Burdens, and Attitudes”
hArVey steVens
Department of Economics, University of Manitoba,Winnipeg, Manitoba

WAyne sImPson
Department of Economics, University of Manitoba,Winnipeg, Manitoba, and School of Public Policy,
University of Calgary, Calgary, Alberta

Rhys Kesselman formule une réponse qui suscite la réflexion et s’inscrit dans un échange important et
opportun sur la politique de réduction de la pauvreté au moyen d’une forme quelconque de revenu mini­
mum garanti. Les auteurs traitent d’abord dans leur réplique des préoccupations générales qu’exprime
Kesselman au sujet du revenu minimum et qui s’insèrent, depuis un demi-siècle, dans un débat politique
continu portant notamment sur l’expérimentation sociale au service de l’analyse des obstacles à l’emploi et
d’autres problématiques. Les auteurs réagissent ensuite aux préoccupations particulières de Kesselman à
l’égard de leur proposition de revenu minimum garanti universel (RMGU) par le truchement de réformes
fiscales qui convertiraient les crédits d’impôt non remboursables existants en crédits remboursables. Ils
illustrent comment leur concept équilibre les faibles taux d’imposition correspondant aux taux appliqués
aux crédits actuels, l’expérimentation sociale préalable et les discussions politiques avec un nouveau
soutien en matière de revenu qui élimine la pauvreté mesurée pour tous les groupes familiaux à l’exception
de celui des célibataires non âgés. À cet égard, les auteurs fournissent de nouvelles estimations qui mon­
trent l’effet redistributif de leur RMGU entre les déciles de revenu familial. Enfin, les auteurs évaluent
les propositions de rechange de Kesselman relatives à l’adoption d’une approche multidimensionnelle à
l’égard de la réduction de la pauvreté et constatent que ces recommandations établies quant à une stratégie
de lutte contre la pauvreté comportent des lacunes. Il est aussi possible, font-ils remarquer, de mettre en
œuvre leur RMGU progressivement en insistant sur le remboursement des crédits d’impôt dans l’avenir.
Mots clés : crédits d’impôt, offre de travail, revenu garanti, revenu minimum, sécurité du revenu

Rhys Kesselman’s thought-provoking response is part of an important and timely conversation about pov­
erty reduction policy through some form of guaranteed basic income. Our rejoinder first addresses his
general concerns about a basic income, which reflect an enduring policy debate over the past half century
that has included social experimentation to examine work disincentives and other issues. We then respond
to his specific concerns about our proposal for a Universal Guaranteed Basic Income (UGBI) through tax
reforms that would convert existing nonrefundable tax credits to refundable credits. We illustrate how
our proposed design balances low tax rates that are in line with the rates applied to current credits, prior
social experimentation, and policy discussion with effective new income support that eradicates measured

© Canadian Public Policy / Analyse de politiques, December / décembre 2018 doi:10.3138/cpp.2018-043

 Is Canada Ready for Real Poverty Reduction through a Universal Guaranteed Basic Income? 439

poverty for all family groups except non-elderly singles. In this regard, we provide new estimates to show
the redistributive effect of our UGBI across family income deciles. Finally, we appraise his alternative pro­
posals for a multifaceted approach to poverty reduction and find these established prescriptions for anti-
poverty strategy wanting. We also point out that our UGBI can be implemented gradually by focusing on
tax credit refundability in the future.
Keywords: income security, tax credits, basic income, guaranteed income, labour supply

We welcome Rhys Kesselman’s (2018) thought-
provoking response to our proposal for a universal
guaranteed basic income (UGBI) that can be realized
relatively simply and directly by the conversion of ex­
isting non-refundable tax credits to a refundable format
(Stevens and Simpson 2017). This is an important and
timely conversation, judging from the serious policy
interest in poverty reduction through some form of guar­
anteed basic income now emanating from federal and
provincial government circles. We divide our rejoinder
into three parts. First, we address Kesselman’s general
concerns about a basic income, as some form of stan­
dalone plan corresponding to the proposal by Boadway,
Cuff, and Koebel (forthcoming), our proposal, or some
other generic negative income tax or basic income plan.
We then respond to Kesselman’s specific concerns about
our proposal for an UGBI through tax reform and provide
some new estimates of the impact of our proposal. Finally,
we appraise Kesselman’s proposals for a multifaceted
approach to poverty reduction that reflects many other
prescriptions for anti-poverty strategy.
Is a Basic Income Guarantee a Good Idea?
The concept of a basic or guaranteed income is derived
from the original concept of a negative income tax articu­
lated by Friedman (1963) during a period of heightened
interest in poverty and welfare reform in the United States
that soon spilled over into Canada. Despite changes in
nomenclature, the basic design of a basic income guarantee
(BIG) remains quite simple at its core and involves only
two parameters, a family guarantee level G and a nega­
tive income tax or benefit reduction rate r.1 For a given
budget, an unlimited set of feasible [G, r] plans exists that
range from low G and r plans that provide benefits across
a wide family income spectrum to high G and r plans that
focus on higher levels of benefits for a smaller, poorer
population of families (Kesselman 2018, 425). The intense
interest in poverty reduction through a negative income
tax led to the implementation of four social experiments
in the United States and one in Canada, the Manitoba
Basic Annual Income Experiment, or Mincome (Simpson,
Mason, and Godwin 2017). These experiments collectively
tested a variety of plans with guarantees ranging from
50 percent to 140 percent of the poverty line and tax rates
ranging from 30 percent to 75 percent (Hum and Simpson
1993, S275).
Because a wide range of plans are feasible, any deci­
sion to implement a BIG ultimately requires the choice of
a specific plan. This choice trades off “adequacy, incen­
tives, and cost” (Kesselman 2018, 430), but that choice is
not unique to our plan for tax reform or to any other BIG
proposal. Adequacy invites a high guarantee level that,
for a given budget, must imply high tax rates associated
with greater work disincentives and economic inefficiency.
Concerns about these impacts were at the heart of the de­
sign of the income maintenance experiments and remain
prominent considerations, although the experiments were
also interested in assessing the administrative benefits of
a negative income tax or BIG. Indeed, the “objective of
simplifying the administrative costs and complexity of
income security” (Kesselman 2018, 430) while achieving
effective poverty reduction remains an attractive feature
of BIG policy proposals, including our own.
Kesselman’s (2018) criticism of Boadway et al. (forth­
coming) and of our proposal starts with a recitation of
the “traditional concerns” about a BIG that include “large
tax hikes” resulting in “very high marginal effective tax
rates (METRs) for most beneficiaries and many middle
earners, with pervasive disincentive effects and economic
inefficiencies” (424). Kesselman refers to rising METRs
as “an unavoidable weakness of self-financing a BIG by
eliminating the basic taxable threshold” (427). He also
provides illustrative examples (428, Table 1) of the higher
efficiency costs that result from higher METRs. However,
these impacts are a well-understood feature of any BIG,
as we discuss in this article and consider carefully at vari­
ous points in our UGBI proposal. Although Kesselman’s
analysis suggests that these efficiency cost increases pose a
significant disincentive, he does not provide any evidence
as to their size or relative importance.
These concerns about efficiency costs have been
raised since the early discussions of a negative income
tax as one of its distinctive features and are not a conse­
quence of our self-financing design. They underpin the
extensive research program on the disincentive effects
of income maintenance programs that includes the five
social experiments in the United States and Canada. The
experiments provided consistent evidence that the labour
supply response to the experimental negative income tax
plans was modest (Burtless 1986; Hum and Simpson 1993;
Robins 1985). Indeed, an important consequence of this
vast research program was the emergence of a degree of

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 440

table 1: Net Redistribution of Federal and Provincial UGBI Benefits by Adjusted Household Income Decile ($M): Canada 2015
Stevens and Simpson

Beneficiaries, $ Contributors, $
% Redis
Adjusted No. of Total Change Total Change Contribu- tributed Benefits Redis-
Householda Familiesb Total Change in Taxes & in Taxes & tions to by Family tributed Net of
Income Who Benefit in Taxes & Benefits GSTC—GAI GSTC—GAI Redistri- Total % of Income Contributions to
Decile (Millions) GSTC Total GAI Redistributed Non-Recipients Recipients Total GAI bution, $ Familiesb Winners Group Redistribution, $

1 2.341 4,400.7 22,001.1 17,600.4 64.8 137.0 107.3 −94.4 2.388 98.0 79.6 17,506.0
2 1.848 6,232.8 14,661.4 8,428.6 16.4 1,547.0 1,744.4 181.1 2.154 85.8 51.4 8,247.5
3 1.070 3,619.0 8,095.7 4,476.6 116.7 4,986.5 4,173.8 −929.4 2.008 53.3 36.5 3,547.2
4 0.714 1,964.7 5,388.8 3,424.1 450.0 6,554.1 3,363.2 −3,640.8 2.018 35.4 39.1 −216.7
5 0.555 1,395.5 4,287.9 2,892.4 2,561.6 4,972.2 1,570.1 −5,963.7 1.989 27.9 49.4 −3,071.3
6 0.493 1,158.9 3,661.2 2,502.4 5,301.7 2,317.4 823.1 −6,795.9 1.959 25.2 55.8 −4,293.5
7 0.450 1,043.2 3,325.8 2,282.6 6,248.7 1,329.6 505.9 −7,072.4 1.946 23.1 59.6 −4,789.8
8 0.446 989.7 3,272.4 2,282.7 6,577.8 879.9 372.1 −7,085.6 1.943 22.9 62.6 −4,802.9
9 0.364 826.3 2,569.8 1,743.5 6,893.3 700.6 379.9 −7,214.0 1.910 19.1 59.1 −5,470.5

© Canadian Public Policy / Analyse de politiques, December / décembre 2018

10 0.345 783.6 2,611.6 1,828.0 7,395.1 469.0 207.8 −7,656.3 1.874 18.4 64.8 −5,828.3
Total 8.626 22,414.5 69,875.6 47,461.1 35,626.0 23,893.1 13,247.7 −46,271.4 20.189 42.7 57.1 1,189.7c
Note: GAI = guaranteed annual income; GSTC = goods and services tax credit; NRTCs = non-refundable tax credits; SPSD/M = Social Policy Simulation Database and Model;
UGBI = universal guaranteed basic income.
a
Adjusted household income is the disposable income of the household divided by the square root of household size.
b
The counts are of nuclear families, which include parents and children younger than age 18 years as well as non-family persons.
c
The discrepancy of $1,189.7M between benefits and contributions is due to the fact that the UGBI is set at a level that fully compensates the family for the total change in its
disposable income, which is typically greater than just the change in taxes paid resulting from the elimination of the NRTCs and the GSTC. For example, for just the federal UGBI,
the combined value of the increased federal taxes and the elimination of the GSTC is $50,924.98M, and the total value of the UGBI is $51,175.13M, some $250.15M more. Of this
$250.15M, $180.47M is due to the loss of other federal transfers induced by the loss of the selected NRTCs as calculated by the SPSD/M. In addition, there is a loss of $13.9M in
provincial transfer payments and an increase in provincial tax payable of $45.85M, all of which adds up to $240.22M.When the NRTCs for each province are also eliminated, the
SPSDM calculates similar changes in both federal and provincial transfers and taxes, resulting in a larger loss of disposable income than just the value of the change in provincial
taxes.
Source: Statistics Canada (2016). Calculations by the authors.

doi:10.3138/cpp.2018-043
 Is Canada Ready for Real Poverty Reduction through a Universal Guaranteed Basic Income? 441
consensus on some of the biases associated with the esti­
mation of labour supply response from nonexperimental
data (Hum and Simpson 1991, chapter 3; Jakubson 1988;
Mroz 1987), which favoured lower elasticity estimates.
This consensus is reflected in the research program of the
US Congressional Budget Office and in McClelland and
Mok’s (2012) most recent review, which we have incorpor­
ated into the microsimulation analysis of the UGBI plans
in our article. This behavioural response includes both
effects at the intensive margin (hours) and the extensive
margin (participation) to address precisely the concerns
raised by Kesselman (2018, 428, 431).
Although labour supply has been the focal point of con­
cerns about the disincentive effects of a negative income
tax, other aspects have been examined. Several studies of
the impact of the US and Canadian experiments on marital
and family stability have found no adverse effects (Cain
1986; Cain and Wissoker 1990; Choudhry and Hum 1995);
Hum and Choudhry 1992. Hanushek (1986) did not find
that the US experiments affected family consumption
patterns, although they did result in an increase in school
attendance that appeared to offset the decline in labour
force participation for youth almost completely. In other
words, many of the anticipated disincentive effects of a
BIG or negative income tax have been rigorously investi­
gated and found to be either entirely absent or modest and
certainly not prohibitive in terms of the well-understood
trade-off between equity and efficiency.2
Although most of Kesselman’s (2018) concerns are
traditional and have been studied, he does raise a new
issue. He cites recent research that suggests that “the
labour-type responses to the METR increases imposed
by a BIG are much broader than total work hours” and,
in particular, cites research by Blomquist and Selin (2010)
that finds that “the wage-rate impacts of changes [to]
METRs are at least as large as the work-hours impacts”
(Kesselman 2018, 427). In recent years, the literature on
the excess burden of taxation has extended beyond the
consumption–leisure trade-off captured by labour sup­
ply response to consider other margins of behavioural
response—such as effort and career choice that affect
wages but also tax avoidance and evasion—encapsulated
in the elasticity of taxable income. After an extensive re­
view of this literature, Saez, Slemrod, and Giertz (2012)
conclude that, although the elasticity of taxable income
is likely higher than the elasticity of labour supply alone,
its application to the determination of efficiency loss has
been overstated. Moreover, they argue that the empirical
evidence, including Blomquist and Selin’s analysis, suf­
fers from weak identification strategies associated with
tax reforms for higher incomes that are very sensitive to
specification and are therefore unreliable at this stage.
More recently, Kleven and Schultz (2014) have used
rich administrative data for the entire Danish population
that exploits a series of across-the-board tax reforms that
doi:10.3138/cpp.2018-043 © Canadian Public Policy / Analyse de politiques, December / décembre 2018
provide more powerful identifying variation than previ­
ous studies. They find robust results that the elasticity
of taxable income is quite modest and within a range
captured by the labour supply elasticity estimates we use
in our microsimulation analysis. They also find that their
elasticity estimates are even smaller for smaller tax chan­
ges of the sort proposed by our UGBI. Consequently, we
do not see compelling evidence for efficiency costs beyond
those we have captured using labour supply response.
Why does policy discussion of a BIG appear more
serious recently at the provincial and federal levels, in­
cluding Quebec’s proposed “revenu minimum garanti”
(Gouvernement du Québec 2018), Ontario’s recently
cancelled basic income pilot project (Ontario Ministry
of Finance 2016), and the federal Liberal party platform
proposal for a “minimum guaranteed income” (Liberal
Party of Canada 2016)? The answer, we think, is twofold.
First, poverty persists in advanced economies de­
spite decades of discussion, research and policy action,
and Canada’s record on poverty is particularly weak.
The Conference Board of Canada (2018) recently ranked
Canada 13th among 16 peer Organisation for Economic
Co-operation and Development (OECD) countries in over­
all poverty and 15th in child poverty, ahead only of the
United States, despite a parliamentary resolution in 1989
to eliminate child poverty by 2000. A BIG is viewed as the
most appropriate general and direct measure to deal with
this persistent stain on market-oriented economies, a matter
to which we return in discussing the current multifaceted
approach to poverty reduction.
A second reason for more serious consideration of
a BIG is the growing evidence that the social impact of
poverty is extensive and intergenerational. The Confer­
ence Board of Canada (2018) refers to a consensus that
poverty “can lead to higher crime rates, illness, substance
abuse, and poor educational outcomes, which, in turn, af­
fect the economy through lost productivity [and] can also
lead to discrimination, inequity, and social exclusion.” An
impetus for this view of the detrimental social impact of
poverty is recent research on the long-term social out­
comes of the unique Mincome saturation site in Dauphin
that ran from 1974 to 1978. Forget (2011) uses a quasi-
experimental approach based on administrative health
records to estimate that the single Mincome program with
a tax rate of 50 percent made available to all Dauphin
residents was associated with an 8.5 percent reduction in
hospitalization rates and a reduction in physician claims
for mental health disorders, potentially important health
outcomes and savings to the health system.
Kesselman’s (2018) general concerns about a BIG are
part of a larger debate about its relative merits that will
continue and evolve because poverty is an important
social problem. It is a problem that has defied other, less
direct solutions and shows no signs of disappearing. This
is the starting point of our article: What measures can
442 Stevens and Simpson
government introduce that would be truly effective in re­
ducing poverty in Canada with minimal loss in economic
efficiency? In addition, what measures can government
introduce that would improve the fairness of the tax
system by addressing the asymmetric treatment faced
by taxpayers lacking sufficient taxable income to receive
existing tax credits? Our proposal is for a UGBI that could
be achieved quite simply and directly by making an exist­
ing slate of non-refundable tax credits refundable.
Is our uGBI Plan a Good Idea?
Kesselman (2018) cites survey evidence that “59 percent
of respondents felt that a BIG would be too costly for
government and would discourage people from work­
ing” (429), which agrees with the point of departure of
our article (Stevens and Simpson 2017, 121). We started
from the premise that the slow progress toward a BIG re­
flected the seemingly prohibitive challenges of justifying,
devising, and financing a grand guaranteed income plan
but that such a grand design is not necessary because a
BIG can be achieved through tax reform. These reforms,
the development of refundable credits to replace exist­
ing non-refundable tax credits, have precedents in the
introduction of the Goods and Services Tax Credit and
the recent conversion of dependent child tax credits to a
refundable credit, the Canada Child Benefit. They are also
consistent with the literature on optimal taxation, which
argues for negative tax rates at the bottom of the income
spectrum. Perhaps the best expression of this principle is
found in the chapter by Brewer, Saez, and Shephard (2010)
for the Mirrlees review of taxation in the United Kingdom:
One of the key concepts of optimal tax theory is that of a
net tax function, whereby people with high incomes pay
some of that income in positive taxes to the government,
and people with a low income receive money from the
government (by paying negative taxes); no conceptual
distinction is made between net recipients from and net
contributors to the state’s finances. (94)
Their analysis (112) argues for a U-shaped pattern of opti­
mal METRs with rates of about 70 percent at low income
levels declining to about 36 percent for moderate incomes.
Our analysis picks up on this principle of suboptimal
taxation and asks what progress toward the alleviation
of poverty could be made by converting existing non­
refundable tax credits to refundable credits to correct
what Boadway (2013, 3) labels the asymmetric treatment
of taxpayers and non-taxpayers. Although our UGBI need
not have been self-financing or budget neutral, our analy­
sis shows the significance of that asymmetric treatment in
limiting the benefits of existing tax credits to those without
sufficient taxable income. Kesselman (2018) argues that
“the flip side of any self-financing or budget-neutral re­
distribution scheme is that other households must pay for
the gains enjoyed by those who benefit” (428) and that “a
© Canadian Public Policy / Analyse de politiques, December / décembre 2018
wide swath of middle-income earners would bear large tax
hikes on account of the withdrawn tax provisions” (424).
Another interpretation of these results in our article,
however, is that they indicate the extent to which tax­
payers have benefited from tax credits at the expense of
non-taxpayers, because the savings to government from
making tax credits non-refundable permit greater credits
and lower taxes for taxpayers. This is not to argue with
Kesselman’s (2018) concern that our UGBI and the BIG
scheme proposed by Boadway et al. (forthcoming) “im­
poses the largest relative net burdens at middle incomes
and protects the highest income earners from bearing a
commensurate share of the costs” (433), a consequence
that would require additional tax measures or financing
to overcome. Kesselman’s reference to “broadening the
tax base measure of incomes, which could improve both
equity and efficiency while also generating more revenues
without raising marginal tax rates” (431) falls into this
category.
We also share Kesselman’s (2018) concern about the
implications of our UGBI for METRs that affect economic
efficiency and try to develop an UGBI that balances ef­
ficiency and equity considerations, settling on a federal
plan with a low benefit reduction rate of 15 percent that
coincides with the rate currently applied to the gross
value of federal non-refundable tax credits and results
in less adverse labour supply effects and efficiency loss
than alternatives (Stevens and Simpson 2017, 128–9). We
then use the same rationale to set the provincial benefit
reduction rates to coincide with the tax rates currently
applied to the gross value of the credits in each province.
This design recognizes the importance of keeping federal
and provincial rates low, even when combined, so that the
resulting METRs are consistent with the BIG literature.
Kesselman (2018, 426) uses the example of an un­
attached individual facing the federal and median
provincial tax rates whose METR under our UGBI would
be 48 percent from the first dollar of taxable income. Al­
though this METR may be higher than these individuals
currently face,3 it is consistent with any BIG design and
the 48 percent rate is consistent with all the experimental
designs to date. Indeed, 50 percent is the archetypical
benchmark METR in the negative income tax experiments
and the Ontario Basic Income Pilot (Ontario Ministry of
Community and Social Services 2018). Similarly, Kessel­
man’s calculated post-BIG METRs for specific family types
and provinces for our UGBI range from 40 percent to 59
percent, consistent with the design of the negative income
tax experiments and much of current policy considera­
tion, which justifies the design choices we made in our
illustrative plan. The justification of our UGBI design is
also strengthened by Kesselman’s comparison of our tax
rates with the standalone BIG plan articulated by Boadway
et al. (forthcoming) whose “total METRs could go to 70
percent or beyond” (Kesselman 2018, 426).
doi:10.3138/cpp.2018-043
 Is Canada Ready for Real Poverty Reduction through a Universal Guaranteed Basic Income? 443
A major point of our research, then, has been to develop
an UGBI design that keeps tax rates low and in line with
both the rates applied to current credits and negative in­
come tax experimentation and policy discussion but that
also provides effective income support. Our design, which
includes a federal guarantee of $13,314 for a family of four
and provincial guarantees that vary quite widely from
$4,196 in British Columbia to $14,632 in Quebec under
current tax arrangements, makes a truly important con­
tribution to poverty reduction and income support across
the lower end of the family income spectrum.4 Poverty,
defined by Statistics Canada’s Low Income Cutoff after
tax, is eradicated in single- and two-parent families and
among elderly individuals; it is virtually eradicated for
non-elderly couples; and poverty and its depth declines
substantially for non-elderly singles (Stevens and Simpson
2017, 136). Families with income up to twice the poverty line
generally realize improvements in disposable income, and
income inequality measured by the Gini coefficient falls by
7 percent across all Canadian families. This result reflects
the power of refundable tax credits or a BIG to address
income redistribution and the enduring poverty problem.
Also, our UGBI is truly redistributive. Although Kes­
selman (2018) cites the total tax credit budget of $84 billion
(actually $83.1 billion) inherent in our federal–provincial
UGBI plan, only $47.5 billion of the tax credit benefits
are redistributed across families as our new results pre­
sented in Table 1 indicate, or about $0.57 of every dollar
currently spent on these credits in their non-refundable
form. When we break down household income by decile
in Table 1 after adjusting for household size,5 $26 billion,
or more than half of the redistributed benefits, go to the
bottom two deciles and $36.8 billion, or more than three-
quarters of the redistribution, goes to those below the
adjusted household income median. In turn, $35.8 billion
or 77 percent of the contributions to redistribution (those
who realize smaller benefits as a result of the UGBI) are
supplied by families above the median adjusted household
income. As we reported in our article and considered in
our assessment of the best plan, a substantial proportion
of families (42.7 percent) benefit from the UGBI even after
considering labour supply effects on earnings, with the
largest proportions benefiting in the first income decile
(98 percent) and the second income decile (85.8 percent).
The last column of Table 1 offers an alternative, more
detailed look at the net benefits received across the ad­
justed household income spectrum by decile as a result of
the UGBI. Benefits exceed contributions only for the first
three income deciles, although benefits and contributions
are similar for the fourth decile. After that, contributions
significantly exceed benefits by amounts that rise by in­
come decile but are only slightly larger for deciles 9 and
10 than for deciles 5–8. This provides some substance to
Kesselman’s (2018) concern that our UGBI “would shift the
net burden disproportionately onto middle earners and
doi:10.3138/cpp.2018-043 © Canadian Public Policy / Analyse de politiques, December / décembre 2018
shield upper earners from commensurate tax increases”
(429), although upper earners would clearly also make
a significant contribution. Although a BIG based on the
conversion of tax credits to a refundable design need not
be self-financing, the absence of new financing in our UGBI
proposal necessitates a reallocation of tax credits toward
lower income families at the expense of all higher income
families (in the top seven deciles).
If not a BIG, then What?
Kesselman’s (2018) final two sections briefly discuss alterna­
tives to a BIG. These fall into three categories: a wage or
earnings subsidy, an active labour market policy to enhance
employability and earnings, and public services and merit
goods directed to the poor (Kesselman 2018, 430–32). Each of
these proposals is presumably combined with existing social
assistance and unemployment insurance benefits, which
we have retained in our UGBI as well. Before we look at
these policies individually, we would note that none of these
are new policies and all of them involve significant financing
and (dis)incentives in their own right. However, we would
also argue, none of these policies can address poverty as dir­
ectly as an effective unconditional benefit program designed
along the lines of a negative income tax or BIG.
The earnings subsidy is traditionally considered by
economists as an alternative to the BIG. The basic argu­
ment is that an earnings subsidy conditioned on low
family income will lower the METR and enhance work
incentives and earnings, although METRs will necessarily
rise as the earnings subsidy is phased out. This argument
underlies the development of the substantial Earned In­
come Tax Credit (EITC) in the United States and a more
modest Working Income Tax Benefit (WITB) in Canada.
Although there is evidence that the EITC increases labour
market participation, as expected, there is less evidence
that it has enhanced the hours worked by those who are
working, at least in the case of single mothers, and that is
likely why the impact on poverty has been more difficult
to find (Hoynes and Patel 2015; Meyer 2002). It is unlikely
that simple expansion of the WITB will provide much dif­
ferent results and have a dramatic impact on poor families;
that is, work participation and earnings in poor families
would likely rise, but not enough to pull most of these
families out of poverty. Families without work continue
to receive no benefit from an earnings subsidy, making
its conditionality a limitation in any comprehensive anti­
poverty strategy. Nonetheless, expansion of the WITB is a
potentially valuable tool to be considered in reducing the
work disincentives inherent in our UGBI, other BIG plans,
and existing programs to assist poor families.
“Active labour market reforms in social assistance,
Employment Insurance benefits, and education and train­
ing at all levels are essential” (Kesselman 2018, 431), but
there is no discussion of what reforms might be effective
that have not already been tried. The disincentive effects
444 Stevens and Simpson
of the “welfare wall” associated with the ineffective de­
sign of existing social assistance benefits have been well
documented and remain an issue (Milligan and Stabile
2007), although some progress has been made across the
provinces to reduce METRs along the lines of a negative
income tax system. We have not considered changes to so­
cial assistance programs despite their obvious links to the
provincial UGBI plans that we analyze, in part because the
programs provide emergency transfers and other in-kind
assistance that are beyond the scope of our current pro­
posal. We have similarly ignored Employment Insurance,
an important income maintenance program, but one that
also involves significant work disincentive effects (Shan­
non and Kidd 2000) and cannot directly assist families who
lack regular sources of employment income. In the absence
of any careful discussion of how these programs might be
expanded to make inroads on the alleviation of poverty,
our only comment is that these longstanding programs
each introduce their own efficiency considerations whose
scale, in comparison with the efficiency considerations of
a BIG enumerated by Kesselman, is difficult to determine.
Kesselman (2018) quotes Bergmann, who advocates
against “large universal cash grants” in favour of a
continuation of “welfare state provisions” that would
include “provision of ‘merit goods’ and of narrowly
targeted cash payments” (Kesselman 2018, 431) as well
as the active labour market programs discussed earlier.
He cites corresponding concerns that a BIG would crowd
out existing social programs as a cost-saving measure
(Kesselman 2018, 426), as though any new and potentially
more effective policies to address longstanding poverty
and other social ills should be greeted with immediate
suspicion rather than thoughtful scrutiny. One import­
ant attraction of a BIG, self-financed or not, has always
been on the grounds that cash transfers improve welfare
compared with equivalent in-kind transfers, a point that
Kesselman makes quite eloquently:
a beneficiary would always prefer (or at best be indiffer­
ent between) a given amount of money versus a bundle
of goods and services that could be purchased for the
same amount. The reasoning is that a bundle dictated
by anyone else will be less valued than the bundle the
individual would choose—unless the two happened to
coincide precisely. Thus, cash transfers are deemed to be
more efficient than in-kind transfers such as the medley of
housing, health care, child care, and other services that a
government might choose to provide or to subsidize. (432)
Hence, a well-designed BIG remains an attractive
policy tool when the primary concern is income deficiency
and not consumption paternalism.
There may be specific cases in which cash trans­
fers are not as effective as in-kind provision of public
goods for reasons Kesselman (2018, 432) summarizes.
We do not think, however, that improving these public
© Canadian Public Policy / Analyse de politiques, December / décembre 2018
services—housing, retraining, immunization, child care,
legal aid, counselling, medical, and rehabilitation servi­
ces—and others will make significant inroads into poverty
when poverty continues to be defined in monetary terms.
Although advocacy of these services is often made in
terms of poverty alleviation, we have seen virtually no
evidence that there is any direct relationship between their
provision and improvement in the incidence and depth
of poverty as it is conventionally measured. However, a
BIG directly addresses the alleviation of poverty and, as
we have shown in our article, can eradicate most of the
poverty that we currently measure. We do not dismiss
the importance of alternative strategies to tackle other
problems experienced by low-income populations, but a
BIG is required to address its root cause, the lack of income
support. Moreover, many if not most of those forms of
intervention are already in place, whereas cash poverty
continues to pose serious difficulties for many families.
What if our UGBI is too ambitious at this stage? As we
said at the outset, we take the opposition to a BIG and its
implied cost to be an important barrier. Poll results re­
jecting new taxes to pay for a BIG (Kesselman 2018, 13) do
not surprise us and the self-financing aspect of our UGBI
provides a budgetary foundation to address this concern.
The key findings of our UGBI should be encouraging
because we show that it can eliminate most of the cash
poverty that Canadian families now face with losses in
existing tax credit benefits that are spread across middle-
and upper-income families. Although Kesselman (2018)
characterizes the tax increases on middle-income earners
as large, they are neither inconsistent with the tax range
associated with BIG proposals and experimentation nor
do they fall heavily on any particular family type or
income level (Stevens and Simpson 2017, 135, Table 15,
and Table 1 in this article). That said, it is not difficult
to understand why federal and provincial governments
might want to proceed more gradually. Our key mes­
sage is that well-designed refundable tax credits offer
a powerful method to redistribute income and alleviate
poverty and that federal and provincial governments
can steadily address cash poverty by following two
simple rules:
1. Make all future new tax credits refundable on the
grounds of fairness (to non-taxpayers) and progressivity.
2. Convert existing non-refundable tax credits to refund­
able credits whenever circumstances permit.
Acknowledgements
Table 1 is based on Statistics Canada’s Social Policy Simu­
lation Database and Model, version 22.1. The assumptions
and calculations underlying the simulation results were
prepared by Harvey Stevens and Wayne Simpson, and
the responsibility for the use and interpretation of these
data is entirely theirs.
doi:10.3138/cpp.2018-043
 Is Canada Ready for Real Poverty Reduction through a Universal Guaranteed Basic Income? 445
notes
1 Despite the appeal of simplicity, there are many important
and potentially complex issues associated with the design
of a negative income tax plan, many of which have been
explored in social experiments. For a discussion of some
of these issues and references to the technical design docu­
ments of the Manitoba experiment, see Simpson, Mason,
and Godwin (2017).
2 See, for example, the analysis and references to the broad
literature on the equity–efficiency trade-off in Lambert
(1990).
3 Individuals receiving social assistance may actually face
much higher METRs in the form of provincial benefit re­
duction rates of 70 percent or more.
4 Family income is the sum of market income, pension in­
come, and federal and provincial transfer payments less
allowable deductions. The “nuclear” definition of the fam­
ily unit—which includes two-adult or lone-parent families
plus never-married children younger than age 18 years as
well as non-family persons—is used to be consistent with
the definition applied by the Canada Revenue Agency. For
families with two adults, the UGBI benefit is provided as
separate equal payments to each adult. For further details,
see Stevens and Simpson (2017, 125–6).
5 Adjusted household income is household disposable in­
come divided by the square root of household size, a stan­
dard equivalence scale used by the OECD and in our earlier
article (Stevens and Simpson 2017, 125).
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