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Roslyn KuninIncome is, for many people, a sexier thing to talk about than sex.

Conversations and media are focused on who gets how much. That the rich have lots and are getting more rots our socks. Thomas Piketty in his book, Capital in the Twenty-first Century, advocates for a global wealth tax to distribute income more evenly. It would not directly help the poor, he concedes, but it would get those fat cats at the top.

One way to help those at the bottom is to raise the wages of the lowest paid workers. Many jurisdictions have, or will be, raising the minimum wage. In Seattle, the minimum wage is now $15. In British Columbia, the minimum wage is $10.25 per hour, and this will rise to $10.45 in September.

An even bigger idea is the living wage. It is calculated as the hourly wage a full-time worker would need to provide a basic standard of living usually for a family of four.

The City of Vancouver is planning to implement such a living wage – $20.68 an hour, rising as the cost of living rose. Few city workers are paid below that rate, but the policy would also apply to contractors who provide things like food services and lawn care to the city.

Raising wages is not an ideal way to help those with low income. It only helps those in low wage work, and it may not help all of them. Higher wages mean that employers, especially small businesses which are 90 percent of employers, will hire fewer people for fewer hours.

Governments, of course, can just pass the added costs onto taxpayers. And raising wages does nothing for those who do not have work – except possibly crate more of them.

A more novel idea – under serious consideration by Alberta`s new government – is that of a minimum income. Sometimes called a negative income tax, the idea was proposed by U.S. economist Milton Friedman. When your income is above the minimum, you pay taxes to the government; when your income is lower, the government pays you.

This system would be implemented through the current income tax system and thus lack the stigma and hassle of existing welfare payments. It would be efficient, replacing the many and variable public programs aimed at low income people.

It would cover everybody, not only those in work. And, according to its proponents, it would remove the disincentives in our social assistance programs to get back into work.

At first glance, a minimum income program or negative income tax sounds good, but the numbers do not work. A viable policy would have to meet three criteria:

  1. The minimum income offered needs to be set at a level high enough for a person and young dependents to survive without additional support. Adult dependents would themselves be covered. If the level is set so low that we still need other income support programs, a main advantage of the negative income tax is lost.
  2. The tax back rate on an additional dollar earned must be low enough that people feel that it is worth their while to go out and work. At relatively low income levels, people should not be charged higher income tax rates than those who are making millions. That is only fair. Ideally, they would be taxed at the same rate as those who are paying the lowest rates of positive income tax.
  3. The income level at which the government’s negative income payment goes to zero cannot be significantly above the incomes of working Canadians and taxpayers who are not being subsidized.

I spent an entire summer trying to find a set of three numbers that met these three conditions. I could not, and I challenge anyone else to do so.

For governments such as Alberta that are thinking of implementing a minimum income or negative income tax scheme, please do your homework first.

Troy Media columnist Roslyn Kunin is a consulting economist and speaker. 

© Troy Media


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