The Working Poor and the Working Income Tax Benefit
Here is a short research paper I wrote for the Broadbent Institute.
And here is a short summary:
The Liberal government have promised to make progressive changes to the Working Income Tax Benefit (WITB) in next week’s budget.
Let’s hope that they deliver. The increased insecurity of work and low hourly wages for many workers mean that many Canadians live in poverty even though they have a significant attachment to the paid work force.
The WITB is directed to the working poor, that is, individuals and families who have significant earnings, and sometimes even work full-time for a full year, but still live in poverty. About one half of all working age persons living in poverty have significant earnings.
Higher minimum wages in some provinces mean that a single person working full time for a full year will earn enough to be above the poverty line. But most of the working poor can only find part-time and insecure jobs, and need additional income support
The WITB currently delivers a meagre average benefit of just $807 per year, and the benefits for a single person are phased out once income passes a very low threshold of just $12,000, well below the poverty line.
The benefit should be significantly increased, and phased out at a much higher level of earnings.
The WITB was also intended to make work pay and to help people transition from social assistance. But just 8.8% of social assistance recipients get any benefit from the program.
Many social assistance recipients would like to work, but face multiple barriers such as loss of health and housing benefits and high claw back rates on every dollar of earnings. The WITB could help, but benefits are paid only after a long lag of up to one year.
The WITB could, together with decent minimum wages, help lift the working poor out of poverty.
But major changes are needed.
Letter to Toronto Star:
Re: Federal government wants Canadians more aware of tax benefit aimed at working poor, The Canadian Press, Feb. 21, 2018
https://www.thestar.com/news/canada/2018/02/21/federal-government-wants-canadians-more-aware-of-tax-benefit-aimed-at-working-poor.html
For those without jobs, the Working Income Tax Benefit (WITB) provides no benefits. And while the WITB may assist a few, it also lets employers keep wages low. Canadians willing to work deserve a minimum livable wage, not band-aid tax credits.
In 1937, Tommy Douglas and the CCF asked the government to put $500 million into a program to offer jobs to the single unemployed. The government responded, “Where will we get the money?” But by 1944, the unemployment rate dropped to 1.4% because the government put 1.1 million additional Canadians on the public payroll as members of the armed forces (one out of every three adult males).
If the government were determined today, it could achieve full employment by offering a Job Guarantee with training to everyone willing to perform community service. Funded by the federal government but administered by local municipalities and non-profit groups, this jobs program would create an effective wage floor, and also offer the private sector a pool of active, healthy workers from which to recruit.
_________________________________________
Footnotes to follow.
Footnotes to Letter to Editor:
1. Tommy Douglas was a “macroeconomist”, not a “provincialist”!
PEF: 2016/12/05
Tommy Douglas:
“In 1937 when the CCF proposed in the House of Commons a $500 million program to put single unemployed to work, the Minister of Finance said where will we get the money? Mr. Benson asked the same question today. My reply at that time was that if we were to go to war, the Minister would find the money. And it turned out to be true.
In 1939, when we declared war against Nazi Germany, for the first time we used the Bank of Canada to make financially possible what was physically possible. We took a million men and women and put them in uniform. We fed and clothed and armed them. The rest of the people of Canada went to work. The government organized over 100 Crown corporations. We manufactured things that had never been manufactured before. We gave our farmers and fishermen guaranteed prices and they produced more food than we had ever produced in peace time. We built the third largest merchant navy in the world and we manned it.
In order to prevent profiteering and inflation, we fixed prices, and we did it all without borrowing a single dollar from outside of Canada. … And my message to the people of Canada is this: that if we could mobilize the financial and the material and the human resources of this country to fight a successful war against Nazi tyranny, we can if we want to mobilize the same resources to fight a continual war against poverty, unemployment, and social injustice.”
2. The Social Enterprise Sector Model for a Job Guarantee
http://neweconomicperspectives.org/2014/01/social-enterprise-sector-model-job-guarantee-u-s.html
“Imagine 25 million people with no income or precarious forms of income. Now imagine 25 million with a decent base wage. The effect on the private for-profit sector would surely be more stable demand, ringing cash registers, increasing profits, growth and, yes, a lot more better-paying private sector jobs.
***
The experience of the New Deal and Argentina’s Plan Jefes shows that such programs can be up and running in 4 to 6 months and useful tasks can be performed even by the least skilled and least educated citizens.”