A Simple Universal Basic Income Model for Canada Basic Income

For the purpose of furthering discussion, S. Lerner, C. M. A. Clark, and W. R. Needham have developed a rudimentary Universal Basic Income (UBI) system for Canada in their book Basic Income: Economic Security for All Canadians.  It is designed to replace the majority of Canada's social welfare and income assistance programs.  This UBI model is not an actual proposal, but a hypothetical proposal that allows the issues raised by such a proposal to be discussed.  Much greater resources than those available for this proposal would be required to develop a complete Canadian UBI proposal.  (Please note that this model leaves provincial taxes and the GST unaffected.)

Basic Income Categories

Category                  Amount
Senior (65 and up)         $7,000
Adult (21 to 64)              5,000
Child                              3,000
Household                      5,000

Cost of a UBI

The total cost of a UBI is $198.6 billion or 20.8 % of the GDP (1999), and is computed as follows:

C. Clark estimates Canada has a population of 30,600,000 people of which there are:

3,794,000 people 65 years of age and older (12.4%) +
18,758,000 people from 21 to 64 years (61.3 %) +
8,048,000 children (26.3%) = 30,600,000 people

This population comprises 10,820,000 households as estimated by the Dept. of Finance.  Thus:

(3,794,000 x $7,000) +
(18,758,000 x $5,000) +
(8,048,000 x $3,000) +
(10,820,000 x $5,000) = $198.6 billion

Existing Federal Spending, 1999/2000

The Dept. of Finance estimates total federal spending for 1999/2000 at $153.7 billion comprised as follows:

$42.5 billion in interest payments on the federal debt +
$36.9 billion in transfer payments to persons +
$20.4 billion in transfer payments to provinces +
$18.6 billion in direct federal spending +
$3.9 billion to crown corporations +
$8.7 billion on defence +
$22.7 billion on other = $153.7 billion

Federal Spending Required for UBI

The simple UBI model requires total federal spending of $315.4 billion calculated as follows:

$153.7 billion (existing spending) +
$198.6 billion (cost of a UBI) –
$36.9 billion (replaced by a UBI – see above) =
$315.4 billion

Existing Federal Government Revenue, 1999

The Dept. of Finance estimates total federal revenue for 1999 at $157 billion comprised as follows:

$75.0 billion (from personal income tax) +
$20.9 billion (from corporate income tax) +
$18.3 billion (from employment insurance premiums) +
$32.3 billion (from consumption taxes) +
$7.5 billion (from non-tax revenue) +
$2.9 billion (from other sources) = $157 billion

Required Flat Federal Income Tax for UBI

Using a flat tax for simplicity the required income tax rate would be 41.41 percent and is calculated as follows:

Recalculate existing government revenue:
$157 billion (total government revenue) –
$75 billion (income tax revenue replaced by a UBI) –
$18.3 billion (employment insurance replaced by a UBI)=
$63.6 billion

The additional revenue required will be $251.8 billion ($315.4 billion – $63.6 billion).  C. Clark estimates projected taxable income for 1999/2000, excluding $83.3 billion in corporate profits, at $608.1 billion.  Thus the flat income tax rate is $251.8 billion ÷ $608.1 billion = 41.41 percent.

Remarks About the Flat Tax Estimate

The 41.41 percent flat income tax is a conservative estimate.  Because estimates of national income frequently miss capital gains income that would be taxable under a UBI system this flat tax would probably be significantly lower.  Moreover, were a UBI system to be developed either by a government agency or a well-endowed research institute, methods of taxation other than a flat tax could easily be devised, and, once again, the tax rate could be dramatically reduced.

General Comments

A UBI is not some kind of far-fetched utopian dream.  Ireland, which has recently led the world in economic growth, is currently studying the feasibility of a UBI.  Although North Americans are still heavily influenced by the puritan idea that God rewards hard-working people with material prosperity, the full impact of the historic change in the nature of work has yet to be felt.  Very often, in human affairs, the sensible course of action is only chosen after all other alternatives have been exhausted.  So it may be here.  But ideas have a life of their own, and it is useful to have the outline of another possibility.  The table on the following page shows how most Canadians would be affected by the implementation of the very simple flat-income-tax UBI model that is described above.  (Note that the figures in the After Tax Income With UBI column are computed by multiplying the figures in the Earned Taxable Income column by 58.59% (100% – 41.41%) and then adding the figures in the Untaxed UBI column).