A tax benefit for the working poor?

This story in the Star points at (another) re-announcement of the Working Income Tax Benefit (WITB), a Canadian version of the US Earned Income Tax Credit first announced by then-finance minister Ralph Goodale in his economic and fiscal update prior to the last election. In the 2006 federal budget, the Tories announced they were continuing with the WITB, due to come into effect in 2008. Details of program design remain elusive.

I would not entirely discount the WITB. It would certainly put more money in the pockets of those who are working. But only in the pockets of those who are working. There is an assumption, picked up on in the article, that people are holding back from working and staying on welfare due to a “welfare wall”. While it is true that people on welfare lose benefits when they move to paid work, and this should be remedied, I’m skeptical of this view that people choose to stay on welfare. Welfare benefit rates are so low and the process for getting it so humiliating that most people on it would leave in a moment – if they could. And let’s not forget that this is all well and good when unemployment is low; if unemployment rates were to rise in a recession, the WITB would be cold comfort.

But some people are simply trapped in their situations. A single mom’s biggest single barrier to labour force participation is the lack of decent child care. And we all know what the Tories have done for child care. By cutting the transfer to the provinces in support of early learning and child care programs and replacing it with monthly cheques, they have placed more policy emphasis on the one-sixth of families who have stay-at-home parent than the other one-sixth that live in single parent families. Increasing welfare benefit rates and earnings exemptions (the amount that can be earned before benefit rates are reduced) would be of more benefit to that demographic, in addition to the provision of more child care.

This points to the need for a more holistic approach to fighting poverty. Another concern with the WITB is that it may be a substitute for increases in the minimum wage (a national campaign is underway to increase the minimum wage to $10 an hour) and more friendly labour legislation that enables service sector workers (who have the lowest wages) to form unions. A WITB could play a role in combination with those other things, but it alone is not the answer, and its supporters begin with some faulty premises.

2 comments

  • Here’s a link to a paper I did on income supplements for the working poor – a limited tool, but of use if implemented in a wider policy context as Marc says. I would stress the need for integration with a decent minimum wage to avoid subsidies to low wage employers.

    http://canadianlabour.ca/index.php/Jobs__Economy/864

  • The benefit won’t include some groups like people with disabilities collecting CPP disability which disqualifies them from provincial benefits.
    Some of these are living on as little as $1000 per month, paying income tax and receiving no benefits. Most won’t get the disability deduction because of the severe restrictions to qualify.
    A simpler, more equitable and less judgemental way to benefit the poor with earnings would be to simply raise the basic personal exemption so they can earn more before paying income tax.

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