Thursday, November 15, 2007

THE MANITOBA MINCOME EXPERIMENT

Author: M. L'Heureux

Introduction
The Mincome Project, also called the Manitoba Basic Guaranteed Annual Income Experiment, [was] the “first large scale social experiment in Canada and [was] designed to evaluate the economic and social consequences of an alternative social welfare system based on the concept of negative income tax (NIT)” (Hum, Laub & Powell, 1979, Report 1, p.1). The experiment took place between 1975 and 1979 in Winnipeg and Dauphin, Manitoba. The research project was jointly funded by the Federal Government of Canada and the Manitoba Government (Hum, Laub & Powell, 1979, Report 1, p.1). Little is known about the experiment as the federal government chose to shelve the report for reasons still unknown to the public. The raw data that was accumulated during the experiment is still relevant to today’s Guaranteed Income debates and is available in some academic libraries and in all provincial legislatures.

“The Mincome experiment was designed by researchers and officials of Mincome Manitoba, the Department of Health and Social Development, Manitoba, and the Policy Research and Long Range Planning Branch of the Department of National Health and Welfare, Ottawa. Mincome Manitoba was the Agency established to administer the project and [was] solely responsible for all experimental operations” (Hum, Laub & Powell, 1979, Report 1, p.1). The implementation of such eventual social policy was to remain under the responsibility of the Department of Health and Social Development.

1. Definitions
Guaranteed Income

A basic income is an income paid by a political community to all its members on an individual basis, without means test or work requirement. This definition does not fit all actual uses of the English expression "basic income", or of its most common translations in other European languages, such as "Bürgergeld", "allocation universelle", "renda basica", "reddito di cittadinanza", "basisinkomen", or "borgerlon". Some of these actual uses are broader: they also cover, for example, benefits whose level is affected by one's household situation or which are administered in the form of tax credits. Other uses are narrower: they also require, for example, that the level of the basic income should coincide with what is required to satisfy basic needs or that it should replace all other transfers. The aim of the above definition is not to police usage but to clarify arguments.

- Basic Income European Network (2001).

Negative Income Tax Principle
The notion of a negative income tax first appears in the writings of the French economist Augustin Cournot (1838). It was briefly proposed by Milton Friedman (1962) as a way of trimming down the welfare state, and explored at more depth by James Tobin (1965, 1966, 1967, and 1968) and his associates as a way of fighting poverty while preserving work incentives. On the background of an explicit tax schedule which taxes no income at 100% and which can be, but need not by definition be, linear, a negative income tax amounts to reducing the income tax liability of every household (of a given composition) by the same fixed magnitude, while paying as a cash benefit the difference between this magnitude and the tax liability whenever this difference is positive. Suppose the fixed magnitude of the tax credit is pitched at the same level as under some basic income scheme under consideration. Someone with no income, and hence no income tax liability will then receive an amount equal to the basic income. As the income rises, the benefit will shrink, as in the case of conventional means-tested schemes, but a slower rate, indeed at a rate that will keep post-and-transfer income at exactly the same level as under the corresponding basic income scheme.

- Basic Income European Network (2001).

Canada Assistance Plan
From 1966-67 to 1995-96, the Canada Assistance Plan (CAP) was the funding mechanism that the federal government used to contribute financially to the cost of provincial and territorial ("P/T") social assistance and social services. In April 1996, the Canada Health and Social Transfer (CHST) replaced CAP as the vehicle for federal transfers for to P/T governments for social programs.

- Canada Assistance Plan Canada Health and Social Transfer Resources Page (2002).

2. The Need for a Basic Guaranteed Income Experiment
During the 60’s, the Canadian government became increasingly concerned with the poverty level, and "declared war" on poverty. In 1967, the CAP project, or Canada Assistance Plan, was implemented and considered as "the centerpiece of Canada’s antipoverty efforts” (Hum & Simpson, 2001, 43). One year later, in 1968, the Economic Council of Canada reported that poverty was still “wide spread beyond belief” (Hum & Simpson, 1991, xi). “Two years later, a report by the Department of National Health and Welfare titled Income Security for Canadians (1970), proposed to reform family allowances by introducing the Family Income Security Plan – an income-tested program” (Hum & Simpson, 1991, 43). In 1971, the Croll Report, also called the Report of the Special Senate Committee on Poverty and nicknamed after its chair, David Croll, showed a rather alarming picture of poverty in Canada. David Croll subsequently called for a "Guaranteed Annual Income based on the negative tax principle, that is, delivered on an income-tested or selective basis” (Hum & Simpson, 1991, 43). Canadian poverty was on the rise and social programs were failing. A new social policy instrument was needed.

3. The Mincome in the Making
“In 1971, a federal-provincial conference was held in Victoria in an attempt to patriate the constitution” (Hum & Simpson, 1991, 43). Quebec refused the terms of the Victoria Charter on the basis that if failed to provide for a “jurisdictional settlement in the field of social policy” (Hum & Simpson, 1991, 43). Other provinces expressed their concerns over the proposed social policy framework and tensions consumed the political scene. Meanwhile, the province of Manitoba expressed its interests in being the testing ground for a guaranteed income project (Hum & Simpson, 1991, 43). In March 1973, “Manitoba submitted a proposal for a guaranteed annual income project and applied for funding to the Department of National Health and Welfare. The proposal was approved two months later, and in June of 1974, The Federal Government of Canada and the province of Manitoba formally signed the Agreement Concerning a Basic Annual Income Experiment Project covering cost-sharing arrangements and the respective roles of the two governments” (hum & Simpson, 1991, 44).

When Manitoba initially showed interest in a Guaranteed Income Experiment, it foresaw a project for which the cost would be just over $500 000, and involve between 300 and 500 families (Hum & Simpson, 1991, 45). “Shortly after, the federal government announced that it would develop a program to cover 75 per cent of the cost associated with the project” (Hum & Simpson, 1991, 45). In the end, the project involved over a thousand families and cost just over 17 million dollars. The Mincome Project had become Canada's largest scientifically-based social experiment (Hum & Simpson, 1991, 45).

The general goals associated with the implementation of a Basic Annual Income policy were to reduce poverty and provide an economic base for all Canadians. Specific goals associated with the experiment itself were much narrower in nature, and can be classified in three categories.

A) Experiment Specific Goals
In part, the specific goals aimed at evaluating the work disincentives associated with providing Canadians with a guaranteed income (labour supply), and to evaluate the cost of sustaining such a social program (Hum & Simpson, 1991, 49). “Labour supply included factors such as the participation of primary and secondary earners in the labour force; the number of hours worked; the job search process, including time and resources devoted to the search; job satisfaction and attitudes towards work; and issues pertaining to investment in human capital” (Hum & Simpson, 1991, 49).

“Labour supply became the primary concern because it has two types of cost implications if a permanent negative income tax program were established” (Hum & Simpson, 1991, 49). “First, changes in labour supply will result in changes in the family income and this, in turn, will affect the cost of the transfer payments. Second, systematic changes in individual work patterns for large numbers of the population can affect the total labour supply available and result in lower national income” (Hum & Simpson, 1991, 49). Hum and Simpson (1991) also mention that changes “in the supply of particular types of labour could cost severe adjustment problems for industries, sectors, or regions dependant upon that type of labour” (49)

B) Secondary Objectives
The secondary objectives include: “1) family behaviour, especially family formation and disintegration; 2) youth behaviour, and whether or not their response is different from the general population; 3) community involvement and participation, including cooperative behaviour and community-related values and attitudes; and 4) geographic mobility, whether or not a guaranteed income will affect the decision to move (Hum & Simpson, 1991, 49).

C) Program Administration Objectives
“There are a number of limited objectives in the area of program administration. These include the assessment of: 1) the accuracy of the information supplied to the program by the participants; 2) the participant’s comprehension of the administrative structures; and 3) the cost, responsiveness, and equity of the experimental delivery system” (hum & Simpson, 1991, 49).

The experiment was subjected to contextual constraints such as budget cuts and federal spending policies designed to reduce funding. Such constraints would be present in an eventual implementation of the Guaranteed Annual Income and would be coupled with income tax policies and regulations, human rights policies, labour policies, CPP regulations and reforms, family law reforms, and anything else that would be affected by a change in the labour supply and family income.

4. Features

“The negative income tax (NIT) payment system use in the [Mincome] Experiment may be described in terms of two basic parameters: an annual basic support level and an offset tax rate” (Hum, Laub & Powell, 1979, Report 1, p.7).

A) The Income
“The annual support level (G) depends upon both family size and composition and represents the payment (Guaranteed Annual Income) the family would receive if it had no other source of income or wealth. As the family’s income and/or net worth increases, the payment for which they are eligible declines” (Hum, Laub & Powell, 1979, Report 1, p.7).

B) Offset Tax Rate
“The rate at which increments in earned income are offset against payments is determined by a constant offset tax rate (t). The rate at which increments in net worth or wealth are offset against payments is referred to as the net worth tax rate (r)” (Hum, Laub & Powell, 1979, Report 1, p.7).

The simplest form of this program for a typical family unit can be represented as:
P = G – t*Y – r*W
Where
P = the payment under NIT program
G = the support level for a representative family
t = the offset tax rate
Y= family income
r = the net worth tax rate
W = family net worth (assets minus liability)
(Hum, Laub & Powell, 1979)

“The support level also varied according to the size of the participating family in order to provide similar minimum standards of living to all family sizes and hence offer[ed] a “neutral” support structure which would not systematically discriminate against any family size” (Hum, Crest & Komus, 1979, 11). “The adjustment was effected through a pre-determined family size index which attempted to balance the economies of scale involved in family consumption against any incentive inherent in the index to encourage a family to split into smaller units” (Hum, Crest & Komus, 1979, 11). The support levels were adjusted periodically to maintain a constant “real value over the duration of the program” (Hum, Crest & Komus, 1979, 11).

5. Conclusion

The findings of the Mincome Manitoba Experiment have been characterised as inconclusive by some; however, the rational for holding such a position remained elusive. Derek Hum, Director of Manitoba Mincome at the time of the experiment, suggested that the findings constituted valuable instruments for the development of social policy in Canada.

The findings demonstrated that a guaranteed annual income would have little influence in terms of work disincentive. The subjects of the experiement would not stop working, or intend to work less, because of a guaranteed income (Hum & Simpson, 1991, 43). To evaluate the cost of implementing and operating such a social program, one must definitely consider “the big picture”. For instance, the current welfare system is costly and does not provide work incentives. In fact, welfare recipients are penalised or deprived of financial support as soon as they earn an income. This income is usually too little to improve the condition of the recipient and the penalty (reduction of the amount of the welfare cheque) is usually greater than the income or benefit incurred by the recipient. Therefore, what about
allowing welfare recipients to have a salary while receiving their allowance until their financial situation makes them financially independent? The Salary would be a taxable income, a source of revenue for the government. The individual would be headed towards financial independence, and the government would not incur any additional costs.

The Manitoba Mincome Experiment was born in a time of welfare development in Canada. Social policies were designed in an attempt to reduce the gap between the various socio-economic classes and to develop a sustainable welfare system . Today, the anti-poverty efforts are rather slim, and the social safety net as a whole has lost much of its elasticity. While a Guaranteed Annual Income may or may not be a perfect solution to Canada's poverty problems there is one sure thing: there once were 17 million good reasons to try to find out.

Follow the hyperlink to access an article on Garanteed Annual Income by Professor Derek Hum.
http://www.irpp.org/po/archive/jan01/hum.pdf

Books
Hum, D., & Simpson, W. (1991). Income Maintenance, Work Effort, and the Canadian Mincome Experiment. Ottawa: Economic Council of Canada.


Hum, D. P. J., Laub, M. E., & Powell, B. J. (1979a). The Objectives and Design of the Manitoba Basic Annual Income Experiment. (Vol. Technical Report No. 1).Winnipeg: Mincome Manitoba.


Hum, D., Crest, D., & Komus, D. (1979c). The Design of the Payments System of Mincome Manitoba. Winnipeg: Mincome Manitoba.

Websites
Basic Income European Network (2001). <
http://www.etes.ucl.ac.be/BIEN/BI/FAQ.htm>. Accessed on November 4th.

Canada Assistance Plan Canada Health and Social Transfer Resources Page (2002). <
http://www.fathers.ca/canada_assistance_plan.htm>. Accessed on November 6th.