David Frum

02.01.13

Let's Revisit the Negative Income Tax

In the 1960s, poverty was a much more urgent national concern than it is today. Poverty was engaged by thinkers on the right as well as on the left, and perhaps most creatively by Milton Friedman, who urged a "negative income tax" - later known as the guaranteed annual income.

The Johnson administration funded experiments with the guaranteed annual income in different jurisdictions. The most famous was set in Seattle, Washington. The question tested was whether the guaranteed income would damage work incentives. The conclusion reached was: yes. For that reason, and others detailed by Daniel Patrick Moynihan in his classic study The Politics of a Guaranteed Annual Income, the concept was abandoned. Today's Earned Income Tax Credit is its successor, and it is available only to those already committed to work.

But maybe that experiment was misunderstood? In the current issue of the Literary Review of Canada, Hugh Segal - a Conservative member of the Canadian Senate - argues for a positive evaluation of Canada's ambitious experiments with a guaranteed income.

In Dauphin, Manitoba, in the mid 1970s, the governments of Manitoba and Canada undertook an experiment called MINCOME, where residents in this farming community were guaranteed that, if the crop prices collapsed, any resident family could be topped up in the fall. In other words, between 1974 and 1978 every resident family in Dauphin was guaranteed an annual income should their own income fall below the poverty line.

This guarantee was similar to welfare but there were no clawbacks if a person was employed, and the rules were not onerous. The amount received was theirs—no strings attached. For the most part, this project assisted the working poor. The entire cost for the five-year experiment, including all researchers and staff, was $17 million.

The concerns then are the same as today—if you give someone something for nothing, is he or she going to quit a job, stay home and become a burden? The answer, to the surprise of some then and probably the captains of inertia today, was no. We are only discovering the results of this 40-year-old experiment now because, as often happens with government research, elections occur, priorities change and evaluations are shelved. Indeed, 1,800 boxes of paper—the results of MINCOME—were moved to a warehouse and ignored for decades.

But recently, a very determined, inspired and rigorous academic, Evelyn Forget of the University of Manitoba Health Sciences Centre, sorted through those 1,800 boxes of anonymized documents to find out what happened in the MINCOME experiment. Her research, funded in part by the Canadian Institutes of Health Research, has so far underlined how cost-efficient MINCOME was and how the income guarantee reduced, in measurable ways, the negative social determinants of health. She found that while MINCOME was administered, hospital visits including work-related injuries, domestic abuse and mental health visits dropped by about 8.5 percent. By her calculations, an 8.5 percent drop in hospital visits alone would save taxpayers $4 billion annually. If this were extrapolated to all healthcare spending ($200 billion), the savings could amount to over $17 billion. As well, Forget found that teenagers stayed in school and education enrolment surged. Young people no longer dropped out in order to contribute to the family finances. And from many other proven studies, we know that more education is the foundation for economic success—individually and collectively.

As Forget’s initial report states: “The GAI is conceived as an insurance policy. In the same way that people who buy fire insurance on their houses perceive the policy to be beneficial even if they never collect, the GAI benefited everyone in the saturation site, including families that never collected payments under the scheme. The benefit to those who did collect payments is obvious, but those whose incomes exceeded the threshold and therefore did not qualify still benefited from the reduction of risk. Because this is an agricultural community … few people knew in advance whether they would qualify or not.”

Also, it was noted in her research, there was almost no reduction in hours worked except for women who chose to stay home with young children, elderly parents or disabled family members, thereby unburdening the state of health or daycare costs.

This is a story I want to learn a lot more about.