List of References
Boessenkool, Kenneth, 1997, “Back to Work: Learning from the Alberta Welfare Experiment,” C.D. Howe Institute Commentary (Toronto), April.
Appendix: The National Child Benefit and Marginal Effective Income Tax Rates
Representative Social Assistance Parameters:
Suppose the monthly benefit for a single employable mother with one child is $400 before the National Child Benefit (NCB).
Let the monthly benefit for a single employable mother with one child be $300 after the NCB.
Assume the monthly NCB = $100
Assume that the clawback rate is 80 percent and is applied to gross income.1
Monthly earnings exemption = $100
PT = payroll tax rate
PIT = personal income tax rate
MET = marginal effective income tax rate
Prepared by Paula De Masi and Michael Leidy.
The focus of the paper is on poverty traps generated by social assistance, and therefore employment insurance, disability insurance, old-age income support programs, and social assistance for the disabled are excluded from the discussion.
Under the CAP, the federal government finances half of the total value of provincial outlays for social assistance, provided provincial programs meet certain national standards.
Beginning in fiscal year 1996/97, the federal government’s contribution to provincial health and social programs (including post-secondary education) was consolidated in a single block transfer, the CHST.
See, for example, the summary of provincial benefits for families with children in Clark (1998). Under the NCB, provinces are expected to implement new programs for all low-income families with children including one or more of the following: (i) income support programs; (ii) earned income supplements; (iii) child support supplements; (iv) extension of in-kind benefits now available to social assistance recipients to all low-income families; (v) tax measures; and (vi) other social services, such as child care.
Brief summaries of provincial reforms are available in a longer draft of this paper.
For a detailed discussion of welfare reform in Alberta, see Boessenkool (1997), and National Council on Welfare (1997a).
A negative income tax establishes a guaranteed minimum level of income support available to all working-age individuals. In its purest form, an unconditional income transfer would replace all other types of social assistance support (in-kind or cash). Earned income is then taxed according to statutory tax rates without any withdrawal of the income transfer.
Although clawbacks are typically applied to net earned income, this assumption simplifies the exposition and does not affect the conclusion. Applying the clawback rate to net income only increases the thresholds beyond which the marginal tax rate falls to PT + PIT.