Which Best Helps the Poor?

David Pankratz, Poverty, Publications, Taxation

Executive Summary

  • Implementing the common social goal of better living standards for the disadvantaged requires that we expand incomes for the working poor.
  • Three available methods for doing that are legislating higher minimum wages, expanding tax credits and increasing basic personal exemptions to remove people at the bottom from the tax rolls.
  • Higher minimum wages create distortions in the labour market that have their own harmful effects. The worst of these is forbidding the least skilled from sharing in the dignity of work.
  • A typical example of a tax credit is the proposed federal Working Income Tax Benefit. But restrictions in eligibility for the credit limit its impact, and it returns few dollars even to those who do qualify.
  • Raising provincial income-tax exemptions to the level used in Alberta, however, does more than the other two alternatives discussed to help the working poor. In Manitoba and Saskatchewan, its benefits represent an equivalent minimum wage of $9.20 an hour.
  • All low-income levels in Manitoba and Saskatchewan would benefit from this change in taxation.
  • Alberta’s booming economy and its existing high exemptions obviate the value of such a reform in that province. But if federal exemptions were raised to the same level, that would increase the incomes of the working poor by 15%.
  • Governments should stop meddling in labour markets with increased minimum wages and increasing the complexity of the tax code with tax credits of limited value.
  • Removing more people at the bottom of the income ladder entirely from the tax code is a superior means of fighting poverty.

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