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Presentation to Queens Policy Conference High marginal effective tax rates, intersecting rules, and how they affect Low

Presentation to Queens Policy Conference High marginal effective tax rates, intersecting rules, and how they affect Low income Adults. Based on Metcalf Foundation Study: Why is it so tough to get ahead? How our tangled social programs pathologize the transition to self-reliance August 2008.

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Presentation to Queens Policy Conference High marginal effective tax rates, intersecting rules, and how they affect Low

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  1. Presentation to Queens Policy ConferenceHigh marginal effective tax rates, intersecting rules, and how they affect Low income Adults Based on Metcalf Foundation Study: Why is it so tough to get ahead? How our tangled social programs pathologize the transition to self-reliance August 2008

  2. Growth in Number of Working Age Adults in 39 Richest OECD Countries (Source: OECD) 1950 - 2000: 76% 2000 - 2050: 4% (projected)‏ This one fact changes everything……. 2

  3. Presentation Overview: Programs, People and Expenditures Metcalf Foundation Study: “Why is it so tough to get ahead?” • The Story of Ali • Issue 1: High Marginal Effective Tax Rates • Issue 2: Navigating the Maze • Issue 3: The false imposition of adulthood • Issue 4: The failure of welfare solutions • Further recommendations for reform

  4. 2% 18% 80% Income Security is Primarily Under Federal Control Ontario Example Percent of Income Security Program Spending in Ontario in 2005/06 ($41.5 Billion1,2 = 100%) 10% By Order Of Government2 (1) Doesn’t include the Canada Social Transfer from the Federal government to Ontario (2) Includes contributory programs (EI-and Workers’ Compensation) 7

  5. Metcalf Foundation Study • Approached Three Communities in Toronto….. • Somali community in North Rexdale – poverty enclave. • Chinese-Vietnamese community in Downsview – poverty enclave. • St. Christopher House Community Reference Group • Gentrifying community • Most receiving OW or ODSP, live in subsidized housing, many aged out of Child Welfare system or lived in refugee camps abroad. • Discover their problems in their words – translate their words into policy-ready recommendations. 8

  6. Report comes out of Modernizing Income Security for Working-Age AdultsOriginal Issue presented as a barrier: • Discovery that young adults in subsidized housing are discouraged by parents to enrol in work-study courses as “their income would go down”. • True story: 18+ students considered to be ‘dependent adults’. If they go from full time to part time, their part time earnings deducted at 50% from parents’ ODSP or OW income – also can result in rent increases. 9 9

  7. The Story of Ali – A Closer Look • Ali lived in subsidized housing with parents receiving Ontario social assistance – father a person with disabilities • Takes part time job at age 17 ($600 net per month) – no income recovery except EI, CPP • Turns 18: • Accepted to University – applies for student aid (OSAP) • Parents lose child benefits ($150 or so) • $300 (50%) of his net earnings deducted from parents social assistance • Subsidized rent increases by $75 (METR now at 70%) • Student Aid (OSAP) assesses student based on gross earnings • Loss leads to choice to move out of the parental home as ‘couch rider’ • Away from home, can only attend university part time • Student aid declines with part time status

  8. Ali’s case: A closer look • Parents social assistance rises by $300 and rent reduces by $75 a month • Ali now “unknown to the system” and cannot reveal that he lives in a friend’s apartment or rent would go up, public assistance down just like living with parents • Ali learns of work/study program available to young adults living in subsidized housing – must turn it down or reveal himself to the system. • Couch riding not conducive to studies – quits university in favour of saving for studies to be undertaken later on • Six Months later: • Ali gets notice to repay his student aid at prevailing interest rates • Parents get notice of eviction as Ali moving out results in them being judged to be overhoused • Ali quits job – moves back in with parents; apartment reinstated; can’t pay student aid, defaults, loses credit cards and credit rating • Ali begins again……

  9. Issue 1: High Marginal Effective Tax Rates (METRs) METRs are caused by the way government departments are organized and by the METRs themselves. Social Assistance recovers 50% (starts at first dollar) Subsidized housing charges 15 to 30% (starts at first dollar) EI 1.4% (starts at first dollar) CPP 4.95% (starts at $4500) Lowest Federal Tax Rate 15% (starts at $9600) 12

  10. Issue: The Current Process - confusing, difficult and conflicting • Undocumented program interaction (e.g., overall result of earnings on welfare and housing). • Unavailability of program rules (e.g., OSAP). • Collection of information that is not used for any purpose (e.g. Housing insists on reporting of Child Benefits yet not counted in rent). • ‘Shock & Awe’ notifications for minor infractions (e.g., ‘termination’ and ‘eviction’ notices in OW and housing). • Byzantine sets of rules: (e.g., Toronto Community Housing Corporation, 213 page manual on calculation of rents geared to income). http://www.toronto.ca/housing/social_housing/rgi/rgi-guide-july2005revision.pdf • ‘Immediate’ terminations and reductions followed by ‘glacial’ period for reinstatement of benefits. 13

  11. Recommendation: METRs Reduce METRs Ensure that combined, METRs do not exceed 75% of net earned income. 14 14

  12. Recommendation: A TIME OUT We can't "solve" high METRs, but we can take a "time out" at crucial times to allow young people to break the cycle of poverty. e.g. Suspend rent increases and OW payment reductions. 15 15

  13. Issue 2: More Than One Maze to Navigate“Navigating the maze” is a common expression For low income people: The mazes are larger and there are many more to navigate. Navigation advice is non-existent or poor. 16 16

  14. Recommendation: Government Structure Create a government ‘responsibility centre’ - i.e. A permanent Cabinet Committee not unlike the Cabinet Committee on poverty - Supported by Deputies and Directors Responsibility Centre 17

  15. Recommendation: Government Structure Through a Responsibility Centre, share and pool data. The Responsibility Centre should consult with civil society, agencies, and activists questioning the “business model” of governance. 18

  16. Recommendation: Improve Service Navigation for Clients Create transition-friendly programs that strive towards common definitions. Improve the quality of advice on program interactions. 19

  17. Issue 3: Children in Their Transition to Adulthood An underclass is ‘second generation poverty’. As children become adults, programs produce upheaval, thwarting efforts to break the cycle. 20 20

  18. Underclass and the Myth of Adulthood At 18, children are independent. This myth has been rejected by every reasonable parent living in Canada. Governments often enforce adulthood at age 18. 21 21

  19. Recommendation: Support Children in Their Transition to Adulthood Redefine adulthood: Don’t take on adult status while in post-secondary education, up to age 24. Suspend rental increases where student income is included in the calculation including: Any non-government funded scholarship, award, or grant from a recognized educational institution; and Any award, scholarship or grant received from a non-government group (such as a Children’s Aid Society, charitable organization, or company). Stop collecting information on student assistance from government sources. Clear up misunderstandings about receiving OSAP resulting in rent penalties. 22

  20. Issue 4: Policy and Welfare People should only access the mainstream after they have left welfare - the logic of "making the leap". 23 23

  21. How society views welfare • Welfare will continue to erode to inflation, because the system rejects many of society’s fundamental values. 24 24

  22. The Importance of a Different Lens 25 25

  23. Other Policy Recommendations Short term Raise assets limits for all social assistance recipients with an approved employment plan for the purpose of financing sustained employment. Stabilize households in transition to greater self reliance. Establish a transition planning system among Ministries. Grant a 1 year renewable moratorium on rent increases, OW reductions, losses in child care subsidies and student assistance. Longer term Raise asset levels for OW recipients to $5500 single and $9000 for families. Use the TFSA vehicle to help Devise a public education initiative to resolve misperceptions. 26

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