Tax Delivered Benefits: Making Them Work

1. Tax Delivered Benefits:Making Them Work Lisa Philipps Osgoode Hall Law School Presentation to ISAC, May 30, 2011

2. Is the shift to tax delivered benefits positive? It can be if programs are well designed to: • Work for diverse recipients (gender, family status, immigration status) • Interact with other tax and non-tax supports and services

3. Design issues for policy makers 1. Fiscal cost 2. Interaction with other income and benefits 3. Eligibility criteria 4. Responsiveness to change in circumstance 5. Complexity/transparency 6. Administration/enforcement/adjudication

4. 1. Fiscal Cost • Tax delivered benefits are costly to current government budgets, relative to some alternatives (eg. raising minimum wage) • Will they be paid for by cutting other supports or services critical to low income persons?

5. 2. Interaction with other income and benefits • Clawback of benefits should be gradual as wages rise • If non-cash supplemental benefits are withdrawn too quickly, recipients may end up worse off • Need for ongoing access to emergency funds

6. 3. Eligibility Criteria • Immigration status – tax benefits currently impose more onerous requirements • Benefit unit – individual, couple or household • Any joint unit results in potential benefit loss when low income people live together • Any joint unit therefore creates a risk of dependency trap for some household members • What vision of the ideal family is at play? • Targeting – how is “income” defined? • Deduction of past business losses, rrsp contributions…

7. 4. Responsiveness to change in circumstance • Current tax benefits less responsive to changes in income (18 months+) • reduces risk of overpayments • ‘bonus’ in year that income increases • but requires access to a more responsive back stop • what would replace OW or ODSP as the emergency back stop?

8. 4. Responsiveness to change in circumstance • Response to changes in family status • More timely than changes in income • But 90 day wait time after separation can be onerous • New rules for “shared custody parents” impose splitting of monthly benefit between parents • Pro’s: likely to reduce disputes with CRA; smoother income stream than 6-monthly alternation • Con’s: reduction in benefits for separated parents who were claiming full benefit; continued ambiguity about “shared custody”

9. 5. Complexity/transparency • Tax benefits interact with other provisions of a highly complex statute • Risk of accidental overclaiming • Risk of not claiming or not appealing • Cost of tax preparers • Lower satisfaction due to non-transparency (why are my benefits changing again? Are they correct?)

10. 6. Administration/enforcement/adjudication • CRA and TCC have tax expertise, but not necessarily expertise in issues facing low income persons • Enforcement less intrusive in practice, but this can change • Evidence of IRS audit practice in US • Auditor general targeting of CTTB enforcement • Broad enforcement powers in ITA • Does stigma resurface for less universal benefits?

11. 6. Administration/enforcement/adjudication • TCC informal procedure appeals • Less than $12,000 at issue • Agents are allowed • Relaxed evidentiary rules and procedure • Costs – unlikely but not impossible • Full appeal to FCA • Still less accessible geographically and procedurally • Onus is on taxpayer to disprove Minister’s assessment • Case law: not immune from troubling biases and stereotypes