Illustrating the Tax Implications of a Guaranteed Annual Income

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Illustrating the Tax Implications of a Guaranteed Annual Income


  • Policymakers and the general public have paid increasing attention to the notion of introducing a GAI program in Canada.
  • A guaranteed annual income (GAI) is a cash transfer paid by the government to individuals or households to ensure a minimum income level for all citizens.
  • A recent Fraser Institute analysis (Fuss et al., 2020) modeled the cost of different GAI variants. The net cost estimate of the lowest-cost model was $131.9 billion and the net cost of the highest-cost model was $464.5 billion.
  • This paper builds on the aforementioned analysis by estimating the tax implications of financing these GAI variants without reducing other program costs or increasing federal debt.
  • Some proponents of a GAI suggest it could be financed through increased taxes on higher-income individuals. The estimates in this paper cast doubt on the feasibility of this approach. We estimate that (assuming no behavioural changes), collecting the entire disposable income of high earners (those earning $250,000 or more annually) would be sufficient to pay for only 87 percent of the lowest-cost model in our analysis. For the highest-cost model, collecting the entire disposable income from high earners would be sufficient to cover just 25 percent of the program’s cost.
  • Financing the type of GAI variants analyzed here without adding debt would therefore require broad-based tax hikes. We show that for the lowest-cost model, assuming no other tax increases (and no behavioral response), it would be necessary to increase the GST to 26.25 percent to finance a new GAI. For the highest-cost model, the GST would need to be raised to 105.35 percent.
  • The results illustrate that the tax implications from implementing a GAI, without cutting existing programs or adding new debt, would be substantial and would almost certainly require a host of tax increases affecting individuals across many income levels.

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