An Evaluation of the Working Income Tax Benefit

The federal government has implemented an earned income tax credit—what it has called the Working Income Tax Benefit—in the 2007 Budget. Edmund Phelps argued that the earned income tax credit in the United States should be replaced with an employment subsidy. This paper assesses the importance of Phelps's concern, and related issues, for Canada. This debate is important for two reasons: the plight of those blocked by the “welfare wall” is dire, and the entire community has an interest in lower structural unemployment in an environment that involves an aging population and an accompanying labour shortage.