Under a UD approach, all adult citizens would receive a tax-free cheque from the government adequate for their needs and those of their family. Income from all other sources would be taxed (rates would have to be set at levels sufficient to pay for the UD). Total disposable income would equal the UD plus after-tax income from other sources. Taxes on other income could either be levied at a flat rate or scaled to rise as incomes increase as under Canada's current progressive tax system.
For example, a UD could provide a non-taxable benefit of $20,000 to a family of four and would tax income from other sources at a flat tax rate of 50 percent. (The UD option in Section 3 has a progressive tax structure with three rates. This single rate structure is chosen here to simplify the illustration.) Under such a proposal, a family with earnings of $30,000 would receive a disposable income equal to the guarantee plus half their income from other sources or $35,000 (i.e., $20,000 plus $15,000).
In contrast to the NIT approach, which would provide net benefits only to households up to the break even income level, the UD provides benefits to households all the way up the income scale. The UD has no reduction rate or break even income level.