The Robert Reich documentary, Inequality For All explains with remarkable clarity what has happened in the United States over the last forty years and in Canada over the last thirty years. Reich argues that the economy will implode unless there is a fairer distribution of income between citizens. That idea is beginning to percolate in Canada. Carol Goar writes:
But continuing to neglect the problem will allow the top 0.01 per cent of the population to skim off an ever larger share of the national income at the expense of everyone else. It will leave most of the electorate with no stake in the country’s collective success. And it will deepen the sense of unfairness hard-working Canadians already feel.
Even banks and business-friendly think-tanks recognize the danger. In a special report last week, the Toronto Dominion Bank urged the government to “lean against income inequality.” A day later, the C.D Howe Institute devoted its annual Benefactors Lecture to rewriting the tax code to restore fairness and give Canada’s next generation a chance.
And, taking his cue from Reich, Kevin Milligan has suggested that several changes need to be made to the way Canadians are taxed:
First, get rid of all the loopholes, starting with the “boutique tax credits” that have proliferated under Prime Minister Stephen Harper. The list includes the children’s fitness tax credit, the green renovation tax credit, the volunteer firefighting tax credit, the public transit tax credit, the tradespersons’ tool tax deduction, the tuition tax credit, university textbook tax credit, the working income tax credit, the video production tax credit and the adult gym membership tax credit and the search-and-rescue tax credit. “These credits are inefficient and they’re biased toward higher earners,” Milligan said.
Second, apply the same tax rate to all forms of investment income: dividends, capital gains and interest payments. Milligan contends this would simplify the system and get badly needed capital into the hands of entrepreneurs and innovators with the potential to go global.
Third — and most controversially — move to a dual income tax system. There would be one flat rate for all forms of capital income, but a more steeply progressive rate structure for employment income. This would include two new tax brackets at the top: one for those with incomes of $250,000 or more (32 per cent), the second for those making $400,000 or more (35 per cent). This, coupled with the closing of tax loopholes, would leave the hyper-rich with fewer ways to escape paying their share of the tax burden.
Goar admits that there are problems with Milligan's proposals. Most Canadians don't have capital income, so the system would still be tilted in favour of the rich. But Milligan would put an end to the tax cuts that have bought Stephen Harper votes. And the rich would pay more of their fair share.
And, until we stop buying the canard that the rich create jobs, we're heading for disaster.