For decades, successive governments have ignored the central problem at the heart of the Canadian economy. Bruce Campbell writes:
In response to the brutal inequality of the 1920s and the Great Depression, and under widespread political pressure after World War II, Canadian and other western governments brought in major reductions in income and wealth inequality through tax and transfer policies.
It was an era of full employment, high taxes on the wealthy, universal Medicare, expanded unemployment insurance, Old Age Security and CPP/QPP pension systems, and other transfers, which significantly reduced inequality.
Canadian society, for the most part, shared in the economic prosperity of the era.
Then Milton Friedman won the Nobel Prize in economics. His mission to return to classical economics became gospel:
That changed in the late-1970s, with the advent of laissez-faire capitalism (neoliberalism), led by former U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher. According to this ideology, the market was no longer in embedded in society, but society became subservient to the whims of the market and its beneficiaries.
Corporations and wealthy elites were back in the driver's seat. Over the next four decades, income and wealth inequality skyrocketed.
Over subsequent decades, the 1971 highest income tax bracket of 80% dropped by more than half, to 29%. Taxes on capital gains were slashed and tax loopholes were created to facilitate tax avoidance and evasion via an archipelago of tax havens.
Corporate tax rates dropped from 40% in 1980 to 15% in the following decades. Median worker earnings stagnated or fell. Labour’s share of Canada’s GDP declined in relation to capital’s share.
For the top 1%, as a whole, average market income doubled between 1982 and 2018. For the top 0.01%, it soared by 189% during this period. The income of the bottom 50% failed to keep up with inflation.
In the wake of the 2008-09 recession, from 2010 to 2019, only the top 1% increased their share of total wealth, while it fell for everyone else.
The number of Canadian billionaires and their wealth more than doubled. Canada’s club of 100 billionaires now has as much wealth as the 12 million poorest Canadians. The Parliamentary Budget Office projects that, in the second quarter of 2021, there were approximately 161,700 families in the top 1% and they each had a net wealth of at least $7.3 million.
According to the latest Canadian Centre for Policy Alternatives figures, Canada’s average top CEO pay was 191 times greater than the earnings of the average worker in 2020.
The Parliamentary Budget Office estimates Canada’s top 1% hold almost 26% of the country’s total wealth. Its share has jumped by five percentage points over the last two decades. In contrast, the bottom 40% of Canadians hold only 1.2% of total wealth.
The richest 1% hold 15% of national income—almost as much as the bottom 50% of the Canadian population. Since 1981, the gain in income share of Canada’s top 1% has been more than 10 times larger than that of the middle 20%.
The federal budget continues the trend:
There is still no wealth tax on the super-rich.
No increase in the top income tax bracket, beyond the 33% tax bracket implemented in its 2016 budget.
No general corporate income tax increase.
No elimination of the tax break for capital gains and dividends.
No estate or inheritance tax on assets over $2 million to limit family dynasties’ ability to pass down exorbitant wealth to their descendants.
No minimum 15% effective tax rate on the top 1%, as previously promised.
No surtax on Canadian billionaires profiteering from the pandemic.
What Campbell calls "the great sidestep" continues.
Image: Liquipedia
14 comments:
"We can have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can't have both." It's as true now as when US Supreme Court Justice Brandeis said it in the Dirty Thirties.
Wealth inequality is the greatest threat to democracy and successive governments have done nothing about it. They won't even enforce the existing tax code against the rich, let alone raise taxes on them. No wonder we keep getting insurrection-like protests. Too bad the protestors have been trained to look the wrong way.
Cap
Am I dreaming this or did we recently hear A minister of Finance refer to her latest budget as a "side step" and make a reference to Dame Thatcher's past economic policies. I may have misread her alluding to it as being a sound policy.
What needs to happen here? We Canadians know about the side stepping. Maybe next year Canadians do not fill out a tax return? Or………..? Anyong
We're fooling ourselves, Cap. The reason for the unrest is staring us in the face.
It's become gospel, zoombats. That's the problem.
Good questions, Anyong. What are we going to do about the problem?
The Canadian economy is one big Ponzi scheme optimised to funnel wealth to homeowners. Not billionaires. Homeowners. Renters are bled dry and savings are inflated away, all for the benefit of the 70% of Canadians who already own their own homes. More money in this country goes into residential real estate than to investments in productive business.
You can blame Friedman, Thatcher or Bay Street all you want, but the culprit here is the Canadian middle class. All three levels of government, of all three parties, have spent the last three decades seeing to it that Canadians are delivered their sacred birthright of ever-rising home equity value. Comfortable retirements are at stake, and if that means the middle class can no longer accept new applicants, then so be it.
Don't think for a minute that this is going to end well. Or on terms acceptable to progressives, for that matter.
Once these massive tax cuts for the rich were implemented, it's hard to go back. Maybe take small steps and increase taxes slowly. Of course, if the Conservatives get back in power, they'd cut taxes for the rich again.
Your comment about real estate investment is spot on, Aon. Please initial future comments.
Rebalancing can't be done in one fell swoop, Gordie. But you're right. It can be done progressively.
Rebalancing can be done very quickly when needs must. The top marginal tax rate in 1915 was 7%. The next year, it more than doubled to 15%. By 1917, it hit 67% before topping out in 1918 at 77%.
By 1931, it was back down to 25%. Then in 1932, the government needed money and it more than doubled to 63%. By 1940 it was 81%, and hit a high of 94% in 1944. And it stayed at around 90% all the way to 1963, a period of phenomenal middle-class and public infrastructure growth.
The point is that the government can indeed more than double top tax rates overnight if it needs to. With climate change upon us, I'd say that need is here.
Cap
I agree that the need is there, Cap. I suspect, however, that the political will is not.
I don't think we we have ever had so much corporate power making decisions for government.
The 'magnates' of history pale to the oligarchs of today which should include those in the UK , USA Canada and elsewhere.
We deceive ourselves pointing fingers at Russian oligarchs whilst wilfully , not just ignoring, but supporting our home grown ones!!
TB
We have a new generation of Robber Barons, TB -- and they're laughing all the way to the bank.
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