Taxing wealth inequality key piece of Canada’s economic recovery

Canada’s minority Parliament has outlined major goals, from reforming the EI system for the 21st century to establishing a national child-care program. While some critics have called the plans reckless and excessive, the Liberals can afford these investments if they follow through on a key promise in the Throne Speech: to tax extreme wealth inequality. Inequality in Canada has reached alarming levels. A recent study by Canada’s Parliamentary Budget Officer found the top one per cent of households own a quarter of all net wealth in Canada, while the 0.01 per cent own over five per cent—more than five times that of the bottom 40 per cent of families. There is no question COVID-19 has worsened these disparities. The most marginalized groups—seniors, low-paid and gig workers, women, and racialized individuals—have borne the brunt of the pandemic while the most affluent have profited. A study last month by the Canadian Centre for Policy Alternatives found Canada’s top 20 billionaires grew their fortunes by $37-billion since the pandemic, and a recent report by Oxfam revealed half a billion people around the world will be thrown into poverty by COVID-19, but 32 of the world’s largest corporations stand to see their profits jump by $109-billion more in 2020. To rebuild a more inclusive economy, the Liberals must deliver on their promise to tax extreme wealth inequality, and fortunately, there are numerous tax options available. Canada’s PBO has estimated that a modest one per cent wealth tax on fortunes over $20-million would raise $9.5-billion annually within 10 years. A bolder tax on wealth over $10-million could generate twice that amount. Critics have argued that a wealth tax will cause the rich to flee, but studies have found that higher taxes do not lead to a mass exodus of the very rich. This is likely even truer today under COVID-19. Wealthy individuals and business owners consider a variety of factors beyond tax rates in deciding where to locate. Quality of life, access to health care, education, child care, infrastructure and transportation–all of which are funded by taxes—are important considerations for both individuals and businesses. While the wealthy will find ways to dodge new taxes, that should only encourage government to crack down on tax havens and tighten tax loopholes for the rich, which drain billions in government revenues each year. Arguments against a wealth tax portray the one per cent as somehow more valuable members of society, who create economic gains for the rest of us, and therefore, should be taxed lightly. Research earlier this year from the CCPA shows this is not the case. Canada’s richest executives are paid at record highs—risking even company profitability. The top-paid CEOs saw their compensation rise by 61 per cent between 2008 and 2018 while average workers experienced a meagre 24 per cent increase—a rate equal to inflation. Nor do the very rich pay their fair share through philanthropy. A recent study by TaxCOOP found the top billionaires in Canada donated less than one per cent of their wealth during the pandemic. Taxing the rich is not a radical idea, especially not in the current context, when governments are spending billions to protect citizens, and billionaires are not only thriving, but contributing relatively little back to the society that helped grow their fortunes in the first place. New Jersey just introduced a "Millionaires Tax" to address its fiscal crisis. At least eight other states are also considering proposals to tax high-income residents. On its own, a wealth tax will not eradicate inequality, nor would it raise enough revenue for what is needed. It must be complemented with other progressive tax reforms. The federal NDP recently proposed a number of tax measures, including an excess-profits tax to curb corporate profiteering. There is a strong precedent for an excess profits tax, which the Canadian government introduced during world wars to help finance the nation’s recovery. There is also a strong public appetite for it. Recent polling by Abacus Data found that a large majority of Canadians want the government to tax the super rich and corporations that profit during the crisis in order to pay for a bold recovery plan. The federal government could also strengthen laws around tax haven use and bring Canadian tax revenues home. Last year, the PBO estimated Canada could be losing as much as $25-billion each year to offshore corporate tax dodging. Billions more are lost each year through tax loopholes that overwhelmingly benefit men and the wealthiest Canadians. The Throne Speech promised to tighten one of the worst loopholes, the stock option deduction, but there are many other unfair and expensive tax breaks for the rich, such as the lower rate on capital gains, that should be limited or scrapped entirely. Successive corporate tax cuts and special tax rules for large foreign internet companies have also drained billions from the public purse, hurt Canadian business competition, and enabled the rich to get even richer. The Liberals should follow through on their promise to tax foreign digital firms and ensure that other large profitable corporations in Canada contribute their fair share. In the Speech from the Throne, the Liberals suggested they are prepared to spend significantly to strengthen social safety nets, such as establishing quality child care for millions of women who have been especially hurt in the “she-cession” and taking greater action against climate change—the disastrous effects of which are raging alongside the virus. This is a good start, but they can go further. Canada can spend more to reduce disparities, from creating a national pharmacare program to increasing affordable housing so that every individual can be safe during the pandemic and for years to come. We can afford these—and so many more—investments by making our tax system fairer. Erika Beauchesne is the communications coordinator with Canadians for Tax Fairness. The Hill Times