Who will pay down the deficit, Chrystia Freeland?

Runaway fiscal deficits, no matter their cause, always lead to the same place—a day of ultimate political reckoning, followed by budgets of punishing fiscal restraint. Sometimes, it’s the same government that guts the very deficits it has created. Remember Paul Martin back in the mid-1990s? Sometimes, the task falls to a new government that pledges deficit-weary voters much-needed fiscal austerity. But regardless of political stripe, the process remains inevitably the same. And the expendables always end up paying the bill. Just as the Liberals today boast about the billions of dollars they are spending to fight the pandemic—with their deficit ballooning more than any other G7 country— tomorrow’s government will just as proudly boast of all the spending cuts it’s made to unwind the massive deficits that the pandemic has left behind. Such is the cycle that defines the rise and fall of huge fiscal deficits. Restraint will wear many faces. One guise is for the senior level of government to offload as much of its deficit as it can on to its junior partners. Heads up, provincial premiers and mayors—you will soon be immersed in a cascading round of intergovernmental transfer cuts the likes of which you have not seen in some time. That means less funding for hospitals, bigger classroom sizes, and public-transit cutbacks. It means not only an end to the $100-billion or so in Ottawa’s emergency spending, but taking the knife to a whole range of federal spending programs. During a fiscal crisis, everything gets put on the cutting board. Brutal as they may be, spending cuts can’t do the job all on their own. Certainly not when we are talking about paring down today’s record $381-billion federal deficit in Canada. There is only one direction for taxes to move—the only question is whose shoulders will bear that burden? Canadians have a new finance minister, Chrystia Freeland, who professes to care about income distribution and ensuring that the wealthiest households in Canada should shoulder their fair share of the tax burden. That objective is particularly compelling in light of how, unlike ordinary Canadians, the country’s richest families just got a whole lot richer during the pandemic. While small shopkeepers have had to close down due to public health measures, big-box retailers are allowed to stay open, not only serving their own customers, but also those who otherwise would have shopped at their local competitors. In short, their business is booming. That’s great news for the Weston family, principal owners of Loblaws and Shoppers Drug Mart whose wealth is estimated to have risen by $1.6-billion during the first six months of the pandemic. And among the elite they are by no means alone. The Canadians for Tax Fairness found that Canada’s billionaires increased their wealth by $53-billion over the period, many of them selling essential services that have remained open during the pandemic. Since the pandemic has made these folks so much richer that maybe the finance minister should look to them as a source of much-needed revenue. If Chyrstia Freeland really wants to see billionaires contribute to deficit reduction, the first thing she needs to realize is that these folks really don’t care about what the top federal marginal tax rate is. High-flying tax lawyers and plastic surgeons do, but not the Thompsons, Westons, Irvings, Rogers, McCains, or their fellow billionaires. It’s not wage income that has made them who they are. It’s the inheritance of dynastic wealth and the investment returns on their vast capital that define their standing. And right now, they have nothing to fear from Canada’s supposedly progressive tax system.Will that change under your watch, Ms. Freeland? Canada, for example, is the only G7 country in which there is no inheritance tax; hence, the passing of dynastic wealth from one generation to another goes untaxed. Even in the United States, a country most Canadians think has a far less progressive tax system than their own, estates of over $US20-million have to pay a 40 per cent inheritance tax. How would that look on the Thompsons or the Irvings? Then, of course, there is the favourable tax treatment of capital gains which is the lifeblood of the one per cent. It’s how they derive their income and accumulate their wealth. All the easier when only half of capital gains are taxable. I’m sure most wage earners would like a similar rule to apply to the taxation of their pay cheques. Of course, defenders of the status quo will argue every one benefits from the lower taxation of capital gains, not just the super rich. Well, everyone who owns stocks do. Problem is that’s fewer and fewer households these days. Despite the longest-running bull market in history (at least up until the pandemic hit), the percentage of North American households that own stocks has fallen from two-thirds to barely over half. Stock ownership has become more and more concentrated in the hands of the few. Goldman Sachs estimates that the top one per cent of American households own significantly more stocks than the other 99 per cent combined. Hence the better the stock market does the better the one per cent do. So Finance Minister Freeland who exactly do you think you’re helping when you excuse half of capital gains from taxation? Wouldn’t it be better to make the same one per cent who have so benefitted from the pandemic pay taxes on their inheritances and pay taxes on all of their capital gains instead of levying the general population with an increase in their federal income tax or an HST hike? Why make ordinary Canadians pay these taxes all in the name of wrestling with the deficits that you have just created as your government uses the pandemic as a pretence for a policy reset for your favourite spending initiatives. Aren’t these the same people who risk infections by working in big-box grocery stores for minimum wage? Or the people who have lost their jobs when the small businesses they used to work in had to shut down for the pandemic? Aren’t these the people who used to have pensions before their factories moved to Mexico and China because of trade policies you have championed and now drive for below minimum wage at Uber or Lyft as independent contractors? Aren’t these the same people you say you’re in Ottawa to help? Canada’s billionaires have profited handsomely from the pandemic. Let’s make sure Chrystia Freeland that you don’t give them a free ride when it comes to paying down the deficit that has been left behind. Jeff Rubin is the former chief economist at CIBC World Markets and a former senior fellow at the Centre for International Governance Innovation, and an award-winning author. His recently published bestseller is The Expendables: How The Middle Class Got Screwed By Globalization, which is also a Globe 100 Best Books of 2020. The Hill Times

Who will pay down the deficit, Chrystia Freeland?

If Chyrstia Freeland really wants to see billionaires contribute to deficit reduction, the first thing she needs to realize is that these folks really don’t care about what the top federal marginal tax rate is, writes Jeff Rubin, author of The Expendables.

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Who will pay down the deficit, Chrystia Freeland?

If Chyrstia Freeland really wants to see billionaires contribute to deficit reduction, the first thing she needs to realize is that these folks really don’t care about what the top federal marginal tax rate is, writes Jeff Rubin, author of The Expendables.

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