Make the rich pay, one of these days

CHELSEA, QUE.—A wealth tax is one of those simple and beguiling ideas that resurfaces in times of economic turmoil, only to be forgotten as the economy rights itself. Meanwhile, the rich keep getting richer and everyone else is just relieved to be back at work. But in the midst of a pandemic, the proposal is back with higher-than-usual profile. Pre-COVID, the idea enjoyed brief celebrity status in 2013 as a result of French economist Thomas Picketty’s dense tome (and unlikely bestseller) Capital. The concept of a tax on billionaires was further popularized by U.S. Senator Elizabeth Warren in her doomed campaign to lead the Democratic Party. And now, a version of a wealth tax, which already exists in a handful of European countries, has made its way into Canadian political discourse—advocated by New Democratic Party leader Jagmeet Singh and vaguely approved by Prime Minister Justin Trudeau, mostly recently in the Throne Speech. What each advocate means by a wealth tax varies, but the fundamental, and politically powerful idea, is that governments must intervene to correct a growing income gap between the very wealthy and the rest of us, not only to bolster federal tax revenues that pay for health care, and everything else, but to correct a moral wrong. John Manley, who has enjoyed a lucrative career post-politics as chair of the lobby group for Canada’s top CEOs, called Justin Trudeau’s promise to address ways of taxing extreme wealth, 'one of the dumbest things' in last month’s Throne Speech. The Hill Times file photograph by Jake Wright The counter-arguments, made by the wealthy and their factotums, are hardly new either. They were succinctly expressed by former Liberal deputy prime minister John Manley, who enjoyed a lucrative career post-politics as chair of the lobby group for Canada’s top CEOs. He called Trudeau’s promise to address ways of taxing extreme wealth, “one of the dumbest things” in last month’s Throne Speech. “There aren’t enough rich people and, secondly, if you tax them enough, they’ll leave,” Manley said, neatly channelling the longstanding, if self-serving, perspective of the country’s wealthy. Both premises are debatable, but what they ignore is the underlying moral and social affront inherent in a deeply unequal economic system. And Canada is headed that way—although still lagging our clamorous neighbours to the south. When Manley was in government there were wealthy individuals and they were much wealthier than the average elementary school teacher, say—but not as astronomically rich as they are today. There are stacks of statistics (including in Piketty’s book) detailing a widening gap. Canada’s parliamentary budget officer—hardly a spokesperson for Occupy Wall Street—reported recently that the top one per cent of earners own one-quarter of the country’s wealth. The top .01 per cent, the multi-billionaires’ club, own five per cent. Canada’s parliamentary budget officer Yves Giroux—hardly a spokesperson for Occupy Wall Street—reported recently that the top one per cent of earners own one-quarter of the country’s wealth. The top .01 per cent, the multi-billionaires’ club, own five per cent, writes Susan Riley. The Hill Times photograph by Sam Garcia Canada’s top CEOs received an average 61 per cent hike in remuneration in 2018 over 2008, while the average Canadian wage-earner barely kept up with inflation over the same period. According to the World Bank, Canadian billionaires have seen some of the largest wealth gains among their global peers, increasing by 238 per cent since 2009—compared to a 170 per cent gain among mega-rich Americans. What turns a niggling complaint to full-bore outrage, however, is news that, during the pandemic, the collective income of the top 20 billionaires in Canada grew by $37-billion, according to analysis by the progressive Canadian Centre for Policy Alternatives. Most of the winners were in the tech and health-care sectors. However, the list includes Loblaw’s CEO Galen Weston, who, along with other food services giants, eliminated the pandemic bonus for thousands of minimum-wage employees in June—all the while increasing his fortune by $1.6-billion. What to do about it? The federal NDP proposes a direct one per cent tax on fortunes over $20-billion, based on net worth—salaries, stocks, luxury yachts, paintings and property. According to the PBO, such a tax could collect $70-billion over 10 years, even factoring in lawful tax avoidance measures. But, of course, the tax haul depends on how seriously government pursues scofflaws. It is a sobering caveat, particularly given how spectacularly unsuccessful subsequent governments have been at shutting down offshore tax havens. It will take more than two junior accountants at Canada Revenue Agency and a fax machine and, according to stout defenders of the status quo, government could end up spending more on enforcement than it recoups in additional revenues. Still, there is the small matter of everyone paying their fair share, a fundamental value in a healthy and prosperous society. As to the claim that wealthy people will simply move to other countries with more favourable tax regimes, it happens. But not as often as claimed. Wealthy people, like the rest of us, enjoy benefits living in Canada: free, if imperfect, health care; unparalleled natural beauty; liveable cities with relatively low crime rates; and an educated work force. Nor is a favourable tax rate enough to retain wealthy CEOS in the face of other pressures. Alberta’s business-friendly regime, for instance, wasn’t enough to dissuade Encana’s CEO Doug Suttles from moving corporate headquarters from Calgary to Denver last year as Alberta’s oilsands investment stalled. In 2018, Emanuel Macron significantly lowered taxes on France’s wealthy to prevent them from fleeing to other European countries. One notable result: the income of the wealthiest .01 per cent sharply increased. The right-wing gospel that the wealthy must be coddled because they are innovators and job-creators has taken a beating in recent years. Study after study suggests that CEO compensation—an average $11.8-million in salary/benefits in Canada in 2018 and rising—bears diminishing connection to job creation. The dominant preoccupation in contemporary corporate head offices is maximizing benefits to shareholders—which, in the oil patch and elsewhere, often means eliminating jobs through attrition or automation. Back in the real world, Trudeau must figure out how to respond to NDP pressure to tax the rich without losing Singh’s crucial electoral support. One option, previously favoured by Liberals, is capping tax deductions for stock options, which are a major part of corporate remuneration. Only 50 per cent of stock holdings and capital gains are taxed, compared to 100 per cent of income—a system that overwhelmingly benefits the wealthy. However, some companies have already moved to larger cash bonuses for top executives in case the stock deduction shrinks. (This makes the NDP approach—a tax on all an individual’s wealth, no matter the source—more appealing.) To give him credit, the prime minister followed through on a 2015 promise to increase the tax rate on those earning more than $200,000 a year. And he tried, disastrously, to close loopholes available to wealthy professionals and some businesses in 2017. That laudable initiative foundered partly because then finance minister, Bill Morneau, defended it so poorly. Current finance minister Chrystia Freeland, who literally wrote the book on income inequality (The Plutocrats), will likely be more sure-footed. There is no shortage of options for redistributing wealth—and plenty of cheer-leaders. Trudeau has proposed a three per cent tax on the ad revenues of digital giants like Apple Facebook and Google, although that would invite reprisals from the U.S. Adding another top bracket to the income tax is another possibility. An additional one per cent GST could bring in $7-billion a year, but would have to be structured to protect low-income and middle-class taxpayers. The showiest, most crowd-pleasing measure could be an increased luxury tax on expensive cars, private planes and properties. But that would not raise significant revenues. Whether this appetite for economic justice survives the current moment is uncertain. The precedents aren’t encouraging and neither are the trends: federal revenues now account for only 15 per cent of GDP. Taxing the rich sounds good in a campaign ad, but making it work requires careful design, clever marketing, and enduring commitment. These are not qualities associated with political leaders of any persuasion. But while they focus on the immediate crisis—and there is always an immediate crisis—injustices pile up and equality erodes. Susan Riley is a veteran political columnist who writes regularly for The Hill Times. The Hill Times