No time to give up on tax, EI reforms

EdmontonJournal.com – business – While statistics show the system worked, we still need smaller government
June 25, 2011.   By William Watson, Edmontonjournal.Com

One striking consequence of the recession has been increased concern, you might even say obsession, with inequality.

Filmmaker Michael Moore’s diatribes against capitalism now seem almost mainstream. Going on three years after the crash, anger against bankers and CEOs is still fierce. Support for higher taxes on the superrich seems strong. The NDP is the official Opposition, of all things, and didn’t deign last weekend to remove its commitment to socialism from its charter.

For we fans of free markets and smaller government, it’s not a happy time. Because inequality typically rises when the economy sags, we’ve been dreading the latest income statistics, which Statistics Canada produces, with a two-year lag, every June. The expected rise in inequality could only fuel the populist anger.

So when it came out last week the numbers for 2009 weren’t half as bad as they might have been.

Granted, they’re only for the first post-recession year. Granted, they’re a lot easier to be blasé about when you haven’t lost your own job or seen a big drop in your income (just a sixmonth salary freeze). But still .

StatsCan’s own release said the incidence of low income “remained relatively stable” in 2009, with 9.6 per cent of the population, or 3.2 million people, experiencing it, which was “virtually unchanged” from 2008. StatsCan defines “low income” as where people typically spend 20 percentage points more of their income on food, clothing and shelter than median spenders do. The agency emphasizes it’s not meant to be a “poverty line” but of course that’s what everybody uses it as.

“Virtually unchanged” is open to interpretation: 9.6 per cent below the low-income cut-off compares with 9.4 per cent in 2008 and 9.2 per cent in 2007, a recent low, so the short-term trend is in the wrong direction. But it also compares with low-income rates running in the midteens in the 1990s, so the long-term trend has been good. Plus, 2009 saw a spike in the unemployment rate. So things definitely could have been worse. In fact, they were worse if we look at “market income” instead of “aftertax income,” which is what the numbers quoted so far were for.

Market income measures what people earn in the labour market or from their investments or pensions before paying income tax or receiving cash payments from the government (though not in-kind benefits like health care or education, which are notoriously hard to value).

Not surprisingly, market incomes generally fell in 2009. In families, the median market income fell 3.2 per cent to $63,000. In two-parent families with children it fell less, from $80,900 to $80,300. In singleparent families headed by women it was down from $27,300 to $26,700. In sum, median market income fell in all the demographic categories tracked by StatsCan.

In view of these reductions in maret income, why wasn’t there a biger hit to after-tax incomes?

The answer is government. Lower income taxes and higher transfer payments from government largely offset these declines, as they should in a recession.

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