Social Policy in Ontario

How the Liberals can tackle income inequality

Posted on January 13, 2016 in Equality Debates

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TheStar.com – Opinion/Commentary – After a decade of inaction, the Liberal government has the motivation and means to tackle income equality.
Jan 13 2016.   By: Carol Goar, Star Columnist

It has become a Canadian New Year’s ritual.
On the first working day of January, economist Hugh Mackenzie of the Canadian Centre for Policy Alternatives publishes a list of the country’s 100 highest-paid corporate executives, showing their salaries, bonuses, stock options, shares, pensions and other perks. He then calculates how long it will take these CEOs to earn the average salary of a full-time Canadian worker. This year’s duration: three hours and 18 minutes.

As soon as his report is out, a chorus of market-friendly economists pipes up claiming his methodology is flawed, his findings are misleading and there’s nothing wrong with rewarding talent. “These high incomes are not the result of illegal practices, immoral behaviour and political cronyism” pointed out Herb Grubel of the Fraser Institute (a former Reform party MP.) “There are too many misleading narratives about the top 1 per cent of income earners.”

Chiming in from Quebec, Michel Kelly-Gagnon of the Montreal Economic Institute wrote: “Dangling the prospect of being able to pay for a multitude of social programs by excessively taxing the salaries of the top CEOs is a costly distraction. High taxes are a drag on wealth creation — and wealth creation is what actually raises standards of living for everyone.”

What is missing from this annual clash of ideologies is any thoughtful followup. Since 2007, when Mackenzie began tracking the gap between executive earnings and workers’ wages, there has been no serious political debate, no informed public discussion and no impartial forum to help citizens differentiate between facts and opinions.

Most people have no desire to join the fight. They want to understand what is driving income inequality, see how it affects them, talk about what can be done to make society fairer and weigh the costs and benefits of intervening in the marketplace.

So far the status quo has prevailed in Ottawa — partly because former prime minister Stephen Harper did not regard income inequality as a problem; partly because the Tories did not want to take on business leaders; and partly because challenging free enterprise is sacrosanct to conservatives.

That may change under Justin Trudeau.

He has already taken a couple of modest steps to shift income from the rich to the middle class. He increased the federal tax rate for those earning more than $200,000 and cut the rate for those in the $45,000 to $90,000 bracket. He replaced Harper’s one-size-fits-all child care benefit with a payment that declines as family income rises. This year, he will raise taxes on stock options.

It’s unlikely the Liberals will embark on a wholesale overhaul of the tax system or a direct attack on executive compensation. They can’t afford to alienate Canadians who voted for them or anger the business elite.

But there are quiet ways Trudeau and his colleagues can make Canada more equitable:

– They can systematically close tax loopholes. Canada’s tax code is riddled with deductions credits and exemptions and allowances targeted at specific sectors of the population. Harper doled a few out in each budget, adding to the pre-existing buildup.

These tax breaks cost Ottawa billions of dollars in forgone revenue and allow those who qualify — in most cases well-off people — to pay less than their share of the tax bill. On the business side, they lead to elaborate tax avoidance schemes of dubious benefit to the economy but great benefit to corporate profits.

– They can wind down corporate subsidies that serve little public purpose. An analysis of 50 years of disbursements by Industry Canada (now renamed innovation, science and economic development) by Calgary researcher Mark Milke showed the biggest recipients of government assistance were seldom the biggest job creators.

– Similarly, they can phase out programs of the Harper government that don’t fit their priorities. They opposed many of these initiatives — massively expanding the prison system, pouring millions into border security, aggressively deporting immigrants and hiring new auditors to crack down on charities — before they were elected. They now have a chance to reallocate billions of dollars to Canada’s threadbare social safety net.

– Finally, they can disabuse managers of public agencies of the notion that they are owed comparable remuneration to executives in the private sector.

Most taxpayers would consider these sensible public policy changes. Even corporate CEOs would hard-pressed to argue they are reckless or irresponsible.

Trudeau’s reforms won’t stop Canadians from gaping at the eye-popping paycheques of the country’s top earners. But they will begin to narrow the gap between the high-flying minority and the stalled majority.

< http://www.thestar.com/opinion/columnists/2016/01/13/how-the-liberals-can-tackle-income-inequality-goar.html >

Tags: budget, economy, featured, ideology, poverty, tax

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