Justin Trudeau takes mildly progressive stance

Posted on May 7, 2015 in Governance Debates

TheStar.com – Opinion/Editorials – The first plank of the Liberal election platform is solid and mildly progressive, but short on compassion.
May 07 2015.   By: Carol Goar, Star Columnist

The best thing about Justin Trudeau’s first major policy announcement is that it breaks the two taboos that feed inequality. The first: Thou shalt never raise people’s taxes. The second:Thou shalt never redistribute income.

For a decade, Canadians have watched helplessly as the richest 1 per cent of the population has increased its share of the nation’s incomes. Their government, ideologically driven to cut taxes and unleash market forces, has done nothing to counteract this trend. Trudeau would.

The worst thing about his economic blueprint is that it overlooks the poorest 30 per cent of Canadians. In his eagerness to help the middle class, the Liberal leader has excluded those who need help most.

Trudeau insists there is more to come. The trouble is there won’t be much left in the treasury after his middle-class tax break to pay for affordable housing, public transit, early learning or income support for Canadians with disabilities.

On balance, his proposal is a step in the right direction. It would narrow the gap between the high-flying minority and the stalled majority. It would make the tax system somewhat fairer. And it would give more Canadians a stake in their country’s economic success.

It is certainly not radical. Defenders of the status quo warn that Trudeau’s “Robin Hood “ impulses would incite class envy, hamper growth, discourage investment and tarnish Canada’s reputation as a good place to do business. But their claims melt under scrutiny. All the Liberals propose to do is reduce the federal income tax rate for Canadians earning between $44,700 and $89,400 to 20.5 per cent from the current 22 per cent. To make up for the lost revenue, they would create a new tax bracket of 33 per cent for incomes over $200,000.

To put this shift in perspective, Canada Revenue will collect $143.4 billion in personal income taxes this year. Trudeau proposes to shift $3 billion (2 per cent) of it.

To add international context, the top federal income tax rate in the United States is 39.6 per cent. Individuals earning $200,000 pay 33 per cent — exactly what Trudeau is proposing. In Britain, an individual earning $200,000 pays a tax rate of 40 per cent. In Germany, the rate at $200,000 is 42 per cent.

Even with Ontario’s top income tax rate of 13.16 layered on Trudeau’s proposed 33 per cent federal rate, the total would remain below the 50 per cent threshold which economists regard as the psychological barrier that stops talented people from moving to Canada and induces high-earners to leave the country.

There is little risk the Liberal plan will spook business. Senior corporate executives already recognize that highly polarized societies are unstable and unconducive to commerce. Last year the Toronto-Dominion Bank urged the government to “lean against income inequality.” A short time later the C.D. Howe Institute showcased a tax reform plan more aggressive than Trudeau’s. Speaking at its benefactors’ dinner, Kevin Milligan of the University of British Columbia suggested two new top tax rates: 32 per cent for those making between $250,000 and $400,000, and 35 per cent for those earning more than $400,000.

The most troubling aspect of Trudeau’s tax overhaul is the arithmetic. He assumes Ottawa would reap $3 billion by raising Canada’s top personal tax rate. Theoretically that might be possible. In real life, it is highly improbable. Affluent individuals are extremely adept at tax avoidance. They know how to get their assets and earnings out of Ottawa’s reach.

But there is a much bigger flaw in the Liberal strategy.

By focusing solely on the tax system, Trudeau offers only crumbs (a modest increase in the National Child Benefit) to the 8 million Canadians too poor to pay income taxes. What they need are sturdy social supports: affordable housing and child care, jobless benefits that cover all workers, decent wages, reliable public transit and a basic income guarantee if they can’t work.

Trudeau has yet to give any indication how — or whether — he plans to rebuild the social infrastructure decimated by successive rounds of Tory cost-cutting. That would involve spending at a time when Ottawa’s coffers are almost empty. The Liberals might be able to juggle existing revenues, close tax loopholes, sell Crown corporations or use public-private partnerships to free up resources. None of these options was mentioned in this week’s “fair tax plan”.

The Liberal leader kept his promise to the middle-class. He set down one solid policy plank. He moved in a mildly progressive direction.

But he left low-income Canadians waiting and wondering.

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