The working rich [‘job creators’]

Posted on January 10, 2011 in Policy Context

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January 9, 2011.   By Susan Riley, Ottawa Citizen

A new phrase has insinuated itself into Conservative talking points — it tripped lightly from the lips of new junior finance minister Ted Menzies this week — and will no doubt soon be adopted by the larger political culture: job creators.

As in: goodbye corporate fat cats, hello job creators. As in: those new corporate tax cuts that seem so ill-timed given the large deficit, so unfair given increases in taxes for the middle class in 2011, are completely justified. They are not going to already richly compensated Bay Street fat cats but to job creators!

It is hard to see how a few points shaved off corporate tax rates is going to produce a surge of well-paying, stable jobs; the details are still hazy. But, after government stimulus spending ends this year, the private sector, invigorated by its declining tax load, is apparently going to take up the slack. Despite such rosy projections, many Canadians are deeply uneasy about prospects for themselves and their children in coming months — and no wonder.

True, very high corporate tax rates can discourage investment — but, compared to the rest of the G7 and to our southern neighbours, Canadian rates are relatively low. Nor, as Ireland’s sorry example underscores, are low business taxes a guarantee of lasting economic success.

Such contradictions — and the fact that tax rates are only one of many factors influencing economic success — are rarely the focus of serious scrutiny. Three decades of unrelenting neo-conservative preaching have turned taxes into a dirty word, as left-leaning economist Hugh Mackenzie says, “to the point where even governments don’t defend government.”

While federal Liberals are promising to freeze corporate rates — they dropped to 16.5 per cent on Jan. 1 and are scheduled to dip to 15 per cent next year — they are careful to frame this nervy initiative as temporary. Once the current slump is safely over and the deficit under control, corporate taxes will again decline.

Yet, count on it, Liberals will be hammered mercilessly for even this modest attempt at balance.

Another example of how radically the ground has shifted is the growing wage gap between the wealthy and the rest of us — a development that raises hardly a political ripple. The Canadian Centre for Policy Alternatives reported recently that the country’s highest paid CEOs made an average $6.6 million in 2009 compared to the average Canadian salary of $42,988.

That marks a slight decline from the previous year, but corporate executives still make 155 times more than the average employee — a good chunk in the form of stock options, which are taxed at lower rates than regular income. That disparity is growing, too: in 1998, for instance, the best paid executives were earning only 104 times more than the rest of us.

Meanwhile, the Canadian Taxpayers Federation says middle class taxpayers face increases this year — the “common villains” being hikes in Canadian Pension Plan payments and unemployment premiums, although sales taxes are increasing, too. (This may not sound so “villainous” to anxious pensioners and the unemployed.)

This disparity in rewards between the super-rich and the rest — a trend in the U.S. and Britain, too — is subject of a provocative book, The Spirit Level: Why Equality is Better for Everyone, by British epidemiologists Richard Wilkinson and Kate Pickett. In Ottawa recently, Wilkinson repeated his well-documented warning that growing economic inequality leads to crime, social mistrust and illness. Anyone who has vacationed in the Caribbean will recognize that inequality doesn’t only hurt the poor, but the entire society.

This book, the CCPA study and The Trouble with Billionaires, a brash and well-researched look at the superrich by authors Linda Mc-Quaig and Neil Brooks, begin, at least, to challenge the unproved claims of right-wing orthodoxy — not with inflamed rhetoric, but with research.

Among the findings: some of the most peaceful and egalitarian societies — including Germany, Japan and Scandinavia — are also among the most economically efficient and prosperous. As for the argument that high taxes discourage “job-creators,” productivity actually grew in Canada in the postwar years when marginal tax rates on the wealthy stood at 90 per cent.

But it is the now-entrenched notion that corporate high-rollers have to be bribed with astronomical benefits and generous tax treatment to stay with the company, stay in Canada, keep working those long hours and creating jobs that is most questionable — especially since their huge bonuses are increasingly unconnected to the actual performance of a company. This argument betrays a pinched, negative view of human nature.

As the rich get richer and the middle class gets nervous, don’t expect much change in Harper’s Ottawa — although the prime minister’s new chief of staff, Nigel Wright, a direct import from Bay Street, probably knows better than anyone how corporate Canada really works.

Susan Riley writes on national politics.

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