National Post (National Edition)
The Liberal economic plan would undo the two tax moves the Harper Conservatives have got right. Plus: Ivison on Trudeau’s election gambit.
Introducing his “fairness for the middle class” tax plan, Ju st i n Trudeau waxed lyrical about a golden time, still within memory, when opportunity beckoned and the sun shone year ’round. “When we were growing up,” he told a roomful of bemused diners, “the sky was the limit. If you worked hard, got a good education, and applied yourself, you could get a good job.”
Listening to this, I wondered: when was this miraculous epoch? Trudeau was born in 1971. When “we” were growing up, then, would presumably be the early 1980s, a time when unemployment was in double digits and inflation nearly as high. Was it then? Or perhaps he meant the 1990s, a decade in which unemployment averaged nearly 10 per cent — versus the 6.8 per cent it is now.
Of course, there was no such era. It was just something to say — the same mythmaking on which the entire plan is based. In Liberal mythology, the middle class is forever said to be “struggling,” forgotten, falling behind. The explanation for this is usually left vague, other than the obligatory poke at Stephen Harper, who for some reason has turned his back on “the people who do most of the heavy lifting in this economy” (wouldn’t that be the working class?) in order to cavort with his wealthy friends.
But in Monday’s speech, Trudeau went further than before in isolating just exactly who is to blame. It isn’ t just that the middle class is struggling, it turns out. It’s that it’s being held down. The Canadian dream, he said, “has been taken from too many for the benefit of too few for too long.” Taken, note. By the “few.”
This has always been implicit in Liberal rhetoric about “the one per cent,” but now it is policy. If the rich have been “taking” from the middle class, then the Liberals want you to know they will take it back: a cut of oneand-a-half percentage points in the lower-middle bracket, paid for by an increase of four percentage points in the top rate of tax. Fairness demands nothing less.
Seldom have the politics of “gimme that” been expressed quite so nakedly. It is one thing to redistribute from rich to poor, or from the broader society to those on its margins. But the beneficiaries in this case are not the poor, or even the median: as the NDP helpfully pointed out, the $44,701 threshold at which the Liberal tax cut would kick in would benefit only the top one-third of tax filers.
But then, every line of the Liberal story is a fraud. The middle class isn’t struggling: the $53,000 the median family earned after tax in 2012 is an all-time high — 24 per cent more than in 1997, after inflation. The rich aren’t pulling away from the rest of us: the share of all income going to the top one per cent has been falling steadily since 2006. At 10.3 per cent, it is back to where it was in 1998. Fairness? As it is, the top one per cent pay more than 20 per cent of all income taxes. If that is “taking” from the middle class, what proportion would the Liberals say was “giving”? 25 per cent? 30 per cent? How would we know when “fairness” had been achieved?
To put the matter another way, the top one per cent now pay about 33 per cent of their income in tax, on average. Not only is that more than twice as much as everyone else pays — it’s about the same as it was in the early 1980s, when life was fair and “the sky was the limit” and the middle class could catch a break. If the middle class have anything to complain about, and they don’t, it isn’t because the rich aren’t paying enough taxes.
No one’s weeping for the top one per cent, of course, nor should they. The issue isn’t how well the rich are doing, but what’s sensible tax policy — even from the standpoint of raising revenues. After the top rate was slashed in the mid1980s, as part of Mike Wilson’s tax reforms, average tax paid as a proportion of income among the top one per cent rose from 33 per cent to 40 per cent. On the other hand, it fell after the Paul Martin tax cuts, begun in 2000 — which did not reduce the top rate, but were rather focused, like the Trudeau cut, on the middle class.
But of course, the rich benefit from those, as well: just not in any way that alters their behaviour. Tax rates, like any other economic variable, have effect at the margin: on the next dollar earned, the next investment. The Wilson cuts reduced the disincentive to make new investments; the Martin cuts just let the rich keep more of what they’d already earned. As indeed the Trudeau plan would.
I have to think the Trudeau team are smart enough to know this. Indeed, the other half of the Liberal plan, a rationalization of three existing child benefits into one, is as intelligently designed as the rest is not. It’s basically a negative income tax for families, delivering more to those at the bottom than the Tories would while withdrawing the benefit more gradually as income rises — identical, in practical effect, to a tax cut. So it’s plausible to think the soak the rich part of the package was just for show.
If they wanted to give the middle class a tax cut, after all, they didn’t actually need to increase the top rate. They could have raised the same revenues, and made the tax system more fair, by closing some of the more egregious tax breaks, like the lifetime capital gains exemption, or the small business tax rate, or any of the scores of boutique tax credits on the books, many of them added by the Tories.
Instead they went after just about the only two things the Tories have got right: incomesplitting for couples with children, and Tax-Free Savings Accounts. And, equally gratuitously, they raised the top rate. Why? Not because they needed the money. Not even because it would actually soak the rich. But because they wanted to be seen to do so. When it comes to optics, it seems, the sky’s the limit.