The rich must pay more taxes
Inequality has grown during COVID-19. It’s time to fix that,
The coronavirus crisis caught the world at an extreme point of inequality.
According to a report published in January by Oxfam, a non-profit focused on global poverty and women’s rights, the world’s richest one per cent had more than twice as much wealth as 6.9 billion people. “In Canada, the top one per cent own significantly more wealth than the bottom 70 per cent,” the report said. And that was before COVID-19 struck. Since then, inequality has grown. In September, a report by Alex Hemingway and Michal Rozworski of the Canadian Centre for Policy Alternatives’ B.C. office, found that Canada’s top billionaires have gained $37 billion since COVID-19 began.
And while fortunes have been made among Canada’s richest, many others are struggling. Low-wage workers are losing their jobs, restaurant owners aren’t sure if they can stay afloat and homelessness is on the rise.
Prime Minister Justin Trudeau keeps promising Canadians “we’ve got your back” and “we’re in this together,” as he should as a leader. But the first promise comes with a massive $328.5-billion deficit created by the extreme economic measures taken; and for the second to be true, there must be a genuine feeling among Canadians that everybody is taking a hit, both the rich and the poor. However, the “K-shaped” recovery the country is experiencing signals that this isn’t the case.
Under such circumstances, it seems like there is no better time to advance tax-justice measures.
The first option is a wealth tax on the ultra-rich. The idea has been discussed extensively and was mentioned in the speech from the throne, with Gov. Gen. Julie Payette saying the government will “identify additional ways to tax extreme wealth inequality.”
A wealth tax à la Elizabeth Warren is one option — two per cent tax on fortunes over $50 million, rising to six per cent on wealth that exceeds $1 billion. Alternatively, a one per cent tax on wealth above $20 million as the NDP suggested on its platform during the 2019 federal election should also be evaluated.
The idea has very strong public support. A recent survey by Broadbent Institute found that 48 per cent of those surveyed “strongly support” it and an additional 28 per cent “support” a proposal of a “new wealth tax on the richest multimillionaires and billionaires.”
David Duff, a professor of law and director of the Tax LLM program at the
University of British Columbia, thinks that a wealth tax has some merit in the current climate, but he believes there are more effective ways of taxing the rich and reducing inequality.
“Wealth tax is difficult to administer and enforce,” he said in a phone interview from Vancouver. “Many illiquid assets such as art and jewelry will need to be evaluated on a yearly basis as well as privately held companies.
“In an ideal world, we wouldn’t need a wealth tax, since all capital gains, including on principal residences (with some exceptions), would be taxed like labour income. Capital gains are taxed at 50 per cent today, but between 1990 and 1999, they were taxed at 75 per cent. We could increase that rate back up.”
An inheritance tax — which directly taxes intergenerational wealth transfer — is another important policy option to evaluate. Canada actually had such a tax, but it was repealed in 1972.
“When considering the core principle of tax justice, an inheritance tax makes perfect sense,” Duff said. “Of course, people should be allowed to transfer some tax-free wealth to their children. But as opposed to wealth that has been earned, wealth that is transferred to the next generation creates and perpetuates unequal starting points to different members of society.”
One disadvantage of an inheritance tax versus a wealth tax is that some individuals can amass huge fortunes, which translate to power and extreme level of political influence during their lifetime. Do we as a society want to have people as rich as Jeff Bezos, with a net worth close to $200 billion (U.S.) and counting?
Canada also has similar examples. Consider Ottawa-based Shopify, now Canada’s largest public company by market value. Shopify creates online platforms for small businesses, and it has experienced tremendous growth over the past six months. It has even created some much-needed competition to Amazon.
Shopify’s share price has tripled since March, and the wealth of its CEO, Tobi Lutke, increased by a staggering $8 billion over just six months. A star CEO, Lutke seems full of good intentions. But we probably still wouldn’t want to see his wealth following the path of Bezos, and we don’t need more billionaires who will get to decide which groups will benefit from their fortunes through philanthropic activities.
UBC law professor Duff agrees. “This is a fair point, and in order to deal with it, we could potentially tax accrued gains — gains that have not yet materialized by the selling shares, for example. That way, less wealth will be accumulated,” he said.
The last piece in a tax-justice campaign could be an increased effort to crack down on tax havens. Tougher enforcement of offshore tax evasion is only fair, and it also pays off. The Parliamentary Budget Office recently published a report highlighting the massive benefits of tighter enforcement. The report reveals that the Canada Revenue Agency has been allocated close to $1.9 billion in additional funding between fiscal years 2015-16 and 2023-24. In return, the federal government expects to collect $13 billion in additional revenues over the same period.
Beyond means for collecting revenue to balance the massive deficit, a wealth or inheritance tax, an increased tax bracket on capital gains and getting tougher on tax evasion will create a sense of fairness and solidarity among Canadians.
These steps would also limit the accumulation of wealth among the ultra-rich that undermines our democracy.
With the NDP having the political power to push Trudeau’s minority government to pursue such measures, and a country torn apart by the coronavirus crisis, there is no better time for tax justice.