How will the House of Commons look at Income Inequality in Canada?

Everyone has been talking about it: academics for at least a couple of decades; think-tanks and international organizations like the OECD and the IMF as well; and even—at least since the Occupy Wall Street movement went camping—the average taxpayer.

And now, after having adopted a motion introduced almost a year ago by Scott Brison, the honourable Member of Parliament for Kings-Hants, the House of Commons has charged its Standing Committee on Finance to also talk about it: yes, Virginia, Committee hearings on “Income Inequality in Canada” have begun.

Can there be a topic that is least likely to garner consensus among our Members of Parliament than taxes and inequality? Little wonder they are so late to the conversation.

On Thursday the Committee held the second of at least three hearings. Among its terms of reference is to “examine best practices that reduce income inequality and improve per capita gross domestic product.” If the written briefs posted on its website and some of the witness statements to date are any indication, the Committee has its homework cut out for it. At first look these are lofty of principle, short on prescription.

Some warn over and over again of the evils of inequality, the violation of rights, the sheer injustice! And almost as if in response, others caution our dutiful members of the coming revolution, concretely enough to surely make some of them recall the words written more than 200 years ago by Adam Smith:

The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security. He is at all times surrounded by unknown enemies, whom, though he never provoked, he can never appease, and from whose injustice he can be protected only by the powerful arm of the civil magistrate continually held up to chastise it.

[Adam Smith (1776), An Inquiry Into The Nature and Causes of The Wealth of Nations, New York: Modern Library, The Cannan Edition, Book V.Chapter I.Part II, page 670.]

What a pity if the Committee is not able to untangle itself from this zero-sum thinking, pay clear attention to its mandate, and move on to craft concrete policy recommendations that increase both equity and efficiency.

In part it can best do this by framing the discussion through another of its terms of reference: to “provide recommendations on how best to improve equality of opportunity and prosperity for all Canadians.”

The majority of Canadians, regardless of their political leanings, are likely to hold the view that opportunities should be equal; that children should have the freedom to become all that they can be regardless of their starting point; that outcomes should be the result of talents and energies, not of privilege or position.

Designing a tax system to encourage equality of opportunity will make any level of inequality more acceptable, and less damaging.

That is certainly a challenge. But not an insurmountable one. Our tax system already contains examples of best practices that can be built upon and expanded in a way that targets more adequate benefits on those most in need without unduly creating inefficiencies. Indeed, some of the witness statements make this very clear.

Most notable is the submission by Robin Boadway of Queen’s University who points out that more use of refundable tax credits is a best practice in the design of the tax system.

Unrefundable credits do little to lessen inequality in the lower half of the income distribution, but refundable credits can be targeted by income in a way that is of most benefit to the least well off. They do not introduce a stigma, and can be made conditional on activities of benefit to children. Committee members should examine the impact and adequacy of refundable credits.

Other submissions repeatedly stress that a best practice in the design of the transfer system is offered by the Working Income Tax Benefit.

If you are a leftist think of this earnings top-up as a “social wage” that fills the role traditionally played by unions in securing reasonable wages for their members, a role much diminished by the polarizing trends of the labour market.

If you belong on the right this is Milton Friedman’s negative income tax with a twist that induces work effort: income transfers are made conditional on employment. Committee members should be examining  the impact and adequacy of conditional cash transfers.

Indeed, the submissions the Committee has received are worth a second look, but only through a lens that brings a lot more into focus than the tired old slogans that have, in part, kept this issue from coming to the floor of the House of Commons for way too long.

Maybe, just maybe, the Committee will craft a report that draws a constructive line between the politics of envy and the politics of privilege. But don’t count on it just yet.

[ If you have an interest you can download my submission to the Committee as a pdf here: Corak_Submission_to_Finance_Committee ]