Jagmeet Singh’s promise in his election night speech that “we’re going to make sure the super wealthy start paying their fair share” was met with cheers, the decibel level rising as his fellow New Democrats chanted: “Tax the rich! Tax the rich! Tax the rich!”
It is not entirely true that the federal election ignored big policy issues, but if it was issues-driven, how did a wealth tax fly under the radar?
At some point in the coming weeks Mr. Trudeau will meet Mr. Singh over coffee to talk tax policy. Sadly, the election left Canadians no wiser as to what divides progressives on the issue, but if you want the full picture look south to the Democratic leadership campaign.
Top income shares have increased significantly in some rich countries, but not so much in others. In the United States the fraction of income going to the top 1% has more than doubled since the late 1970s. And while top shares have increased in other countries like Canada and the United Kingdom, they have not gone up all that much elsewhere, say in Germany or Sweden.
Globalization and technological change are often said to be the causes of growing inequality, but all rich countries have been confronted by these forces, and on their own they cannot account for the variation in top income shares between countries. A full explanation has to rely on institutions, policies, or norms of pay that differ across national boundaries.
The first and most obvious place to look is at changes in tax rates.
Inequality has increased in the majority of rich countries, but the share of income and earnings going to the top has increased most in the anglophone countries. McMaster University economist Mike Veall says Canada has not escaped this trend, and argues that a public policy response is needed.
The underlying causes of, in his words, “the surge” in the shares of the top 1%, one-tenth of 1% and even the top one-hundredth of 1% in Canada remain elusive. Even so these changes should motivate at least three policy responses that could be supported across the political spectrum.
Professor Veall was the 2012 president of the Canadian Economics Association, the professional association of economists based in Canada, and presented his presidential address at the annual meetings of the Association held last June at the University of Calgary.
“In 2010, average real income per family grew by 2.3% … but the gains were very uneven. Top 1% incomes grew by 11.6%, while bottom 99% incomes grew only by 0.2%. Hence, the top 1% captured 93% of the income gains in the first year of recovery. Such an uneven recovery can help explain the recent public demonstrations against inequality.”
The 10 page update offers a clear picture of how income shares have varied over different business cycles, as well as the long-term trends since 1917. Top income shares fell dramatically after World War II, stayed flat, then began to rise in the early 1980s and have returned to their pre-War levels.
The top 10% in the US take now take home about 47% of all income, but this is driven by the top 1% who account for 20%.
The difference between the business cycle of the 1990s and the 2000s is that the incomes of the bottom 99% grew by 20% between 1993 and 2000, but only by 6.8% between 2002 and 2007.
Saez suggests that this “may … help explain why the dramatic growth in top incomes during the Clinton administration did not generate much public outcry while there has been a great level of attention to top incomes in the press and in the public debate since 2005.”
Perhaps a bit more politely than others in the mainstream media, but nonetheless pretty emphatically, the Ottawa Citizen columnist Joanne Chianello tells Occupiers that it’s time to leave, and she offers some advice:
“I don’t know what the answer is to the growing income gap. Unfortunately, neither do the people at Occupy Ottawa or Occupy Toronto or Occupy Vancouver. They could have contacted a lefty economist (yes, they exist) to help frame specific policy issues or demands, but they didn’t. Perhaps that’s the protest’s “stage two” we keep hearing about.”
Contact a lefty economist!
Well, if economists are going to be at the centre of “stage two” why don’t we forget about “lefty” or “righty”, and just consult the “best”?