Billions of dollars of tax cuts over the past 20 years have helped the rich get exponentially richer and more powerful than the rest of us, while at the same time starving public services. Taxing the rich will close this gap and fairly fund the COVID-19 recovery that we all need.
The COVID-19 pandemic has magnified both income and wealth inequality in Canada, exposing longstanding unfairness in our tax system. Income inequality is the difference in how much we earn each year, and wealth inequality is about differences in how much we’re able to accumulate over time.
The way the Canadian system is structured helps the rich get richer. For example, returns on wealth, such as capital gains or dividends, are not taxed at the same rate as income from employment. These profits are taxed at a lower rate than in the 1990s.
Since the 1990s, successive Liberal and Conservative governments have also cut corporate tax rates in half, and allowed corporations to use accounting tools to avoid paying tax. Corporate tax cuts and loopholes allow shareholders to accumulate more wealth and enable huge compensation packages for executives.
Widening wealth gap
Economists and politicians told us that tax cuts would trickle down and create growth, but that never happened. Instead, we’ve seen broadening inequality. Between 2010 and 2019, the average wealth of Canada’s richest one per cent more than doubled from $4.9 million to $10 million. The average wealth of the bottom half of people in Canada grew at a snail’s pace in comparison, increasing from $32,043 to $37,403. As of 2019, the richest one per cent in Canada owned more than a quarter of the wealth in our country.
It’s not surprising that on top of this pre-existing divide, some of Canada’s richest people and biggest corporations have profited handsomely during the pandemic. Between March 2020 and the end of January 2021, the wealth of Canada’s top 44 billionaires increased by $63.5 billion, according to Oxfam Canada. A recent Oxfam International report, The Inequality Virus, highlights that the wealth gap is also a gender and race gap. The super rich, who benefit from tax cuts the most, are overwhelmingly white and male. Meanwhile, racialized women bear the biggest brunt of cuts to public services triggered by tax cuts.
Time to tax the rich
Inequality is not inevitable; it is the result of policy choices. Important changes to personal and corporate taxation could help rebalance wealth and power, and would fund public services that are the heart of a more equal society. CUPE has partnered with the Broadbent Institute, Canadians for Tax Fairness, and others to call on the federal government to implement a wealth tax, close tax loopholes used to hoard wealth, and implement a tax on excess profits made during the pandemic.
Canada is the only G7 nation that doesn’t have a wealth, estate, or inheritance tax for large fortunes. There is growing support for an annual wealth tax in Canada. The Parliamentary Budget Officer (PBO) estimated that a one per cent tax on fortunes over $20 million could raise $5.6 billion in the first year alone, and $70 billion over 10 years. Canadians for Tax Fairness used the PBO data to estimate revenue from a more progressive annual wealth tax. They found that a tax of one per cent on wealth over $10 million, two per cent on wealth over $100 million and three per cent on wealth over $1 billion would generate close to $20 billion annually in revenue for the federal government.
Another huge tax break that has contributed to growing wealth inequality is the preferential way that capital gains are taxed. Capital gains are profits made through the sale of financial investments or real estate (but not your principal residence). Right now, only half of any profit is considered income for tax purposes. Over 88 per cent of the value of this tax break goes to the top one per cent of income earners – people earning at least $236,000 a year. In the last federal election, the NDP proposed returning the capital gains inclusion rate to 75 per cent, where it was in 2000. This change would raise an additional $9.5 billion in annual revenue.
Fair taxation funds an equitable recovery
Canada’s richest people get most of their wealth from ownership of corporations. Corporate tax cuts and tax avoidance have helped enable rising wealth inequality. Restoring the federal general corporate tax rate from 15 per cent to 21 per cent could help reverse this trend and would generate over $10 billion a year. CUPE’s pre-budget submission put forward these and other tax fairness proposals. Together, they would restore $50 billion annually in federal government revenues.
The federal government could also implement a temporary excess profit tax, like those used during the First and Second World Wars. While some large corporations have seen their business boom during the pandemic, workplaces based on in-person service or travel have struggled the most under public health restrictions. Corporations that made above-average profits could pay a temporary tax on those excess profits to help fund the economic recovery.
The shape of our economic recovery is going to be a key issue in the next federal election, and restoring fairness in our tax system is at the heart of creating a more equitable economy and society. Tax fairness not only prevents wealth hoarding, it also helps pay for the services that we all rely on.