As part of a broader fair tax agenda, Jagmeet Singh and the federal New Democratic Party have proposed a wealth tax, to be applied at a rate of 1% on wealth above $20 million. This is intended to generate new fiscal resources from those who can well afford to pay more, to invest in equality-promoting programs such as expanded public health care and student debt reduction. Such programs help fight the rising levels of inequality that threaten our way of life in Canada.
Skeptics have often argued that a tax on wealth would not raise much money. But a report released by the Parliamentary Budget Office (PBO) on September 10, just as the federal election got underway, confirmed that the NDP wealth tax would raise a stunning $70 billion over ten years.
New federal revenues of $6 billion rising to over $7 billion would be raised each year, even though the proposed levy is quite modest. And the study even assumes that about one third of the theoretical increase would be avoided,
The vast majority of Canadians would pay no wealth tax. The median Canadian household (half have more and half have less) has a net worth of just $295,100. And even the top 10% starts at “only” $1,650,000.
A wealth tax on the very rich would raise a lot of money even at a very high threshold and low rate for one major reason. A small number of very rich Canadian families have accumulated huge concentrations of wealth, mainly in the form of ownership of private companies and of controlling shares in corporations.
David Macdonald of the Canadian Centre for Policy Alternatives reports that the top 87 Canadian family fortunes averaged just under $3 billion in 2016, up by a stunning 37% from 2012 compared to an average increase of 16%. These large fortunes totalled $259 billion; the same amount shared among 12 million Canadians at the lower end of the wealth ladder. Inherited family wealth looms large at the very top of the list, and there is relatively little turnover from year to year
Another recent global study finds that there are 10,840 “ultra-high net worth” fortunes of $30 million US or more in Canada and that the total wealth of this group is over one trillion dollars – $1,100,000,000,000.
Thomas Piketty has famously shown that the wealth of the very rich tends to rise at a much faster rate than the wealth of the many, unless strong countervailing political forces come into play. High levels of wealth inequality also increase income inequality, and convey massive economic and political power to the few.
Many fear that the ever-increasing concentration of wealth in the hands of the very rich threatens democracy itself as we return to the ultra-unequal world which existed in the late nineteenth century and first half of the twentieth century.
Seen in this context, the NDP’s proposed wealth tax could be an important measure to both fund programs that create greater equality and dilute the concentration of wealth here in Canada. Such a tax already exists in a few countries, and is being proposed for the United States by Democratic contenders Elizabeth Warren and Bernie Sanders. Almost uniquely among major economies, Canada currently levies neither a wealth tax nor a tax on large inheritances.
Some will argue that the rich “deserve” their huge fortunes. But this hardly applies to inherited wealth and the profits which grow wealth are too often generated by monopolies, price gouging and low wages rather than innovation. CEOs and other senior corporate management insiders can and do pocket large incomes far in excess of their real productive contribution to the enterprise they lead or to the economy as a whole, and they are required to generate high profits distributed to the shareholders
The central point is that it is hard to argue that the distribution of wealth is fair if ownership of capital is highly concentrated in a few hands as a result of self-reinforcing economic and political power.
Jagmeet Singh and the federal NDP’s wealth tax has injected the critical issues of tax fairness and fighting inequality into the election campaign. . . Now, with the PBO’s estimates, we all know that there is a lot of money at stake.
Andrew Jackson is the former Chief Economist of the Canadian Labour Congress and the Senior Policy Advisor to the Broadbent Institute.