Can we tax our way to equality?

Why transfers to low-income groups may be a better idea than taxes on the rich

Ken Teegardin/Flickr

With the Occupy protesters still camping out on city lawns across Canada, it’s worth investigating whether our tax and transfer system needs a tune-up if we’re going to tackle income inequality.

To be sure, we are a more unequal society than we were thirty years ago, even after one takes into account the redistributive effects of personal income taxes and things like the National Child Benefit and Employment Insurance programs. In 1989, the after-tax income of Canada’s richest 20 per cent was 7.2 times that of the poorest quintile of the population, according to the Conference Board of Canada. In 2009, the richest group made 9.1 times what the lowest income earners did.

Part of the reason is the diminishing role that taxes and transfers have been playing in offsetting income inequality since the mid-1990s. As in many other advanced economies, the gap between rich and poor in Canada started widening in the 1980s, but right at that time the tax system became more progressive, undoing the rise in pre-tax income inequality, says Kevin Milligan, professor of economics at the University of British Columbia. Around the middle of the following decade, however, tax rates across the nation started going the other way. With Canada’s balance sheet back in order, the provincial and the federal governments saw no reason to keep in place the tax hikes they had adopted in the 1980s to replenish the country’s depleted public coffers. “And that’s why by the end of the 1990s we saw a pretty big increase in various measures of inequality,” says Milligan. Eleven years later, things haven’t changed much, and pre-tax income inequality has continued to rise.

Transfers are not what they used to be either. In 1994, for example, a single parent on welfare with one child would receive an average income of nearly $18,200 in 2009 dollars, compared to slightly over $17,000 in 2009, according to the Conference Board.

So what can Canada do, should it want to shrink the distance between the top and the bottom of the income ladder?

“Tax the #@&%ing rich”– as one Occupy Wall Street protester had it–is one possible answer. In particular, we could make the tax system more progressive at the top. After all, the top federal tax rate in Canada kicks in at a mere $128,800, which is much lower than the U.S.’s $377,900 and the U.K.’s $234,000, according to Milligan. But don’t expect the rich to simply write a fatter check to the Canada Revenue Agency, warns Université Laval economist Stephen Gordon. The rich, he says, can elude the taxman more easily than any other group, for example by abandoning provinces with more unfavourable tax regimes, moving to another country, or demanding higher salaries so that their net income won’t suffer as much from the added fiscal pressure–and they can do so, says Gordon, because “today’s highest earners can often credibly say: ‘I’m the best at what I do.’”

And because most of today’s rich get their money from wages like everyone else, rather than family fortunes, raising their taxes would mean diminishing the extent to which Canada rewards education, talent and hard work, says Gordon. Of course, a couple more percentage points worth of taxes on high-income earners isn’t likely to trigger a brain-drain or dampen entrepreneurial effort. But some Canadian economists remain cautious about tax hikes on the wealthy, a policy option they say can have a number of unintended consequences that could harm the economy.

Increasing transfers to low-income groups, on the other hand, seems like a safer bet. That’s because the poor’s reaction to welfare incentives is both better known and easier to predict. Transfers simply work, says Gordon. Take Sweden, he suggests, where inequality in income both before and after taxes is the same as here in Canada, but disposable income is much more equitably distributed. “The big difference,” he maintains, “is the transfers to lower income households.”

Another reason to like transfers is that programs like the Working Income Tax Benefit, which top up someone’s paycheck, play an important role in motivating low-income earners to continue to work or join the workforce, says Milligan. And making refundable tax credits more generous won’t have a large administrative burden, because we already have those systems in place, he adds. Adding some weight on the mice, it seems, is a better bet than putting the fat cats on a diet.

*Source: Statistics Canada, CANSIM Table 202-0709, Gini coefficients of market, total and after-tax income of individuals, where each individual is represented by their adjusted household income, by economic family type, annual (number). According to Statistics Canada: “The Gini coefficient is a number between zero and one that measures the relative degree of inequality in the distribution of income. The coefficient would register zero (minimum inequality) for a population in which each person received exactly the same adjusted family income and it would register a coefficient of one (maximum inequality) if one person received all the adjusted family income and the rest received none.”




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Can we tax our way to equality?

  1. “raising their taxes would mean diminishing the extent to which Canada rewards education, talent and hard work, says Gordon”  And he says it like it is a bad thing, which it is, of course.  Unless you happen to be someone in the middle class, probably fairly well educated or with unique talent and certainly working hard.  Because Gordon doesn’t want the 1% to be taxed any higher than they are now, but he does okay the increase in poverty reduction transfers (which really do need to be raised.)  So guess who gets to pay for it?  It would seem the economists of this world have declared war on the middle class, and we’re only now largely realiziing it.

    • The top 5% of earners pay 40% of all income taxes (source), so I’d wager that they’ll be bearing the brunt of any extra spending as much as, if not more so than the middle class. This idea that “The Rich” don’t pay taxes is absurd. I suppose there could be some debate around what “their fair share” is, but the “Occupy” movement seems more interested in punishing those who succeed, rather than any kind of actual equitable taxation formula.

      • Also from that source

        That group also had the highest effective tax rate — 17.69% in 2002, compared with an average rate of 11.18% for all those who paid income taxes.

      • Where did I say the rich don’t pay taxes?  I’m interested in the fair share that somewhat mitigates the expanding income inequality.  I’m interested in another tax bracket so that the bottom 4% of the top 5% aren’t paying a punishing tax for succeeding.  But as usual, you like to lump everyone who isn’t a Conservative together into an easy “the other” enemy.

      • Oh woe is me! Rick it is about what is left in a pocket AFTER taxes are paid, it is about having enough to feed your family, to possibly one day own  a home.
        You are talking about someone having to compromise by buying a 1,000 sq ft home instead of a 15,000 sq ft home, a new Mercedes every two years instead of annually.
        Punishing those who succeed…. how about just feeding those who weren’t born into luxury?

    • Good point. Gordon seems to regard tax dodging in the top earners as a virtuous exercise, something we can or should not do anytthing about. Built into this assumption is the notion that the truly wealthy are the innovators in our society – they’re not. Being a venture capitalist, a CEO or an investor in good ideas and using whatever business smarts that may have propelled you into the upper income bracket is not to be just dismissed; but neither does it make them the some kind of high priesthood of capitalism upon whom the whole system leaches.
      Still, the reality is they are mobile as a tax class. Perhaps it is time to try some honey rather then vinegar to attract them. Of course as you say any tax credits that encouraged more philanthropic investment by the wealthy in worthwhile societal endeavours will likely carry a price tag that will mainly be born by the middle class. Still, some good has come out of similar projects like endowment funds in the US. Encouraging the rich to give has the added benefit they feel more engaged in the larger society. I’m thinking of wealthy benefactors mostly in the US who are helping to fund environmental groups on the west coast, whom the conservatives are trying to brand as foreigners who are unfairly trying to influence Canadian politcs…go figure. I guess foreign $ in the oil/tar sands are good $ and foreign investment in our environment are anathema.

      • I thought the honey idea is what we’ve been trying for the last decade or so.  And much like trickle-down economics, it seems to have a bit of a problem with, you know, working.  Which is not to say that the very wealthy don’t give, or even haven’t given more.  Just that they haven’t come close to the same levels the previous generation (or two) of very wealthy did through taxation.

        • There is a reason it is called trickle down economics rather than torrent down economics.   ;-)

  2. OK; so last week there was a meter on here to see where a person’s salary fit compared to their fellow Canadians. I was shocked to find out that a $60K salary fit into the top 20% of earners, and that $90K put one in the top 10%.

    Now the link in this article says “The gap between the real average income of the richest group (fifth quintile) of Canadians and the poorest group (first quintile) grew from $92,300 in 1976 to $117,500 in 2009.”

    Clearly the two sets of data are at odds with one another. Can someone at Macleans please do the research and tell us the real story on salaries?

    • 999 people each make a buck a day.
      1 guy makes $10,000/day.

      Average wage: 11 bucks a day.
      To be making more than 99% of the people? Make a $1.01/day.

      • So what you’re saying is that “average” values mislead. Surprise!

         Interestingly, much of the article at the link talks about median salaries and even uses a very similar analogy to the one you chose to illustrate the difference.

        So if the top 20% starts so low, why does the writer then use the average rather than the median to describe the gap between richest and poorest when the ”gap” is about double the before-tax salary of those at the bottom of the same quintile? 

        Depending on one’s viewpoint, by using such a broad range of salaries, where the bulk will be lower than the average, the article is either artificially lowering the gap between the truly rich and the poor, or artificially inflating the gap by using the average rather than the median.

        As the saying goes, there are liars, damn liars and statistics. These stats cloud rather than clarify.

        • As the saying goes, there are liars, damn liars and statistics. These stats cloud rather than clarify.

          Agree that statistics can be misused…but I still much prefer using statistics to help guide these discussions and decisions rather than completely abandoning the use of statistics, so that we end up relying on hand waving and hyperbole and exaggeration and so on.

          Ie the trick is to understand statistics and use them appropriately, not stop using them.

          • “the trick is to understand statistics and use them appropriately, not stop using them.”

            Agreed, in most circumstances - and that’s my point. They are being used in a way that is extremely confusing and seems to be designed to muddy the waters rather than to clarify.

            I did a couple of university-level stats courses (almost three decades ago, granted) and aced them. I know enough about stats to know that the numbers I’m complaining about are useless for the discussion they are purporting to have.

    • How do you figure the data sets are at odds with each other?

      Obviously the top quintile includes the very top income earners, so the average salary of the top 20% is quite high (think of the people making $100′s of thousands, or even millions).  So despite the fact that the to be in the top 10% of income earners you only have to at about $70,000 in income, it’s the top couple % of income earners that really drive the average of that quintile up.

      • See my answer to Thwim, above. Using a quintile with such a huge range and using the average skews the results to meaningless nonsense. Thus my request for the real story. Though I also find it hard to believe my salary puts me in the top 20% when I look at what I can afford versus what so many around me have; I think their tool was wrong. 

        • Though I also find it hard to believe my salary puts me in the top 20%
          when I look at what I can afford versus what so many around me have; I
          think their tool was wrong.

          Not sure that your disbelief stems from the numbers as much as it stems from psychology – probably it is human nature to gaze (longingly?) at those that appear to be further ahead of us rather than look over our shoulder at all of those folks who are in either somewhat – or even much worse – financial circumstances than us.

          And I say “appear to be further ahead” because do we really know what is behind those appearances – certainly some of them are just facades.

          • Possible, I suppose, esp given where I live, but really – $60K puts me in the top quintile?

          • Yup, you are (just) in the top quintile.

            Along with you (in the 60K – 70K range) there are 1,252,979 other Canadians.

            Btw, there is a 25.4% chance that you made a Home Renovation Expense claim, and a 48.8% chance that you made an RRSP deduction. :-)

  3. So if transfers to the lower income groups go up, where will the money come from, if not from higher taxes on the rich?

    • I don’t think Gordon and Milligan are advocating against raising taxes on the rich (either by new tax brackets or perhaps just raising the marginal rates), but rather are cautioning that just raising taxes on the rich isn’t a simple solution many think it is.  To really target and reduce inequality, they seem to advocate that transfers need to increase.

  4. “With Canada’s balance sheet back in order, the provincial and the federal governments saw no reason to keep in place the tax hikes they had adopted in the 1980s to replenish the country’s depleted public coffers. “And that’s why by the end of the 1990s we saw a pretty big increase in various measures of inequality,” says Milligan”

    So some tax brackets were removed in the nineties since they were regarded as no longer serving a purpose. What is missing here is that many of the refundable tax measures had also been removed at some point ; presumeably on the grounds that the poor also had to do their bit in fighting debt loads.[ i still recall them disappearing in favour of non refundable tax credits - not sure when - probably under that old tax shifter Mulroney] Interestingly enough the working poor and lower middle class never got them back while the well off had their burdens lightened; indeed tax credits that benefited only those who had the disposal income to invest in them began to proliferate; disproportinately to the benefit of the better off of course. Much of the middle class are nowhere near filling their RRSP limits. Hmmm…
    Maybe i’m missing something here. After all the thresholds at which a person begins to pay tax did begin to rise at some point to the benefit of the less wel off.

  5. Why is “income equality” the goal here anyway? It’s an absurd notion. A bus driver will never make as much money as a pilot, and for good reason. Some people will make good decisions in life, others will make bad. Some people are happy to do just enough to get by, while others will work hard and try to earn more until the day they die. This will never change, no matter what the tax rates are.

    Our governments focus shouldn’t be on trying to force income-equality, but ensuring that the opportunities for education and employment are equal for all. And for the most part, I think we’ve achieved that in this country.

    Taxing the rich as a way of achieving income-equality is equally foolish. It won’t raise anybodies income, but it will reduce the incomes of many.

    • There will never be equality of opportunity.  A kid born with parents who make 41k/yr between them does not have the same educational opportunities as one with parents who make 96k/yr or less than 10k/yr.

      A native american kid born on the reserve does not have the same opportunities, either educational or employment related as a white kid born in the city, no matter how much we might like to shut our eyes and pretend that isn’t true.

      A person who receives a half million inheritance has a lot more employment and educational  opportunities opened up to them than a person who has to figure out how to pay for their parent’s funeral — no matter what choices the person themselves has made.

      • You’re confusing opportunity with ability to pay. I’d even argue that the ability to pay has almost no impact on the education received anymore. Private school’s in Canada are hardly leaps and bounds better than public schools, and we have a very accessible student loans system in Canada which pretty much ensures that anybody can go to any school they’ve qualified for. 

        As for the Native American kid vs White City Kid:
        A) Native Americans are Americans, not Canadians.
        B) The problems you’re talking about are cultural, not economic. Try being a white kid from the city and going up to a reserve in Northern Manitoba and finding employment there. Of course it would be nice if this weren’t the case, but taxing the rich will have precisely zero impact on cultural relations.

        The half million dollar inheritance would probably be more of a hindrance to gainful employment than a family funeral. I’ve never heard a single HR person think “well, this guy came into money from his family, so he must be better for the job”. They’re much more likely to be viewed with disdain and people will assume they’ve never had to work hard in their life (not a great trait when finding employment).

        Of course the half million dollars could be wisely invested in a business and provide an income that way, but that’s not easy work either and they’re risking everything they have. At the same time, once the funeral’s over the other guy can easily come up with a sound business plan, go to a bank, and get a half a million dollars. They’re not going to reject him because he’s had a family member die in the past.

        • Unless you know of free post-secondary, ability to pay does equate to opportunity. And as for student loans, perhaps you haven’t looked at them in the last decade or so. Get current, and try again.

          I’m not even going to address your idiotic response about a Native American not being Canadian, as it’s both completely false and would be irrelevant regardless. So as to your other point whether the problems are cultural or economic is irrelevant, as you initially were claiming simply that opportunity is pretty much equal in Canada.  Now if you want to try and move those goalposts once you’ve been shown to be wrong, I suppose that’s your right, but I’m going to call you out on it, and refuse to play your silly little game.
          Again, we’re talking about access to education and employment. Go ahead and find what kind of student supports there are for an adult who has to work full-time to support himself, and now take a look at the supports there are for a person who can afford to not work and take school full time. And while HR people may not know if a guy came into money, they do notice degrees from higher “tier” schools, and better clothes, both of which cost money.

          Oh, and as for someone easily being able to go to a bank and get a half million dollars, perhaps once you’ve caught up on the last few decades of student loan changes, you could go further and get caught up on the events of the last 5 years or so.

          • I’ve looked at student loans very recently, thank you very much. They’re much easier to get and cheaper than a small business loan.

            The only part of the second paragraph I’ll address is the last sentence. Where I come from, when you “call” someone in poker, you typically can’t follow that up by “refusing to play”. What you’re referring to is actually called “folding” in poker parlance.

            We were actually talking about taxing the rich, not education and employment… anyway.. Again, there are student loans. Public secondary school is there to provide any child with the necessary skills for gainful employment, at the absolute minimum. There are lots of jobs available for people with a basic public education. And with even a basic public education you’ll have access to the banking system to provide credit if you have a “eureka!” moment, find a gap in the market, and take advantage of it by starting a small business. Heck, I’d bet you’d get seed money from the government! You’ll also have access to the student loan system which, if you feel “greedy” and want to earn more, will lend you the money to upgrade your skills. Now, of course you have to pay it back, but nobody should be expecting free money from anybody. Even the rich kids who’s parents finance their education expect to be paid back in pride.

            You should remember that Canada is not America. While we do share some of the same problems, we don’t share them all.

          • “Paid back in pride” well now ain’t that rich!

            Literally. LOL

        • Rick, you’re assuming that everyone has an equal ability and/or potential, when for a great many reasons they do not.

          Some people are born with health problems or disabilities, or develop them through no fault of their own.

          Some people suffer from difficult life circumstances, such as abuse leading to mental health problems.

          Some people have responsibilities they can’t escape that take their every effort to deal with, ie sick or elderly parents or disabled children etc.

          And frankly some people, who aren’t technically disabled or uneducated, simply aren’t that smart or insightful to begin with. It’s a fact to acknowledge.

          Obviously we could develop quite a list if we wanted, but the underlying point is that it is patently ridiculous to suggest that everyone has equal potential or equal opportunity to become rich.

          Even just from a practical perspective it’s literally not possible for everyone to become, for example, a millionaire. You need to have a lower class in order to have an upper class as there is an upper limit on how much there is to go around. If there was no scarcity at all, then the impetus for competition would dissappear.

          So far as I can tell, no one is suggesting that these transfers should equalize things entirely or that people shouldn’t be rewarded for their personal efforts and successes, but it should be a matter of balance and fairness that recognizes the wisdom inherent in the old saying “‘there, but for the grace of God, go I.”

          It benefits everyone to have a minimum standard of living for people in general, and when we try our best to ensure as much equality of opportunity as possible.

          As a self made man in the top 10% of earners I am happy to support such ideas, as long as they’re reasonably executed. It makes a better society for all of us, and helps everyone realize their dreams in as much as is possible for the individual.

          • For one thing,though, given the innate and unerring ability of governments to screw up most of what they attempt to do, is giving them more of our money in the faint hope they’ll actually make things better the right course of action?  Plus, we already know that the more money governments have to “play” with, the more corrupt they become.  It follows as spring follows winter, so how does increasing the propensity for government corruption make our society better?
            I barely escaped high school, and the most education I’ve had is successfully completing my apprenticeship.  I own part of a business, but 80% of my income is from my employment as a commission salesman.  That income alone puts me in the top 10% as well.  My position is that no level of government needs any more of my money.  If they want a more “equal” society, so be it.  To do so only requires that governments quit squandering money that doesn’t belong to them in the first place.
            Does a new arena in Edmonton, mostly funded by taxpayers make us more equal? No.
            Do the gross inequalities represented by taxpayer-funded public sector wage and pension packages make us more equal?  No.
            Do the government-backed dairy and egg marketing boards that grossly inflate the costs of eggs, milk, and cheese make us more equal?  No.
            Does the ability of have-not provinces to levy taxes outside of their jurisdictions (via the miracle of equalization), rendering mute the voices of those thusly taxed, make us more equal?  No.
            The bottom line here is that no jurisdiction in Canada has a revenue problem.  They all have spending problems and the best way to get that in line is to restrict, not expand, their abilities to levy and spend.
            Then, you might have a fighting chance that governments might focus on what’s important.
            (Hint:  I’ll bet the City of Calgary spent more on fighting trans-fats last year than they did fighting bed bugs.  Which one represents the biggest public health concern?)

          • And that’s why we’re discussing direct transfers and not a program per se, because yes I agree, governments do tend to muck things up when they get more complicated than that.

            A simple “living wage” minimum in which we ensure that everyone makes no less than the poverty line, will have a powerful impact on people’s lives in a way that will ensure at least that everyone has a basic capacity to live without suffering.

            I don’t think a truly progressive society should aim for any less.

            And I should add Bill, that for the most part I agree with most of your statments. In my view this move towards reducing disparity is more important than political give aways any day of the week.

            We have to hold their feet to the fire as voters to end that type of garbage though, and that’s where I think many government supporters are speaking out of both sides of their face.

        • Do you seriously believe that those who have money have anywhere near as difficult a time taking up the opportunites that life has to offer then someone born into a working poor family or off the reserve? And that’s before you factor in sociological factors. Malcom Gladwell has written a good deal about this including his famous example of a guy with a genius level IQ who never rose above bouncer. It had little to do with virtue, ambition or hard work as you state. It had a lot to do with the fact he couldn’t navigate his way through the maze of set backs he encountered in trying to get himself a higher education. He lacked the confidence, tools and sense of entitlement someone from an economically or academically more successful family background instinctively has. It’s why someone whose parents went to uni is far more likely to go there and succeed themselves. This is doubly true for kids on the reserve – people need successful role models outside of their milieu; those same reserve kids don’t have the same problem learning traditional skills from their parents – it is just not possible to live that kind of life anymore. It has little or nothing to do with choice as many cons/liberatians delude themselves into thinking. 

          • Wow, some guy named Malcom Gladwell found a “famous” example of something! I take back everything I said about taxing the rich not solving those problems.

            How would taxing the rich solve any of the problems you’ve mentioned above? Will taxing the rich somehow serve as an intensive to kids on the reserve to go out and get rich, so they too can pay extra taxes? Or are they supposed to simply get an education for the sake of itself? And who’s said that the TaxTheRich money would go to education? Healthcare in this country could use some extra cash, so could infrastructure, poverty relief, or we could pay off the national debt. 

          • Agreed famous is an odd choice of words. Let’s just say it illustrates my point.
             
            Did you even read what i wrote? I make no claim taxing the rich will solve all of life’s problems. I merely tried to make the  point that what holds many back from success as you would define it is far more complicated then a “choice” to be or not to be successful.
            As for taxing the rich. My view is they should pay their share and not hide behind some nonesense about being too valuable to the well being of the economy, or elude their responsibilities merely because their privileged position allows them to do so.

          • @kcm2:disqus I think Rick blew over the thrust of your argument as well, but understand that Rick feels there is an attack here he needs to defend against, and it’s the nature of a schema to only acknowledge points that support said schema.

            It’s true there is a lot of money that already exists in the tax system that would be better allocated towards removing disparities. And frankly, doing this would probably have more impact on the economy overall and the standard of living than many of these tax giveaways to big businesses, and plethora of the incremental tax deductions the government has scattered across the middle class.

            I’m not sure whether we really need new tax brackets and the like so much as we need a more intelligent and less politically “convenient” use of the existing structure.

          • Phil- 

            “I’m not sure whether we really need new tax brackets and the like so much as we need a more intelligent and less politically “convenient” use of the existing structure”

            There’s an awful lot of truth in those 3 sentences. I guess it comes down to do we tend to reward govts for putting the good of the whole before the good of the party? Far too often we reward the later over the former. Still, it is our job/duty to demand better.

  6. Why all this talk of raising taxes anyways (completely without reference to actual requirements to budget needs … mostly driven US anger at Wall Street) ? In Canada we can tighten our belts enough by reducing government expenditures.

    A highly taxed economy is not a productive one.

    • Sweden refutes you.

  7. I don’t know why the ‘Occupy’ movement is mentioned here….it was Brian Topp, an NDP leadership candidate who brought it up.

    The ‘Occupy’ movement has made no demands.

    It’s not about local taxes, it’s about changing the entire governing/economic system worldwide.

    It’s all part of globalization.

    • “The ‘Occupy’ movement has made no demands. ”

      Apparently you missed that march in which they demanded the imposition of the so-called “Robin Hood Tax.”

      That sure sounded like a demand to me.

          • Do I have to repeat it for you?

        • Quoth Emily:  “Some individuals will say things, but the Occupy movement has made no demands.”

          Headline in Vancouver Sun:  “Occupy Vancouver Marches in Support of Robin Hood Tax.”

          • So.. is the Vancouver sun reporting accurately? Is it the Occupy movement marching in support of that? Or is it some individual within the movement claiming that’s what the marching is for?

  8. It was Brian Topp the NDP leadership candidate that brought up taxing the rich more to get equality.

    What about instead equality in life-time earnings ? Let’s convert all public service union and other union indexed defined  pensions to one higher general pension for everyone.

    If two tier medicare is unfair then so are two tier pensions.

    • Exactly.  Measures of income inequality are limited in several ways.  One can earn a modest income, yet have considerable savings and assets (e.g., a house that’s worth a 7-figure sum).  Arguably someone earning 200K a year with no pension (many professionals are in this boat) is worse off than someone who earns 50K a year but has a fully vested defined benefit pension plan.  That latter person has it made in the shade come retirement.

      • Except for the lucky few who bought property in Vancouver decades ago, you won’t find many making $50K who own a house worth seven figures – or even close to it.

        And any professional making $200K who doesn’t have as much at retirement as the person with a $50K salary and vested pension is simply not good at money management.

        • I’m sorry, but I call BS on your last sentence.  200K a year may be a lot if you live in Saskatoon or Halifax.  In Vancouver or Toronto, not so much.  And many professionals making that income, by virtue of being professionals, entered the workforce relatively late, as a result of pursuing a professional degree.  Many doctors and lawyers don’t really enter the paid work force until their late 20s or early 30s, and spend the first few years paying off student loans. 

          For someone like that, do you have any idea how much money you have to put aside in order to have an RRSP (or equivalent nest egg) which would have the equivalent value of a fully vested defined benefit pension plan?  Many defined benefit plans are worth substantial seven figure sums to their individual beneficiaries.  For an individual to save up that kind of money on his/her own over the course of 30 years in the workforce is not easy, especially with the ups and downs of the market in recent years.

          And by the way, I was referring to somebody making 200K now, not making that every single year of their working life — obviously that’s quite different and quite rare.  I had in mind, say, a lawyer in his 50s who makes 200K a year now.  That same lawyer might have started out 20 years ago making 20K (which was, e.g.,  a standard articling salary in Vancouver 20 years ago). 

          • Really? The guy making $50K didn’t start out there either.

            I live in Brampton (GTA, if you’re not familiar with it) and work in Toronto; I have two degrees. I too would love to have a DBP (my employer provides a DCP). $200K not enough for you? I’ve been with the same employer for almost 20 years, mostly in the lower rungs of management, and while I love my job and get great annual reviews, our salary structure means I still only earn $60K. So I really have zero sympathy for someone who whines about making “only” $200K.

            By all measures, if you’re making $200K  you’re among the wealthy in this country. So if you can’t manage your money – well, maybe you studied the wrong courses in university. Or maybe you’re just too busy keeping up with the Joneses to salt a bit away.

          • Look, I wasn’t asking for anyone to shed tears for somebody making 200K a year, obviously that would be ridiculous.  I was merely making a point about the limits to comparing incomes only, in isolation.  And I think my point is a valid one.  Perhaps I should have put it this way:  if two people are making 50K a year, and one has a DB pension plan and the other has no pension, the “income inequality” fetishists would see no inequality there.  But there’s huge inequality there — the latter person is significantly worse off than the former.

          • Trust me – as someone with a DCP and a wife with a DBP, I am well aware of the relative value of a DBP.

            You’re right; all other things being equal, the one with the DBP is better off by quite a margin. But that wasn’t the argument you started with.

  9. Calvin Coolidge ~ Don’t expect to build up the weak by pulling down the strong

    • CC who presided over a laisez faire economy that had low taxes for the rich, and still lots of unemployment and a rip roaring crime rate. Seemed to be headed toward some kind of depression there too – it was a great party while it lasted though.

    • Define ‘strong’.

  10. What the problem with just a flat rate of income tax, of say 25% for everyone with an income greater than the poverty line + what ever the difference is so that no one is ever taxed into the poverty bracket. For example, if the poverty line is established at $30,000 someone who makes $40,000 can be taxed at the 25% rate, and who ever makes between $30K and $40K pays a sliding tax so that they are not put into the poverty bracket. 

    And make all earned income taxed, stop with the tax exempt bonuses and junk that corporate overlords receive to skyrocket their income. 

    Additionally, remove the tax on inheritance … the deceased paid enough taxes on those earnings, why should the government be allowed to double dip. Remove tax on RRSP’s and other post-income investments. The worker paid income tax, then invested their taxed money and scrapped up some more and the business that they invested in paid taxes on their income … already. 

    Stop allowing companies that operate in Canada to hold their funds in off shore accounts where they escape taxation …. if memory serves me correctly didn’t a previous Prime Minister get caught doing this … and a couple big Canadian banks?

    So, is it really too complicated to keep money in Canada? I suppose it is if your a politician or blue blood who does not want to have to pitch in.

    • You’ve pointed out the problem yourself. A flat tax rate causes much more hardship for those who are less well-off, because basic expenses do not pay any heed to a person’s income and politely shrink to match it.

      If we tax the bottom group at 20% and the (smaller) top group at 33%, the bottom group gets a lot of relief from that 5% discount, while the top group does not suffer nearly as much from the 8% increase. Continue this and you get our progressive tax system — with the objective of minimizing hardship for people as much as possible.

      • The logic of that system is flawed. If you tax the wealthy at a higher rate such as you point out, they simply find ways around it. Which was my major point. There are far too many loopholes tat allow wealth people to augment their income without having to pay any tax on it.

        Remove the loophole and then taxation equality will really exist.  

        • The logic isn’t flawed, the system is. If they find ways around it, then they’re really not being taxed at 33%, are they? So you can’t say the logic doesn’t work because it isn’t being applied.

          Removing loopholes is fine and dandy. All good with that. I was addressing the other half of your comment around the flat tax portion where you asked why we don’t do that.

  11. One benefit to increasing transfers to the poor is the stimulative effect on the economy.  If someone who already has “enough” money gets more they may well save it — then it’s up to the banks to lend it in a way that causes economic activity.  If a poor person gets more money they will immediately spend it thus helping to create jobs and ultimately more tax revenue.

    • Exactly.

      This is one of the main supporting points for a basic living wage.

  12. Interesting, increase transfers without increasing taxes… this person is a magician! Even returning the tax scheme to what it once was would greatly increase tax income. This article is spin doctor garbage.
    I recently watched a documentary on the USA tax system. Did you know those vast fortunes and empires built in the first half of the 20th century were built on a tax rate of 90% for the rich?
    There does need to be some point at which the people exploiting society have a debt to pay to society. After all capitalism is the parasite of society, society does not need capitalism, but capitalism cannot exist without a society to prey upon.
    It will never happen with a conservative government, but the best and most balanced system of taxation is a flat tax with a sliding scale that increases as income increases. Shares (or ownership) in a registered company should be added into personal income, as that is exactly what that additional income is.
    Simplifying the tax system would eliminate ‘for the rich loopholes’, reduce the staff needed, and benefit ALL of society… no wonder it will never happen.

  13. For good reason, the Occupy movement is focused on the richest 1 per cent, that is, those whose income was higher than 99 per cent of Canadian tax filers. According to the Conference Board of Canada, quoting a recent study by economist Armine Yalnizyan1, “this group—the 246,000 people whose average income was
    $405,000—took home almost a third of all growth in incomes from 1998 to
    2007, a decade that saw the fastest economic growth in this generation”. Yalnizyan notes that: “The last time the economy grew so fast was in the 1950
    and ’60s, when the richest 1 per cent of Canadian took only 8 per cent
    of all income growth.”

    Right now the rich (and corporations) are sitting on their cash, as economic uncertainty
    and lagging personal incomes of the majority means there that there simply aren’t many good investment opportunities out
    there. “Trickle Down” just isn’t working.

    Both our society and our economy would be better off if the money
    stashes of the very rich and of profitable corporations were put back to
    work by taxing and spending them. This could be accomplished equitably and affordably for those affected by a few minor changes to the tax system.

    The federal government currently has four personal tax brackets, the top one kicking in at $128,000. While some provinces have as many as 5 brackets, the two most populous ones – Ontario and Quebec, only have three, the top ones starting at only $75,000 and $78,000 respectively.

    The current top federal personal income tax rate should be raised by 1% to 30%, another top tax bracket should be added at 35% of incomes over, say $175,000 and the laggard provinces should follow suit with five similar brackets.  Likewise, instead of cutting corporate taxes to 15% in January, they should be raised back to the 21% they stood at in 2007. Shamefully, Canada is currently leading a race to the bottom and buggering our economic partners by reducing our corporate tax rate to the lowest of the G7. If the additional tax revenue were used initially to fund improved public services for everyone and more generous transfers to those having trouble paying rent and putting food on the table, more jobs would be created. Once the stimulus brings us back to full employment and not so much is needed for transfers, the extra savings should go to government deficit reduction and eventually to building up a rainy day fund for the next time we get into economic hot water (and to dampen the overheating that inevitably will occur in the meantime).I realize this is overly simplistic as it doesn’t take into account what’s going on external to Canada – but this simple change in taxation is one of the best contributions we can make to solving the economic problems facing the world today.

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