Tax the rich policies aimed at redistributing income don’t work, writes Sean Speer.
By Sean Speer, June 1, 2016
“Fair share” is a phrase that seems to have political resonance these days.
It’s been at the heart of the recent presidential contest in the United States and formed the backbone of Prime Minister Justin Trudeau’s budget here in Canada.
The politics of income redistribution seem to be on the ascendancy.
It’s a disappointing trend that’s rooted mostly in fiction rather than fact.
At its core, the political appeal of a redistributionist message is the perception that somehow taxing more from the wealthy will improve the lot of the rest of society.
Just ask David and Neera. They are the 40-something, middle-class couple with two daughters who were introduced to us in the Trudeau government’s first budget.
They are “willing to work hard” but are very pessimistic about the future.
They’ve seen their “sense of optimism … steadily erode” because of an apparent lack of social mobility and an inherent unfairness in Canada that has contributed to an “uncertain future” and the “rise of inequality”.
Yikes! No wonder David and Neera are desperate for a “new approach”.
It sounds awful but it isn’t an accurate portrayal of much of the experience in Canada.
It might have been true had David and Neera lived in the United States.
But the Canadian evidence shows worries about middle-class stagnation and a growing wealth gap in Canada are largely unjustified.
Consider a 2015 Macdonald-Laurier Institute study that found high levels of social mobility in Canada and progressivity in government spending and taxation policy.
There’s a reason that the New York Times has heralded Canada for being home to the world’s richest middle class.
Yet, notwithstanding this positive evidence, David and Neera do not feel like “they are getting further ahead,” and the obvious solution is to raise taxes on wealthy Canadians.
As the budget puts it: “The government agrees … by giving more help to those who need it, and less to those who don’t.”
If it’s a matter of eliminating tax expenditures (credits, deductions, and other preferences) that disproportionately benefit wealthy taxpayers, or getting rid of corporate welfarism that benefits large companies at the expense of small businesses, these are useful steps that can level the playing field and result in lower taxes for everyone.
But so often the “fair share” rhetoric seems like an end in and of itself, irrespective of whether it helps David and Neera.
Raising taxes on high-income earners – as we have witnessed at the federal level and in Ontario, for instance – won’t give our archetypal couple a “real and fair chance at success”.
All it’ll do is increase wealth redistribution in the elusive name of “fair share” and maybe score some political points.
The solution to David and Neera’s economic anxiety isn’t more redistribution.
It’s a broad-based economic and social policy agenda that creates the conditions for rising living standards and social mobility, irrespective of one’s income or background.
Such an agenda, for instance, would lower taxes across the board, expand free trade in Canada and with global markets, and reform onerous land-use regulations to support responsible homeownership.
It’s not an exhaustive list but it’s a good start.
And the right plan to give David and Neera and their daughters a renewed sense of optimism.
Speer is a Senior Fellow at the Macdonald-Laurier Institute and the co-author of a recent study entitle “A modest proposal to tax Canada’s rich”