By Sean Speer and Brian Lee Crowley, Nov. 27, 2016
From the Occupy movement to Bernie Sanders’ insurgency within the Democratic Party to the British Labour Party’s radical left turn and Justin Trudeau’s successful election campaign to tax high earners, “soak-the-rich” has become a political clarion call internationally as well as in Canada.
The prevailing assumption seems to be that the wealthy, including well-off Canadians, aren’t paying their “fair share” and that higher taxes and more redistribution is the obvious solution.
”Fairness” is never clearly defined, of course, and the economic and social costs – including lower levels of investment and job creation, loss of talented people and possibly discouraging philanthropy and charitable giving – are impatiently dismissed as quibbles or special pleading.
Fairness, however, is a virtue quite distinct from envy. And Canadians who care about fairness will naturally want it for everyone. That’s why new data from Statistics Canada on the so-called “one percent” and its share of the overall income tax burden should give rise to some serious reflection on what a fair tax system should look like.
The portrait painted by this new evidence shows today’s high-income Canadians are paying a higher share of income taxes than during Pierre Trudeau’s flowering of progressivism.
Recall that his prime ministership was marked in large part by his vision of a “Just Society.” It was a powerful message about how greater wealth redistribution would ensure that all Canadians “fully shared in the country’s affluence.” Higher taxes and government spending in the name of social progress and opportunity were his government’s touchstones.
Consider that when he left office the top one percent of income earners paid about one out of every eight dollars collected in income taxes in Canada. And then it started to climb, reaching just over one dollar in every five in 2014. That’s more than a one-third increase in 30 years.
And this trend isn’t limited to the “one percent” (which amounts to less than 269,000 people). The top 10% of Canadian earners (representing 2.7 million tax filers) paid 54% of total income taxes in 2014, up from 49% in 1984, while the bottom 50% (totalling 13.4 million tax filers) saw their share of the income tax bill actually fall from 5% to 4.3% over this period.
This elusive search for fairness can come with costs. A wide body of research shows the risks of high personal income taxes in the form of less investment and entrepreneurialism, and fewer high-skilled workers such as doctors and engineers. And new evidence finds that high income taxes can also discourage charitable giving and philanthropy.
A better alternative to more redistribution is more opportunity for all Canadians. Government policy should focus on helping everyone climb the economic ladder rather than just shuffling wealth from one group to another. Such an agenda can create the conditions for a fairer, more just, and opportunity-based society.
Brian Lee Crowley is the managing director and Sean Speer is a Munk senior fellow at the Macdonald-Laurier Institute.