Well, at least they’ve come out and said it: income inequality is a growing problem in Canada. The Globe & Mail said it. The Toronto Star said it. CBC said it. Even the National Post managed to get it out, interspersed amongst gripes about how Canadian income inequality isn’t nearly as bad as American income inequality, which, I suppose, it isn’t. All of this is based on a newly released Statistics Canada report which reveals that the income share of the richest 1% of Canadians has grown from over 7% of the economy in 1982 to over 10% today. It’s a good thing StatsCan writes press briefings to accompany its data releases. As you can see from the above linked commentary, that’s pretty much as far as our nation’s highly paid professional journalist corps managed to dig into this story.
That fact can be seen from a rather appalling interpretation of tax inequality in the StatsCan press release, which was eagerly picked up and echoed by the press corps: the notion that over the past 30 years the “tax burden” on the rich has increased. This is reported in all media. CBC even put it into the headline: “1% have seen their income increase over almost 30 years, but so has their tax burden.”
This is an incredible claim. I mean that in the most literal sense: it is not a credible claim. The tax burden of the rich has not increased, at least not in the sort of taxation measured in this report. You can check out the data for yourself if you don’t believe me, but in the meantime, here’s my summary: in 1982, the richest 1% took in an average of $117,400, and they had an average tax rate of 33%. In 2010, the richest 1% took in an average of $427,600, and they had an average tax rate of 33%. The bottom 90% paid 16% in taxes in 1982, and paid 14% in taxes in 2010.**
Note, incidentally, that the unaltered tax rate points to the failure and abandonment of the theory of progressive taxation. Progressive taxes are based on the idea that the more money you earn, the more you spend on unnecessary luxuries. Poor people therefore have very low tax rates because the bulk of their income is (or should be) spent on absolutely necessary items: food, clothing, and shelter. Wealthy people have higher tax rates because the bulk of their income is available for discretionary spending. Losing 50% of $1 million per year isn’t remotely as painful as losing 50% of $10,000 per year.
Except that in Canada, the progressive taxation system has clearly been left behind. Over the past 30 years, the income of the top 1% nearly quadrupled, but their tax rate did not increase. The bottom 90% merely doubled, and their tax rate slightly decreased. The most explosive gains were won by the top 0.01% — an elite club which saw their income quintuple since 1982, even as their tax rate actually declined from a peak rate of 46% in 1994 to just 35% today. Some burden!
I’ll have more to say on this topic for the next few days, but in the meantime here’s one thing to chew on. The media is filled with glowing reports about how income inequality is growing because the rich are getting fantastically richer while the rest of us toddle along, so I won’t belabour the point. I’ll just put it in graphic form, and then next post we’ll move on to other, more subtle points missed by the mainstream commentary.
As you can see from the following chart, which shows the ratio of the average top 1% income to the average bottom 90% income, in 1982 the average wealthy Canadian took in an annual income equivalent to that of ten ordinary Canadians. By 2007, this had skyrocketed to an annual income equivalent to that of twenty ordinary Canadians. The ratio has since receded somewhat as a result of the recession, but this is almost certainly a temporary setback. It’s even more extraordinary for the very top category, the richest 0.01%, who saw their incomes grow from 82 times that of the ordinary Canadian in 1982 to an obscene 215 times the income of an ordinary Canadian in 2010. Must be nice for them:
It’s worth noting that the longest sustained period of growing inequality occurred under the Liberals between 1994 and 2005, but that with recession dips aside, growing inequality is the legacy of a Progressive Conservative government in the 1980s, a Liberal government in the 1990s, and a Conservative/Reform government in the 2000s. They also oversaw, although the above graph doesn’t show it, the greatest collapse in tax rates among the wealthiest Canadians. It’s worth remembering this when someone claims that the Liberals are a centrist or progressive alternative to Stephen Harper.
** I got these numbers by asking StatsCan’s online service to generate mean market income for the various income groups. StatsCan also provides medians and total rather than market income, so as always, you can produce a range of statistics that appear to say somewhat different things. More on this in a futrue post.