By Ivan Byard
On the campaign trail, Liberal leader Mark Carney and Conservative chief Pierre Poilievre are tripping over one another as they rush to promise more tax cuts. Both insist that working people will be the main beneficiaries of these cuts, but history indicates otherwise and suggests that what working people really need is progressive tax reform.
The tax cutting craze started in Canada around 75 years ago. In the 1950s, the corporate tax rate was just under 50 percent, and the tax rate for the richest individuals was about 80 percent. Today, the corporate tax rate is just 15 percent and the tax rate for the richest earners is between 30 and 40 percent.
These tax cuts have not “trickled down,” as right-wing politicians and think tanks promised. Instead, they have filled the bank accounts for the very rich. Meanwhile, hundreds of billions of dollars have been stripped away from basic needs like healthcare, social services, education and public infrastructure.
Wealthy individuals and corporations have reaped the benefit. In 2022, Canada’s top 100 corporate executives earned an average of $14.9 million each, equivalent to over $7,000 per hour. This contrasts sharply with the experience of working people – in Manitoba, for example, a recent Canadian Centre for Policy Alternatives study found that 171,072 workers, one quarter of all workers in the province, survive on less than the living wage of $19.21 per hour.
In September, the Globe and Mail Report on Business reported that real wages today for “middle-class” people in Canada are the same as in 1976. That’s half a century of stagnant incomes. At the same time, corporate profits have soared and reached an all-time high of $644 billion in 2023, 54 percent higher than just before the pandemic and more than double the average profit levels of the pre-pandemic decade. Furthermore, corporate profits now account for over one-fifth of Canada’s GDP – the highest level in history.
Years of tax cuts for the rich and corporations
Income tax rates for the richest people in Canada were over 70 percent long after the Second World War, only falling to around 50 percent in 1982.
This has contributed to a massive income gap in Canada. Statistics Canada reported last year that income inequality is now at the highest level ever recorded, with wealth becoming increasingly concentrated in fewer hands and a 47-percent gap in disposable income between the richest two-fifths and the bottom two-fifths. Currently, the top 20 percent of people in Canada have more than two-thirds of the country’s wealth, with an average of $3.4 million per household. In contrast, the bottom 40 percent of only account for 2.8 percent of wealth.
Typically, tax cuts for the rich have been implemented with the promise that they will boost economic performance. However, both productivity and GDP per capita in Canada were substantially higher before big income tax cuts in 1982.
Corporations have also benefited mightily from years of tax cuts. Between 2007 and 2012, corporate income tax was steadily reduced from 21 percent to 15 percent. This was accompanied by other corporate-friendly changes like limiting the capital tax and eliminating the corporate surtax.
Currently, revenue from corporate taxes across Canada is less than half that of individuals, despite that fact that corporate profit is far outpacing household incomes.
This situation needs to be turned around, through progressive tax reform that places the burden on those who have the ability to pay – corporations and the very rich. The corporate tax rate should be doubled, and income taxes for the wealthy increased substantially. Estates over $2 million should be subject to wealth and inheritance taxes.
This kind of a shift would ensure adequate funding for programs that working people rely on health, education and social services. It would also allow for taxes to be reduced for working people, by abolishing the GST/HST and eliminating income taxes on incomes under $50,000.
What about capital gains?
A capital gain is the profit from selling assets such as stocks, bonds, real estate or a company. Obviously, it is overwhelmingly concentrated among corporations and the richest people – over 60 percent of capital gains go to the wealthiest 1.5 percent of the population. This type of profit is taxed in Canada, but only on 50 percent of the amount of the profit.
Are working people only taxed on half their income? Do they only pay sales tax on one shoe when they buy a new pair? Of course not, and yet the wealthiest capitalist individuals and corporations are only taxed on half of the profit they make from selling assets.
This is no small issue either. Estimates from 2021 show that the federal treasury lost out on $38 billion because only 50 percent of capital gains are subject to tax. That’s a loss of 12 percent of total tax revenue, just so that corporations and the very rich can benefit.
It’s a problem that is getting worse, as capital gains are increasing as a proportion of income. For individuals, capital gains have grown seven times faster than overall income; corporate capital gains have doubled since the pandemic and have grown by eleven times since 2002.
Meanwhile, the Trudeau government’s pledge to apply the capital gains tax 65 percent of the gain appears to be dead in the water. The Conservatives always opposed it, and Carney was quick to toss it as a policy.
Allowing the richest individuals and corporations in society to get away without paying tens of billions of dollars on a rapidly increasing portion of their overall income, is a recipe for disaster. It depletes the public treasury of badly needed funds, while ensuring that corporations and the very rich pay an increasingly diminishing proportion of tax revenue.
This also needs to change. Capital gains should be taxed at 100 percent of the gain, not just a portion of it. This would bring an estimated $40 billion in additional tax revenue.
Of course, those who benefit from capital gains exclusions – corporations and the very rich – will threaten to move their operations out of the country if such a tax reform were implemented. Governments must be prepared to intervene on behalf of working people – and arguably for society as a whole – to prevent this kind of economic blackmail. This could include legislation along the lines of proposed plant closure legislation, which would require those threatening to move operations to justify their actions before public tribunals and, where appropriate, face penalties including fines or public takeover of assets.
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