It’s not just your imagination, the rich are getting richer. The gulf between the rich and poor has been steadily growing in the last 20 years, and social mobility has been declining too.
After decades of being told we can’t afford to have an egalitarian society, a growing number of Canadians are asking, why not? These voices include a group of privileged young people who have banded together to form the Resource Movement, advocating for a wealth tax and inheritance taxes on the estates many of them are in line for.
“We have the wealth we need to address the climate crisis, end homelessness, and other critical programs and services: but it’s in the wrong pockets.”
-- Resource Movement’s online petition signed by over 13,000 people.
Our society is now at a place where the wealthiest 10% Canadian families enjoy 56.7% of Canada's total household wealth, around $6.6 trillion.
Tax professionals agree our system is part of the problem. In a 2018 survey of over 2,000 Canada Revenue Agency employees, nine out of 10 agreed that our current tax system makes it easier for the rich to skip out on taxes compared to the average Canadian.
One of the most glaring problems is the difference in how income from investments and assets is taxed when compared to wages and salaries. On average, Canadians rely on income from employment to build their wealth, and generally pay the full amount dictated by Canada’s graduated income tax system. On the flipside, super rich Canadians derive a greater proportion of their yearly income from investments—the truly wealthy don’t rely on wages or salary at all. A whole host of tax breaks and loopholes exist to reduce or forgo taxes on income someone makes off of the wealth (assets, investments, property etc) they already have.
A CBC snapshot from 2017 showed that the number of wealthy Canadians who were not paying any income taxes at all was growing year by year. In the report, the Canada Revenue Agency is quoted as saying, “It is possible for individuals classified in the upper income ranges to reduce their tax liability to zero by using deductions such as business or farm losses of previous years and allowable business investment losses, or significant contributions to RRSPs.”
The current system encourages rich people to shift their wealth generation from employment income to income from capital and gain access to lower tax liabilities. In accountant lingo, it’s called tax efficiencies. A particularly galling example lies in how Air Canada’s executives responded to the pandemic last year, by forgoing salary in a big public display of “sharing the pain”, and then taking bonuses that were partially made up of shares and stock options, which are taxed at about half the rate of income.
A January 2020 Canadian Centre for Policy Alternatives report shows that about one third of top executive compensation in Canada is provided through these lesser taxed shares and stock options. The Liberal government has committed to only partially closing the stock option loophole.
Adding insult to injury, the same report found that a number of Canadian corporations, including Air Canada, paid their top five executives more than they pay in corporate income taxes. In fact, CEO compensation reached an all-time high in 2018, when the average CEO made 227 times more than the average worker.
Prior to 1994, the effect of the taxation and transfer system was to increasingly reduce income inequality, but since 1994, the trend has reversed. Our tax system is having less and less impact on reducing inequality.
The tax system as it exists in Canada today rewards those who have already “made it” while penalizing everyone who still relies on wages or salaries for their income, typically middle- and low-income Canadians. The intergenerational cumulative effects of white supremacy have ensured the latter group includes more Black, Indigenous and racialized minorities. As this current investment advice article makes clear, taxes on capital gains are some of the lowest in Canada.
The pandemic proved our need to bolster social security systems, introduce universal pharmacare and provide economic justice. We can’t afford to allow our taxation system to continue to favour the rich.
According to the Canadian Centre for Policy Alternatives, “a wealth tax of 1% on net worth over $20 million, 2% over $50 million and 3% over $100 million could raise nearly $20 billion in its first year.”
It’s time to create a system that taxes income from investments and profits at the same rate as income, and where everyone pays their fair share. It’s time to tax the rich.