WEALTH TAX: A Means to Addressing Contemporary Economic Inequality

For Black History Month, the Institute hosts a policy series highlighting bold policy solutions in order to tackle anti-Black racism, focusing on the need for intergovernmental action. Each submission proposes a plan for governments to work together to tackle a problem; while serving as a guide for advocates working towards [what should be] our collective effort to eradicate anti-Black racism.

This submission is an excerpt from the Broadbent Institute’s recent report, Addressing Economic Racism in Canada’s Pandemic Response and Recovery, that uncovers why Black, Indigenous and racialized people have been experiencing worse health and economic outcomes during the COVID-19 pandemic. Canada’s longstanding history of colonialism and systemic racism have resulted in economic disparities that have increased the likelihood of exposure to COVID-19, and the present-day widening of both the income and wealth gap between Black, Indigenous and Brown Canadians versus their White counterparts. The wealth gap, which expands the conversation of income inequality beyond how much money is accumulated through labour, refers to the assets, property and more specifically the intergenerational transfer of monetary goods. According to the authors of the aforementioned report “Wealth is what allows inequity to persist across generations, because it gives children of the wealthy a massive head start in life”.

In the U.S., a growing policy discussion over the cancellation of student debt has kickstarted contemporary conversations on the racial wealth gap between Black and White Americans. A recent article in the Atlantic states the case as to why President Biden should cancel student debt, citing economist Thomas Shapiro’s research on the increasing high cost of post-secondary education and its direct impact on the ability of Black Americans to pay it off swiftly — contributing to the growing wealth divide.

In Canada, wealth accumulation is further concentrated through the use of open tax loopholes and the notable absence of a wealth tax [both of which are essential revenue generation tools needed to fight COVID-19]. Government spending to fund social programs and healthcare throughout this pandemic must continue, in order to keep people safe and from facing any further economic despair. Addressing wealth inequality by way of a wealth tax, levels the playing field and ensures that the wealthy who have been able to profit from the pandemic, can help support those who haven’t. It’s time for Canada to finally implement a wealth tax. It’s time to tax the rich.

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Globally, as well as in Canada, the past several decades provided a massive boon for the rich and a bust for the poor, with a hollowing out of everyone in the middle[1]. Statistics show rapidly rising income inequality and even more rapidly rising wealth inequality. What is less discussed is that the vast majority of the rich are White, while Black, Indigenous and other people of color are largely relegated to the lowest income and wealth levels[2],[3]. Because of anti-Black racism and settler-colonial policy, Black and Indigenous people in particular have the fewest economic resources

The dominant policy discourse regarding economic inequity in Canada has largely revolved around strategies that would “raise the income floor”. These are strategies that are effectively designed to reduce absolute poverty rates. Most notably, there have been efforts to raise minimum wage in paid employment, and attempts to create a basic income program that would guarantee Canadians who fall below a given income threshold some minimum income (and, of course, that threshold is also a point of debate)[4],[5].

The principles of using policy to set wage standards and to provide a safety net for those who have fallen on hard times is critical, and is likely to be beneficial for Black and Indigenous people because they are the most affected by low-paying jobs and by unemployment. However, the current policy imagination is still quite limited in this regard. In the first place, minimum wage and minimum income setting is only helpful if it is actually indexed to the cost of living and, more specifically, to living decently. Currently, costs of living in major Canadian cities, where the preponderance of Black, Brown and, increasingly, Indigenous people live, far exceeds what minimum wage can provide[6]. Furthermore, making a decent living is attached to more than just minimum hourly wage. Access to stable work, paid sick days, and benefits are critical aspects of a job that provides the conditions for wellbeing[7]. Some of the workers who lack these basic pillars of a good job have become the subject of daily news stories during the pandemic. Personal care workers forced to work shifts at multiple long-term care homes[8], frontline workers who have no sick leave[9], migrant farm workers living in abysmal conditions with little to no access to basic workers’ rights[10] have been infuriating examples of the sad state of the labour market. They are also now tinged with a new outcome: these same factors have increased the risk of COVID-19 outbreaks.

There must be room for a much more fundamental shift in how the labour market and social policies provide for decent work at decent wages for everyone who wants to work. Investing in measures that provide access to education and training, stable jobs and proper income supports are a priority, especially targeted at racialized populations that are the hardest hit by the systemic racism pervading our labour markets. In the United States for example, proposals for a “federal job guarantee” have been circulating in academic and policy circles[11]. In short, a federal job guarantee would end involuntary unemployment by using the government’s capacity to provide much-needed jobs to do much-needed work, from infrastructure development, to child and elder care. The idea is that, by providing decent work and decent wages in the expanded public sector, the private sector would be forced to improve the wages and working conditions they offer in order to compete for good workers. In Canada, the Broadbent Institute and others have advanced options for a jobs guarantee aimed at young people[12].

Finally, we must do something about wealth inequity. Wealth is what allows inequity to persist across generations, because it gives children of the wealthy a massive head start in life. This is not only because of the experiences and opportunities wealthy parents and grandparents can give to their young children, but also financial burdens they may help them avoid. Whether it’s paying for post-secondary education, avoiding risky debt to purchase a house or accessing business loans and other financing, wealthy families provide a number of privileged opportunities to build a prosperous life. This leads to higher rates of post-secondary degree admission and completion as well as earlier and more widespread home ownership among White people compared to Black and Indigenous people[13],[14]. Through this intergenerational lens, what becomes clear is that wealth is the engine for income, rather than income being the engine for wealth. And, the role of parents and grandparents is not hyperbole. In fact, intergenerational ‘gifts’ are the number one source of wealth inequity[15]. Thus, the ongoing White economic advantage is not an earned advantage. It is the result of a much greater probability that one is born into wealth (as well as not facing other sources of systemic racism). Black and Indigenous economic disadvantage is not due to any number of racist tropes that are routinely exercised as explanations about lack of trying, or lack of cultural value of education. Rather, it is due to prior generations who, due to racism, haven’t been able to accumulate wealth (in addition to experiencing a slew of other sources of systemic racism).

While there are a fairly wide array of proposals focused on tackling income inequality, there are fewer pointed at rectifying wealth inequity. One method that has gained momentum here in Canada and worldwide are an annual wealth tax and increased inheritance taxes on large fortunes. The objective is two-fold: provide a disincentive to wealth hoarding and collect revenues to fund programs that reduce the wealth gap on the other end of spectrum[16]. A priority should also be placed on mechanisms that seek to create wealth from a community standpoint, such as community Benefit agreements negotiated as part of large infrastructure projects[17]. If we understand that wealth inequality is a more significant feature of economic racism than income inequality, and we wish to solve it within a foreseeable future, we need to be bold and creative about the kinds of solutions we will consider.

For example, a recent proposal forwarded by economist Dr. Darrick Hamilton known as “baby bonds,” has gained some interest among political leaders and activists in the U.S, including Senator Cory Booker and, to some extent, Senator Bernie Sanders[18]. The proposal suggests that an endowment be given to each child at birth, on a sliding scale that favors those most wealth-disadvantaged. That endowment grows as the child ages until they reach adulthood and gain access to it[19]. By Dr. Hamilton’s calculations, such a proposal has the potential to resolve racial wealth inequality in a few generations[20]. Though much more limited, U.S. President Elect Joe Biden’s student debt forgiveness proposal would improve the wealth prospects for at least one segment of the current generation of black young people[21].

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1. Piketty, Thomas. Capital in the 21st century. Harvard University Press. 2017.
2. Ibid.
3. Lieber, R, & Siegel Bernard, T. “The Stark Racial Inequity of Personal Finances in America,” The New York Times. June 2020. https://www.nytimes.com/2020/06/09/your-money/race-income-equality.html
4. Mojtehedzadeh, Sara. “Ontario’s minimum wage is frozen at $14. Could Ottawa set its own?”. Toronto Star. August 2019. https://www.thestar.com/news/canada/2019/08/05/ontarios-minimum-wage-is-frozen-at-14-could-ottawa-set-its-own.html
5. Collaco, Conrad. “The last days of basic income: For those in desperate need, what happens now?”. CBC News. July 2019. https://www.cbc.ca/news/canada/hamilton/basic-income-1.4999056
6. Keith, Elizabeth. “Toronto’s Cost of Living Is So High That People Making Minimum Wage Can’t Afford It”. Narcity. October 2018. https://www.narcity.com/ca/on/toronto/news/torontos-cost-of-living-is-so-high-that-people-makingminimum-wage-cant-afford-it
7. Lewchuk, Wayne, et al. “It’s More than Poverty: Employment Precarity and Household Well-being”. Poverty and Employment Precarity in Southern Ontario (PEPSO) research group. 2013.
8. Harnett, Cindy E.. “Long-term care workers limited to one facility only under new rules”. Times Colonist. 2020. https://www.timescolonist.com/news/local/long-term-care-workers-limited-to-one-facility-only-under-newrules-1.24116171
9. Marotta, Stephanie. “COVID-19 pandemic highlights Canada’s paltry policies for paid sick days”. Globe and Mail. November 2020. https://www.theglobeandmail.com/canada/article-covid-19-pandemic-highlights-canadas-paltry-poli cies-for-paid-sick/
10. Johnson, Kelsey. “Mistreatment of migrant farm workers amid COVID-19 a ‘national disgrace’: health minister”. Global News. June 2020. https://globalnews.ca/news/7113934/canada-migrant-farm-workers-covid-19/
11. Paul, M, Darity, Jr., W, & Hamilton, D. “The Federal Job Guarantee - A Policy to Achieve Permanent Full Employment,” Policy Futures. 2018. https://www.cbpp.org/research/full-employment/the-federal-job-guarantee-a-policy-toachieve-permanent-full-employment
12. Broadbent Institute, “Towards a Youth Job Guarantee”. https://d3n8a8pro7vhmx.cloudfront.net/broadbent/pages/22/ attachments/original/1429994807/Youth_Job_Guarantee.pdf?1429994807
13. McIntosh, K, Moss, E, Nunn, R, & Shambaugh, J. “Examining the Black-white wealth gap”. The Brookings Institutions. 2020. https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/
14. Discrimination in post-secondary admissions practices for Black, Brown and Indigenous students also has a significant impact, as well as broader systemic failings at the level of primary and secondary education, which renders Black, Brown and Indigenous kids, less likely to complete high school. This attrition is a certain predictor of economic disadvantage and has long standing economic impact.
15. Ibid
16. Jackson, Andrew. “The Case for a Wealth Tax”. Broadbent Institute. June 2020. https://d3n8a8pro7vhmx.cloudfront.net/ broadbent/pages/7711/attachments/original/1592491105/The_Case_for_a_Wealth_Tax_in_Canada_-_Report. pdf?1592491105
17. Galley, Andrew. “The Prosperous Province: Strategies for Building Community Wealth. Community Benefit Agreements”. Mowat Center for the Atkinson Foundation. 2015.
18. Matthews, Dylan. “Study: Cory Booker’s baby bonds nearly close the racial wealth gap for young adults”. Vox. 2019. https://www.vox.com/future-perfect/2019/1/21/18185536/cory-booker-news-today-2020-presidential-electionbaby-bonds
19. Lowrey, Anne. “A Cheap, Race-Neutral Way to Close the Racial Wealth Gap”. The Atlantic. 2020.
20. The idea bares resemblance in principle and form (except with the target being wealth disparity) to some of the basic income models being discussed, including the framework detailed in a recent paper, “Basic Income Guaruntee: A Social Democratic Framework”, by our esteemed colleagues of the Essential Solutions project. It is also similar (though more expansive) to programs in place in Canada, such as the Canada Learning Bond.
21. Nova, Annie. “What Biden’s student loan foregiveness plan would mean for borrowers”. CNBC. 2020.