Really Learning from the Past: Tax is the Price We Pay for a Civil - PowerPoint PPT Presentation

Really Learning from the Past: Tax is the Price We Pay for a Civil Society ________________________________________________________________________ ¡ Thaddeus Hwong Faculty of Liberal Arts & Professional Studies York University Nov. 23, 2011

“We are acting on a new vision of the role of government ... smaller government ... smarter government . ” [Bold added here for emphasis] Fraser Institute quotes Paul Martin as saying in his 1995 Budget Speech “We are acting on a new vision of the role of government in the economy. In many cases that means smaller government. In all cases it means smarter governmen t .” [Bold added here for emphasis] What Paul Martin actually said in his 1995 Budget Speech ¡ ¡

“The fact is that the free market system works, but unless governments and people are constantly on the watch out for rampant inequality, unless they understand the need for redistribution programs, unless they understand the need to invest in education and better health care and a better environment, then effectively the free market system will fall on its own accord .” [Bold added here for emphasis] Paul Martin Huffington Post, Nov. 18, 2011

Rising tides lift some boats only 1975 40000 45000 Average Income 50000 50000 55000 55000 60000 60000 Adjusted Income of All Family Units (2009 Constant $) Adjusted Income of All Family Units (2009 Constant $) 1975 1980 35000 1980 1985 1985 1990 1990 1995 1995 2000 2000 2005 2005 2010 2010 40000 45000 35000 15000 Average Income Median Income Median Income Gap Between Average Income and Median Income Gap Between Average Income and Median Income 0 0 5000 10000 10000 15000 5000 20000 25000 30000 30000 25000 20000 Source: CANSIM Source: CANSIM Adjusted Income of All Family Units (2009 Constant $) 60000 Average Income 55000 50000 45000 Median Income 40000 35000 30000 25000 20000 Gap Between Average Income and Median Income 15000 10000 5000 0 1975 1980 1985 1990 1995 2000 2005 2010 Source: CANSIM

Canada faces rising income inequality 1980 .41 .43 Market Income .45 .45 Gini Index Gini Index Based on Adjusted Income of All Family Units Based on Adjusted Income of All Family Units 1975 1975 1980 .39 1985 1985 1990 1990 1995 1995 2000 2000 2005 2005 2010 2010 .41 .43 .27 Total Income .29 .39 After-tax Income .29 .31 After-tax Income Total Income .31 .33 Market Income .27 .33 .35 .35 .37 .37 Source: CANSIM Source: CANSIM .45 Market Income Based on Adjusted Income of All Family Units .43 .41 .39 Total Income Gini Index .37 .35 .33 .31 After-tax Income .29 .27 1975 1980 1985 1990 1995 2000 2005 2010 Source: CANSIM

The top 1% income share surges; it wasn’t always like this Top 1% Income Share (Including Capital Gains) 1935 1935 1925 1925 1915 1915 24 Top 1% Income Share (Including Capital Gains) 1945 24 22 20 20 18 18 1945 1955 16 2005 - 1929 to 1947 The Compression The Compression - 1870 to 1929 - 1870 to 1929 The Gilded Ages The Gilded Ages 2005 1955 1995 1995 1985 1985 1975 1975 1965 1965 16 22 14 The Golden Age of Capitalism 4 - 1975 to 2010 The Great Divergence The Great Divergence - 1947 to 1975 - 1947 to 1975 The Golden Age of Capitalism 6 Canada Canada U.S. U.S. Australia Australia 4 - 1975 to 2010 6 8 14 12 12 10 10 - 1929 to 1947 8 The Gilded Ages The Compression The Golden Age of Capitalism The Great Divergence - 1870 to 1929 - 1929 to 1947 - 1947 to 1975 - 1975 to 2010 24 U.S. 22 Top 1% Income Share (Including Capital Gains) 20 18 16 14 Canada 12 10 8 Australia 6 4 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005

Top 1% income share up in some lower-tax countries since 1949 Around 2005 Top 1% Income Share Excluding Capital Gains (%) Top 1% Income Share Excluding Capital Gains (%) 20 20 18 18 16 16 14 14 12 Around 2005 10 12 10 4 0 0 2 8 4 2 6 Around 1949 6 8 Around 1949 Japan Japan India Ireland India France Ireland Australia Australia New Zealand New Zealand Finland France Switzerland Switzerland Sweden Sweden Netherlands Netherlands Germany Finland Source: Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the Long Run of History,” (2011) Source: Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the Long Run of History,” (2011) 49(1) Journal of Economic Literature, 3-71. Germany Singapore Norway Canada US US Argentina Argentina UK UK 49(1) Journal of Economic Literature, 3-71. Norway Canada Singapore 20 Around 2005 Around 1949 Top 1% Income Share Excluding Capital Gains (%) 18 16 14 12 10 8 6 4 2 0 US UK Singapore Germany Japan Australia France Sweden Finland Argentina Canada Norway Ireland India New Zealand Switzerland Netherlands Source: Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the Long Run of History,” (2011) 49(1) Journal of Economic Literature, 3-71.

In past four decades, Canada’s tax ratio rose less than 6% France Japan Luxembourg Luxembourg Austria Austria Iceland Iceland France New Zealand Norway New Zealand Australia Australia Netherlands Germany Germany Canada Canada Japan Norway United Kingdom Turkey Source: Calculated based on OECD data; 2008 data used for Australia, Japan, Netherlands and Portugal. Portugal Portugal Denmark Denmark Italy Italy Spain Spain Turkey Greece Sweden Sweden Switzerland Switzerland Finland Finland Belgium Belgium Greece United Kingdom Netherlands Ireland 6 14 14 12 12 10 10 8 8 6 16 4 4 2 2 0 0 -2 -2 16 Source: Calculated based on OECD data; 2008 data used for Australia, Japan, Netherlands and Portugal. Change in Tax as Percent of GDP, 1965-2009 18 20 Ireland Change in Tax as Percent of GDP, 1965-2009 United States 18 United States 20 Portugal Denmark Italy Spain Turkey Sweden Switzerland Finland Belgium Greece Norway Japan Luxembourg Austria Iceland France New Zealand Australia Netherlands Germany Canada United Kingdom Ireland United States -2 0 2 4 6 8 10 12 14 16 18 20 Change in Tax as Percent of GDP, 1965-2009 Source: Calculated based on OECD data; 2008 data used for Australia, Japan, Netherlands and Portugal.

Top marginal tax rate down to 46% from 80% 55 70 70 65 65 60 60 55 75 50 50 $301,600 45 40 40 75 80 35 Taxable Income in 1960 (1 $ = 7.54 $ in 2010) Taxable Income in 2010 ($) $3,016,000 $3,016,000 $10,383 $10,383 Taxable Income in 1960 (1 $ = 7.54 $ in 2010) $400,000 80 $400,000 $1,377 $1,377 for Ontario Residents (%) for Ontario Residents (%) Combined Federal-Provincial Personal Income Tax Rates Combined Federal-Provincial Personal Income Tax Rates 35 45 30 15 $301,600 $452,400 $452,400 $678,600 $678,600 $942,500 $942,500 $1,696,500 $1,696,500 $188,500 1960 Rates 1960 Rates 2010 Rates 2010 Rates $188,500 Taxable Income in 2010 ($) 20 30 25 25 20 15 Taxable Income in 1960 (1 $ = 7.54 $ in 2010) $1,377 $400,000 Combined Federal-Provincial Personal Income Tax Rates 80 75 1960 Rates 70 65 for Ontario Residents (%) 60 55 50 $301,600 $678,600 $1,696,500 45 $452,400 $942,500 2010 Rates 40 $188,500 35 30 25 20 15 $10,383 $3,016,000 Taxable Income in 2010 ($)

Effective tax rate for top 1% same as bottom 10% 90% to 30% 40% 30 50% 50% 60% 60% 70% 70% 80% 80% 90% 90% 90% to 95% 20% 95% 95% to 95% to 99% 99% Top Top 1% 1% Economic Families by Income Percentiles Economic Families by Income Percentiles Source: data from Eroding Tax Fairness by Marc Lee in 2007 of Canadian Centre for Policy Alternatives. See Source: data from Eroding Tax Fairness by Marc Lee in 2007 of Canadian Centre for Policy Alternatives. See http://www.policyalternatives.ca/publications/reports/eroding-tax-fairness. 30% 40% 20% 37 30 31 31 32 32 33 33 34 34 35 35 36 36 http://www.policyalternatives.ca/publications/reports/eroding-tax-fairness. Total Rax Rates in 2005 (%) 37 Total Rax Rates in 2005 (%) 10% 10% Bottom Bottom 37 36 Total Rax Rates in 2005 (%) 35 34 33 32 31 30 Bottom 20% 30% 40% 50% 60% 70% 80% 90% 90% to 95% to Top 10% 95% 99% 1% Economic Families by Income Percentiles Source: data from Eroding Tax Fairness by Marc Lee in 2007 of Canadian Centre for Policy Alternatives. See http://www.policyalternatives.ca/publications/reports/eroding-tax-fairness.

Canada’s tax ratio dipping below OECD average OECD Canada Canada OECD Sweden France France Sweden 1994 50 50 52 52 Tax as Percent of GDP Tax as Percent of GDP 1990 1990 1992 1992 1994 1996 1996 2006 1998 1998 48 2000 2002 2002 2004 2008 2004 2006 2000 48 46 42 32 32 34 34 36 36 38 40 40 38 2008 46 44 42 44 52 50 Sweden 48 46 Tax as Percent of GDP France 44 42 40 38 OECD 36 34 Canada 32 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008