Is the MacDonald Laurier- Institute Publishing “Fake News”?
This is a profoundly misleading piece — it could easily fall into the “fake news” category, because it makes basic errors in fact, quite aside from presenting a deeply misleading interpretation of figures.
- It makes it sound like income taxes have increased, when they have dropped — because the size of the federal government, in particular, is the smallest it has been in decades
- The fact that higher-income Canadians are paying a greater share of taxes is a direct reflection of the fact that they are taking home a greater share of the national income
- It suggests that there is significant redistribution when there is not
They start by pointing to the rise of Occupy, Bernie Sanders, suggesting that the rich aren’t paying their fair share. There is absolutely no context for any of this: In 2008 there was a massive global financial meltdown and banks and companies were bailed out, there is mass unemployment in parts of Europe, governments practiced austerity because they can’t balance their budgets.
This is all in the context of 30+ years of growing inequality and ever-increasing personal debt, following 30 years of personal and corporate tax cuts, income and wage stagnation, widespread tax avoidance (and evasion).
So, let’s start with some corrections:
“The portrait painted by this new evidence shows today’s high-income Canadians are paying a higher share of income taxes than during Pierre Trudeau’s flowering of progressivism.”
This is a highly deceptive sentence: The reason higher-income Canadians are paying more is not because tax rates have gone up, but because since the 1970s, almost all economic growth in Canada has gone to the top 10%.
At the same time, there have been regular tax cuts at all income levels, as well as introductions of substantial tax breaks only high-income earners can take advantage of. The size of government has shrunk to the smallest as a percentage of GDP in decades.
“Recall that his prime ministership was marked in large part by his vision of a “Just Society.” It was a powerful message about how greater wealth redistribution would ensure that all Canadians “fully shared in the country’s affluence.” Higher taxes and government spending in the name of social progress and opportunity were his government’s touchstones.”
On taxes, this is totally false. In 1971, Trudeau and the Liberals introduced substantial reforms to the tax code. It was one of the largest tax cuts in history. The top marginal Federal rate, which was over 80% at the top level was cut roughly in half, to the mid-40s, and the estate tax was eliminated and replaced with the capital gains tax instead.
Source: https://www.fcf-ctf.ca/ctfweb/Documents/PDF/1995ctj/1995CTJ5_02_Smith.pdf
This was nearly a full decade before Thatcher in the UK and Reagan in the U.S. would reduce tax rates for high income earners. Because it doesn’t fit in with the narrative of Trudeau as a pinko commie, it is completely ignored. And the higher spending was not just on the “Just Society” — defense spending under the Trudeau Liberals was twice as high as a percentage of GDP as it was under Stephen Harper and the Conservatives.
“The era is often considered the height of Canadian progressivism by his supporters or the end of a failed socialist experiment by his detractors.”
The Liberals ushered in programs like Medicare, the CPP and the OAS. The number of seniors living in poverty plummeted. The economic problems facing the 1970s Trudeau Liberals were global in nature.
Two of the most significant events were totally beyond the control of the Canadian government: a global energy crisis engineered by OPEC, an oil cartel, that wreaked havoc with the global economy, and a response to inflation by the U.S. Fed that hiked interest rates to economy-crushing, massive-debt-inducing levels of 15–20%.
You might therefore be surprised to learn that as a “soak-the-rich” guy, Pierre Trudeau was a piker compared to his successors.
This is doubly false, as we shall see.
“Consider that when he left office the top one percent of income earners paid about one out of every eight dollars collected in income taxes in Canada. And then it started to climb, reaching just over one dollar in every five in 2014. That’s more than a one-third increase in 30 years.”
This is a supremely misleading statement for what it leaves out.
Let’s be clear about what it says: the share of tax dollars paid by the 1% has been increasing. This is what it leaves out: the size of government has been shrinking.
Here is total government compared to the Canadian economy (Federal and Provincial)
The size of the federal government as a percentage of the economy has been shrinking, from a peak of 25% in 1984, to about 15% of GDP. This followed 20% interest rates and global recession, that crushed manufacturing — then the price of oil, which had supported the Canadian economy and revenues, started to drop.
(It is worth noting that in this time in the 1980s, Canada’s late 80s recovery was driven by dropping oil prices, lower interest rates, and a major monetary and fiscal stimulus under Ronald Reagan, who raised taxes after cutting them too deep in the early 80s.
So what does this mean? The 1% are making a larger percentage contribution to a shrinking government, while their incomes have been rising and their taxes are generally being cut.
The reason they are paying more is that, as inequality grows, and as wages and incomes have stagnated for most Canadians, the growth that has taken place has gone overwhelmingly to the top. Edmonton’s Chief Economist found that, adjusted for inflation, wages in Edmonton had stagnated for 99% of the population since 1982, and in Calgary, they had actually declined.
The reason the top 10% are paying 50% of the taxes is because, in some cases (prior to the oil slump) — the top 10% are making 50% of the income, as was the case in Alberta in 2014.
We need to understand the actual levels of concentration of wealth and income in Canada. It is not a bell curve: it follows an approximate “80/20” power law.
So first: let’s talk about income distribution in Canada, because it is an issue few understand, (perhaps few want you to understand) — we can call it “income concentration” and we need to understand just how concentrated that wealth and income are.
It looks like this:
What it means is that (roughly)
- 0.1% of the population will own 40% of the wealth
- 0.64% owns 11%
- 3.2% owns 13%.
This means that more than 60% of all wealth will tend to be owned by the top 5%.
- 16% owns 16% of wealth
- 80% owns 20%.
But what people do not realize that wealth and income climb so fast the higher you go, there is a far greater difference in income and wealth within the 1% than there is in the rest of the 99%.
This is individual incomes in Canada.
Within Canada’s 1%, the “poorest” will make about $200,000. The poorest person in Canada makes zero, a difference of $200,000.
We don’t know exactly what the richest person in Canada makes — but with bonuses, some CEO’s make $10-million. So from 0% to 99%, there is a difference in incomes of $200,000. Within the 1%, there is a difference of millions.
There is also a critical distinction between income and wealth that the authors blur, especially when they say that the government is “redistributing wealth.” Tax on income is tax on income — not on wealth.
Most of what government spends its money on is social insurance programs. Some of this is direct payments to individuals, but a huge amount of it is paying people to deliver services in health, education, policing, construction. People are paid to do work — some of them are paid well, and are in the top 10% — where they end up paying so many taxes.
If the goal is the redistribution of wealth, it is clearly not working. Between 1999 and 2012, the net worth of the bottom 20% of Canadians fell, from an average of $1300 per person to $1100 per person.
In total, this represented a drop in net-worth of $6-billion to negative $10.8-billion. During the same period, the top 20% saw their net worth rose, by $2.9-trillion to $5.44-trillion.
Where’s the redistribution?
We might well ask, if income tax cuts are such a boon for the economy, why didn’t the deep Liberal cuts of 1971 have miraculous effects?
Since the 1980s, there have been income tax cuts at every income level, the basic deduction has increased. One exception is that this top rate rose to 33% — which is still lower than historic levels. The corporate tax rate has been halved. The small corporation tax rate has been lowered.
So why isn’t everyone better off?
The popular and political opposition in the form of populist movements has been on the right and left — The Tea Party, nationalist parties, as well as Sanders Democrats, Corbyn supporters for Labour — has been in response to the failed ideology of think tanks like the MacDonald Laurier Institute and the Fraser Institute.
There are plenty of empirical evidence that austerity doesn’t work, that government contributes positively to economic growth and innovation, that inequality and high private debt both lead to economic stagnation.
Neoclassic macroeconomics and its practitioners received a well-deserved thrashing after Global Financial crisis, which it utterly and totally failed to predict. Professor Steve Keen likewise has delivered a devastating critique of neoclassical microeconomics on mathematical, logical and empirical grounds.
In September, World Bank Economist Paul Romer described the current state of macroeconomics as a “pseudoscience” and Keen has compared the defense of neoclassical ideas to “faith”, despite the grotesque failures of these models, that, have failed in prediction as well as in application.
Those are for models where economists are actually making efforts to use data and publish papers in peer-reviewed journals.
The MacDonald Laurier Institute is appealing to myths instead of facts when it comes to history as well as economics, and cherry-picking stats to make it look as if the people who have benefited the most from economic growth over the last three decades while others have stagnated are suffering when the reason others are paying a smaller share is that their incomes have stagnated (and — which we haven’t touched on — tax avoidance has exploded).
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Originally published at wholebuffaloreview.tumblr.com.
