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The Context of “Flat Tax” in Canada - 2008

The Context of “Flat Tax” in Canada - 2008. Lars Osberg Economics Department Dalhousie University ACEA – October 24, 2008. 30 years of no Growth – for most!.

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The Context of “Flat Tax” in Canada - 2008

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  1. The Context of “Flat Tax” in Canada - 2008 Lars Osberg Economics Department Dalhousie University ACEA – October 24, 2008

  2. 30 years of no Growth – for most!

  3. Income Trajectories of High Income Canadians 1982-2005 Murphy, Michaud &Wolfson Statistics Canada IARIW 30th General ConferencePortoroz, Slovenia, August 24-30, 2008 • “growth is largely limited to the top 5% which in turn has been driven largely by increases to the incomes of the top 1%” • “marginal increase in the stability of the high income population” • No Evidence for: “Greater Returns for Greater Risk” Ho

  4. Absolute Change in Income Shares for Various Total Income Quantiles Between 1982 and 2005 Source: Statistics Canada, Special Tabulations from the LAD.

  5. Brian Murphy, Paul Roberts and Michael Wolfson (2007) “High-income Canadians” Perspectives on Labour and Income – September 2007 Pages 5 to 17 Statistics Canada Cat No. 75-001-XIE

  6. Brian Murphy, Paul Roberts and Michael Wolfson (2007) “High-income Canadians” Perspectives on Labour and Income – September 2007 Pages 5 to 17 Statistics Canada Cat No. 75-001-XIE

  7. Rising share of top 5%- a post 1995 issue ?THE EVOLUTION OF HIGH INCOMES IN CANADA, 1920-2000 Emmanuel Saez Michael R. VeallWorking Paper 9607 http://www.nber.org/papers/w9607

  8. Only the top 1% has increase in income share in Canada !THE EVOLUTION OF HIGH INCOMES IN CANADA, 1920-2000 Emmanuel Saez Michael R. VeallWorking Paper 9607 http://www.nber.org/papers/w9607

  9. Marginal Income Tax Rates in Canada: 1920-2000Top Incomes Over the 20th Century: A Contrast Between Continental European and English-Speaking Countries by A.B. Atkinson and T. Piketty Oxford University Press, 2007,

  10. Canada: “both inequality and poverty rates have increased rapidly in the past 10 years, now reaching levels above the OECD average. “OECD (2008), Growing Unequal? : Income Distribution and Poverty in OECD Countries October 2008

  11. Total Tax Rate in Canada – “Flat” & declining Lee, Marc (2007) Eroding Tax Fairness: Tax Incidence in Canada, 1990 to 2005 Canadian Centre for Policy Alternatives, Toronto November 2007

  12. Income & CorporateTax– only progressive elements in tax system Tax cuts greatest at top Income tax crucial to progressivity of system

  13. “Flat Tax” – “them that has, keeps” • Fundamental change in tax structure • Would remove sole progressive element in tax system • Total tax burden then becomes regressive • “Middle 90%” – no increase in income for 30 years • Recessionary losses loom in 2008-2011 • Dramatic income rise of top percentile imply major personal gains from “flat tax” • Corresponding losses imposed on poorer neighbours • Politics in the coming recession – rhetoric of “flat tax” rings hollow

  14. Changes in real income- far larger in top percentiles Brian Murphy, Paul Roberts and Michael Wolfson (2007) “High-income Canadians” Perspectives on Labour and Income – September 2007 Pages 5 to 17 Statistics Canada Cat No. 75-001-XIE

  15. Income Tax data show increase in income share of top 1% of families of 3.4 percentage points in twelve years 1992-2004 – a very large change in historical context ! Brian Murphy, Paul Roberts and Michael Wolfson (2007) “High-income Canadians” Perspectives on Labour and Income – September 2007 Pages 5 to 17 Statistics Canada Cat No. 75-001-XIE Statistics Canada (1998) Income Distribution by Size in Canada Catalogue No. 13-207. CANSIM Table 202-0701V1546461 to V1546465 J.R. Podoluk (1968)Incomes of Canadians, Dominion Bureau of Statistics.

  16. The BIG NEWS in Canada & USA – sharply rising income share at very topTHE EVOLUTION OF HIGH INCOMES IN CANADA, 1920-2000 Emmanuel Saez Michael R. VeallWorking Paper 9607 http://www.nber.org/papers/w9607

  17. Lessons from Canadian Income Tax dataTHE EVOLUTION OF HIGH INCOMES IN CANADA, 1920-2000 Emmanuel Saez Michael R. Veall Pp. 226-227 in A.B.Atkinson and T. Piketty Top Incomes in the 20th Century Oxford University Press 2007 • Canada, UK, US, France – top income shares fell sharply during WWII & stayed down for 30 years • 1980-2000: sharp increase in top end shares • Concentrated in top 1% & even larger for top 0.1% • Not driven by tax law changes - no coincidence in trends • But big decline in top marginal rates • Similar trends for individual & family income • Not result of greater spousal income correlation • Income mobility – same or decrease since 1980 • Same concentration trend in 3 & 5 year average income • Probability still in top 0.1% approx same 1982-2000 • Labour income increase greatest in top 1% - • Less among Francophone Quebecers • Lags US increase in top CEO compensation • WHY? • Skill biased tech change cannot explain concentration of income gains • Emigration option to USA & ‘Brain Drain’ – the ‘threat effect’ & keeping up with US CEO salaries

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