David, Please note that my co-authored book Reclaiming Populism: How Economic Fairness Can Win Back Disenchanted Voters (John Wiley 2021) demonstrates that on the whole human beings DO NOT mind unequal incomes as long as they are achieved fairly that includes both giving people the tools they need through their lifetime to be successful and the state allows citizens to profit from their success. We call this the 'twin virtues of equal opportunity and fair unequal outcomes'. Paul
I note your commentary on wealth taxes. From my very much anecdotal reading of matters, wealth taxes are observed mainly by their ineffectiveness and are much ignored in so many countries.
You go on to praise Norway's wealth tax and I must accept your commentary as I have no knowledge of that particular aspect of Norway's taxation system.
Be advised that Canada has an exit tax, although it is not called that. If one chooses to become a non-resident of Canada [as I'm certain you know, Canada levies income taxes based on residency, not citizenship], then the Income Tax Act deems one to have disposed of all property and income taxes become due and owing. There are many considerations to that particular aspect of taxation but it does exist and is enforced. Whether that enforcement is vigorous or adequate is a matter of debate. As a retired accountant who had to deal with the area I can advise that the area is, like all matters of taxation, hideously complex.
Thank you for tackling this topic. It's one that can be difficult to discuss.
My first note would be that income inequality is one of the outcomes of our capitalist and market driven system that makes me wonder if there is a better system. It's not the topic of this column, so I'm not expecting discussion on it, but there is a cost we impose on the low income members of our society, and the severity of that cost should give us pause. However, that's for another day. The rest of my remarks assume we are not talking about change on that level, but staying within the current system.
The chart does point out that in practice, trickle down economics doesn't trickle down. If you wanted a concrete example of that, I would say Amazon has done great for its owner, but less so for those at the lower levels of their company.
I personally feel that we need to be willing to try some bold solutions, but I also feel that we should be willing to try and experiment. And call things out when they don't work.
My first thought is that we need to see a broad based trial, for an extended period, of some type of Basic income. What are the economic and societal, as well as individual results? What are the costs? Does providing more money to those with low incomes mean they spend more? Does it drive inflation, especially on essential things like housing and food?
In terms of taxation, I think you could look to a more flat tax on income. As in the same percentage on all income. I do see some use for a wealth tax or inheritance tax. Might it drive some wealth outside the country? Maybe. But my main point on taxation would be to rely more in user taxes. GST, road taxes paid by users, congestion taxes, and yes, the carbon tax. Decrease to income tax and increase the user taxes.
I did see an article by Kershaw in the globe and mail last week about the auditor report on OAS, CPP and other benefits to seniors. It's crazy that we have not been tracking the effect of these programs. As far as I could tell from his article, that's been going on for years. That's where I share your frustration about a civil service that is not effective. Doesn't mean we need to increase or decrease it, but we need more effective approaches to managing the country's operations.
Last point, I do think our government at federal and provincial levels should be promoting competition in our oligopolies. I think railroads, airplane travel and cellular phones are examples where companies who use resources that were initially public, there needs to be a different set of rules.
Again thanks David, apologies for the lengthy reply.
Sir, I have a query. I am part way through and I have spotted a sentence that says, "Not to mention that some problems just can be solved with more money."
Given your commentary immediately preceding that point, do you perhaps mean that some problems CANNOT just be solved with more money? I ask as it seems to me that the statement that I quoted is somewhat counter intuitive to the preceding narrative.
I do not mean to quibble but I am seeking to better understand. Above all, however, be advised that I continue to like your work, very much including this essay.
You make some good points but based on bad assumptions resulting from the failed neo-liberalism dating from the 1970’’s .
Your Gini Coefficient got much worse after the 1070’s.
Yes, a 91% tax rate has been tried. It was throughout the “Golden Years” of Canada’s economy. No one left, times were too good.
The greatest waste of government expense is Interest on government debt. In the 1970's the government stopped creating our money and allowed the private sector to create debt, and pay unnecessary interest.
“The catch is that, if they’re poorly designed, they can be destructive”. Income taxes were and are destructive. The only quantitative relationship that can work between citizens is money. The amount of money received quantifies wealth created less the amount of money consumed is wealth saved. Income and value are subjective and are not definable.
Only if tax is defined as “payment for government services” can it be “smart” to tax the dollars used to price paid for wealth “focused” for growth or used for “balanced” consumption of goods and services.
Government, like any other productive entity, pays money for goods and services which are retained equally on behalf of all citizens or used to provide services to specific citizens. For example laws and regulations to support production of income and consumption or services to protect wealth.
Edd, I won't contest that no one left when there was a 91% tax rate; I will allow others with more knowledge and access to more data to make any comment, whether pro or con about your assertion.
What I will note is that I found over a number of years (I am a retired accountant) is that increasingly over the years people objected to the amount of tax they were paying because the next thing out of their mouths was, ".... and that money is being used for THAT? .... and anything left over is being wasted or stolen???"
Whereas the public used to take the attitude that, "Boy, that is a lot but that is my duty as a Canadian .... " whereas now it is "Those guys [governments of all stripes] are thieves. What legal way is there for me to reduce / eliminate taxes?" There were a lot of folks who started looking for ways to leave Canada. Leaving Canada for tax purposes is complicated but some of my clients did do so.
Oh, and my clients? Truly, everyday people; just working stiffs for the most part.
My point is that the governments have lost the moral authority to levy increased taxes; they have the power and punitive possibilities of the law but policies by coercion are not a useful way to go. Far better for government to prove that they are not trying to do everything and properly accomplishing NOTHING. And that is not going to happen; certainly not under the current administration. The next administration? Who knows? What I do know is that it will be a long, long time before people happily pay taxes (truly, some people used to!) because it was their duty and they were happy to contribute to the country. Not now.
Ken, your concern about government expenditure ( payments to the private sector ) is hunting rabbits instead of big game. My CA clients were similar to yours and the taxes spawned the complaints, not expenditure. As for taxpayers leaving, it is the transformation of our economy from productive to financial speculation that would make leaving the country an option.
I would have welcomed comments on the change from creation of money to pay government expenditures to that of creating money as debt and loaning it to the government and incurring unnecessary debt charges. Or, as an accountant, I would appreciate your opinion on cash flow as the tax base. Cash flow would eliminate thousands of pages of tax regulation. The only truly quantifiable thing we share as Canadian citizens is the use of money. Every financial transaction creates debt that is quantified in dollars and dollars is the only universal medium of exchange that eliminates debt.
Well ..... where to begin; I will try to take these points in order.
Yes, some folks argued about government spending in aggregate as their principal point but most folks started with the concept of government waste (interestingly, I was still hearing about the waste associated with HMCS Bonaventure, Canada's only aircraft carrier which was decommissioned in - I think - 1968) in the late nineties) and only then transition to aggregate spending from the perspective that the waste that was clearly evident in whichever example offered was "just as clearly" a real symbol of all spending and from there to the size of the civil service, etc. In any event, that is how many people seemed to progress.
People leaving .... in my experience it was the folks who were most productive, i.e. executives, business owners, professionals, etc. who left; again, in my experience I didn't see financial speculators leaving but, then, I didn't have many of those in my client base - perhaps you did.
Certainly, the idea of the transformation of the economy from being based on productive effort to very much being based on financialization of "products" is, in my view, a terrible thing but that was not a preoccupation of many of my clients. Now, having said that, I live in Calgary so a lot of my client base was in small business, often in the orbit of the resource industry so my clientele was based in the productive side of the economy.
The idea of creating money through the Bank of Canada and through government borrowing was noted by some of my clients but most folks were more cognizant of the symptoms of that, such as inflation, massive government indebtedness, consequent effect on levels of taxation, etc.
You speak of changing the basis of taxation from income to cash flow. That is certainly a possibility but the difficulty is the same: the definition of income as compared to the definition of cash flow. Both concepts require extensive definition and such definition then requires lawyers to (ug!) help define this or that or the other thing and to then deal with exceptions and unforeseen consequences, etc. In other words, I worry about trading one morass for a different but equally sticky morass.
Put differently, if you think your prescription would simplify things, I suggest that you look at the War Income Tax Act of 1917 (just a few pages - 17?? I can't quite remember) or even the Income Tax Act of 1947 or even the Income Tax Act of 1973 (i.e. after the "Tax Reform" of 1972) and then look at the current Income Tax Act. [Easier than looking at the text of the various Acts, look at the thickness of paper and the size of the type in the various versions of the Acts and you see that the current Act is much, much, much thinner paper and much, much, much smaller type - the better to cram more crap in the law, my dear!] In other words, the damned lawyers keep defining, re-defining, re-re-defining, re-re-re defining and so forth all in the name of "fairness" (an oxymoron when applied to taking someone else's money, to be sure) and "equity" [can any taxation ever be equitable?].
Hi David, I wanted to respond to your column, before I do that I wanted to clarify your thoughts around if we spent extra money to help the poor, we want to get it right on the first shot. Also if the sentence after that was meant to say some problems cannot be solved with more money. Thanks.
I was a bit unclear with that paragraph. What I meant was that:
1. We never want to waste money on any poorly-planned programs. But this could be even more true for programs focused on poverty because so much is at stake, they tend to involve so much money, and because so much of government credibility hangs on them.
2. I'm not convinced that all poverty-related problems can be solved by spending more money. For example, how many millions of dollars have governments already spent on providing clean water on First Nation reserves? Yet there hasn't been a lot of progress. I'm convinced that there are systemic issues (or old fashioned corruption) there that just aren't being addressed. There are many similar issues.
David, Please note that my co-authored book Reclaiming Populism: How Economic Fairness Can Win Back Disenchanted Voters (John Wiley 2021) demonstrates that on the whole human beings DO NOT mind unequal incomes as long as they are achieved fairly that includes both giving people the tools they need through their lifetime to be successful and the state allows citizens to profit from their success. We call this the 'twin virtues of equal opportunity and fair unequal outcomes'. Paul
I have to admit that I wasn't aware of your book, but it's now on my list of must-reads.
And I guess that makes us colleagues, Wiley has published a handful of my books, too:
https://www.wiley.com/en-us/search?filters[author]=David%20Clinton&pq=++
Many thanks. Also available on audible.
I have returned!
I note your commentary on wealth taxes. From my very much anecdotal reading of matters, wealth taxes are observed mainly by their ineffectiveness and are much ignored in so many countries.
You go on to praise Norway's wealth tax and I must accept your commentary as I have no knowledge of that particular aspect of Norway's taxation system.
Be advised that Canada has an exit tax, although it is not called that. If one chooses to become a non-resident of Canada [as I'm certain you know, Canada levies income taxes based on residency, not citizenship], then the Income Tax Act deems one to have disposed of all property and income taxes become due and owing. There are many considerations to that particular aspect of taxation but it does exist and is enforced. Whether that enforcement is vigorous or adequate is a matter of debate. As a retired accountant who had to deal with the area I can advise that the area is, like all matters of taxation, hideously complex.
Hi David,
Thank you for tackling this topic. It's one that can be difficult to discuss.
My first note would be that income inequality is one of the outcomes of our capitalist and market driven system that makes me wonder if there is a better system. It's not the topic of this column, so I'm not expecting discussion on it, but there is a cost we impose on the low income members of our society, and the severity of that cost should give us pause. However, that's for another day. The rest of my remarks assume we are not talking about change on that level, but staying within the current system.
The chart does point out that in practice, trickle down economics doesn't trickle down. If you wanted a concrete example of that, I would say Amazon has done great for its owner, but less so for those at the lower levels of their company.
I personally feel that we need to be willing to try some bold solutions, but I also feel that we should be willing to try and experiment. And call things out when they don't work.
My first thought is that we need to see a broad based trial, for an extended period, of some type of Basic income. What are the economic and societal, as well as individual results? What are the costs? Does providing more money to those with low incomes mean they spend more? Does it drive inflation, especially on essential things like housing and food?
In terms of taxation, I think you could look to a more flat tax on income. As in the same percentage on all income. I do see some use for a wealth tax or inheritance tax. Might it drive some wealth outside the country? Maybe. But my main point on taxation would be to rely more in user taxes. GST, road taxes paid by users, congestion taxes, and yes, the carbon tax. Decrease to income tax and increase the user taxes.
I did see an article by Kershaw in the globe and mail last week about the auditor report on OAS, CPP and other benefits to seniors. It's crazy that we have not been tracking the effect of these programs. As far as I could tell from his article, that's been going on for years. That's where I share your frustration about a civil service that is not effective. Doesn't mean we need to increase or decrease it, but we need more effective approaches to managing the country's operations.
Last point, I do think our government at federal and provincial levels should be promoting competition in our oligopolies. I think railroads, airplane travel and cellular phones are examples where companies who use resources that were initially public, there needs to be a different set of rules.
Again thanks David, apologies for the lengthy reply.
Sir, I have a query. I am part way through and I have spotted a sentence that says, "Not to mention that some problems just can be solved with more money."
Given your commentary immediately preceding that point, do you perhaps mean that some problems CANNOT just be solved with more money? I ask as it seems to me that the statement that I quoted is somewhat counter intuitive to the preceding narrative.
I do not mean to quibble but I am seeking to better understand. Above all, however, be advised that I continue to like your work, very much including this essay.
Ah yes. That one would seem to require just a minor update.
December 12, 20243
Does income inequality matter?
You make some good points but based on bad assumptions resulting from the failed neo-liberalism dating from the 1970’’s .
Your Gini Coefficient got much worse after the 1070’s.
Yes, a 91% tax rate has been tried. It was throughout the “Golden Years” of Canada’s economy. No one left, times were too good.
The greatest waste of government expense is Interest on government debt. In the 1970's the government stopped creating our money and allowed the private sector to create debt, and pay unnecessary interest.
“The catch is that, if they’re poorly designed, they can be destructive”. Income taxes were and are destructive. The only quantitative relationship that can work between citizens is money. The amount of money received quantifies wealth created less the amount of money consumed is wealth saved. Income and value are subjective and are not definable.
Only if tax is defined as “payment for government services” can it be “smart” to tax the dollars used to price paid for wealth “focused” for growth or used for “balanced” consumption of goods and services.
Government, like any other productive entity, pays money for goods and services which are retained equally on behalf of all citizens or used to provide services to specific citizens. For example laws and regulations to support production of income and consumption or services to protect wealth.
Edd, I won't contest that no one left when there was a 91% tax rate; I will allow others with more knowledge and access to more data to make any comment, whether pro or con about your assertion.
What I will note is that I found over a number of years (I am a retired accountant) is that increasingly over the years people objected to the amount of tax they were paying because the next thing out of their mouths was, ".... and that money is being used for THAT? .... and anything left over is being wasted or stolen???"
Whereas the public used to take the attitude that, "Boy, that is a lot but that is my duty as a Canadian .... " whereas now it is "Those guys [governments of all stripes] are thieves. What legal way is there for me to reduce / eliminate taxes?" There were a lot of folks who started looking for ways to leave Canada. Leaving Canada for tax purposes is complicated but some of my clients did do so.
Oh, and my clients? Truly, everyday people; just working stiffs for the most part.
My point is that the governments have lost the moral authority to levy increased taxes; they have the power and punitive possibilities of the law but policies by coercion are not a useful way to go. Far better for government to prove that they are not trying to do everything and properly accomplishing NOTHING. And that is not going to happen; certainly not under the current administration. The next administration? Who knows? What I do know is that it will be a long, long time before people happily pay taxes (truly, some people used to!) because it was their duty and they were happy to contribute to the country. Not now.
Rep;ly to Ken Schultz
Ken, your concern about government expenditure ( payments to the private sector ) is hunting rabbits instead of big game. My CA clients were similar to yours and the taxes spawned the complaints, not expenditure. As for taxpayers leaving, it is the transformation of our economy from productive to financial speculation that would make leaving the country an option.
I would have welcomed comments on the change from creation of money to pay government expenditures to that of creating money as debt and loaning it to the government and incurring unnecessary debt charges. Or, as an accountant, I would appreciate your opinion on cash flow as the tax base. Cash flow would eliminate thousands of pages of tax regulation. The only truly quantifiable thing we share as Canadian citizens is the use of money. Every financial transaction creates debt that is quantified in dollars and dollars is the only universal medium of exchange that eliminates debt.
Well ..... where to begin; I will try to take these points in order.
Yes, some folks argued about government spending in aggregate as their principal point but most folks started with the concept of government waste (interestingly, I was still hearing about the waste associated with HMCS Bonaventure, Canada's only aircraft carrier which was decommissioned in - I think - 1968) in the late nineties) and only then transition to aggregate spending from the perspective that the waste that was clearly evident in whichever example offered was "just as clearly" a real symbol of all spending and from there to the size of the civil service, etc. In any event, that is how many people seemed to progress.
People leaving .... in my experience it was the folks who were most productive, i.e. executives, business owners, professionals, etc. who left; again, in my experience I didn't see financial speculators leaving but, then, I didn't have many of those in my client base - perhaps you did.
Certainly, the idea of the transformation of the economy from being based on productive effort to very much being based on financialization of "products" is, in my view, a terrible thing but that was not a preoccupation of many of my clients. Now, having said that, I live in Calgary so a lot of my client base was in small business, often in the orbit of the resource industry so my clientele was based in the productive side of the economy.
The idea of creating money through the Bank of Canada and through government borrowing was noted by some of my clients but most folks were more cognizant of the symptoms of that, such as inflation, massive government indebtedness, consequent effect on levels of taxation, etc.
You speak of changing the basis of taxation from income to cash flow. That is certainly a possibility but the difficulty is the same: the definition of income as compared to the definition of cash flow. Both concepts require extensive definition and such definition then requires lawyers to (ug!) help define this or that or the other thing and to then deal with exceptions and unforeseen consequences, etc. In other words, I worry about trading one morass for a different but equally sticky morass.
Put differently, if you think your prescription would simplify things, I suggest that you look at the War Income Tax Act of 1917 (just a few pages - 17?? I can't quite remember) or even the Income Tax Act of 1947 or even the Income Tax Act of 1973 (i.e. after the "Tax Reform" of 1972) and then look at the current Income Tax Act. [Easier than looking at the text of the various Acts, look at the thickness of paper and the size of the type in the various versions of the Acts and you see that the current Act is much, much, much thinner paper and much, much, much smaller type - the better to cram more crap in the law, my dear!] In other words, the damned lawyers keep defining, re-defining, re-re-defining, re-re-re defining and so forth all in the name of "fairness" (an oxymoron when applied to taking someone else's money, to be sure) and "equity" [can any taxation ever be equitable?].
Hi David, I wanted to respond to your column, before I do that I wanted to clarify your thoughts around if we spent extra money to help the poor, we want to get it right on the first shot. Also if the sentence after that was meant to say some problems cannot be solved with more money. Thanks.
I was a bit unclear with that paragraph. What I meant was that:
1. We never want to waste money on any poorly-planned programs. But this could be even more true for programs focused on poverty because so much is at stake, they tend to involve so much money, and because so much of government credibility hangs on them.
2. I'm not convinced that all poverty-related problems can be solved by spending more money. For example, how many millions of dollars have governments already spent on providing clean water on First Nation reserves? Yet there hasn't been a lot of progress. I'm convinced that there are systemic issues (or old fashioned corruption) there that just aren't being addressed. There are many similar issues.