BY ALEX HEMINGWAY
WHILE the lives of millions of working Canadians have been upended by the COVID-19 pandemic, the wealth of the richest few has continued to balloon.
A wealth tax on the super rich could help tackle extreme inequality and raise revenue for sustained, long-term increases in public investment in key areas after the pandemic. And, new research from the Canadian Centre for Policy Alternatives (CCPA) shows that this wealth tax would raise far more money than previously thought.
Inequality has reached new heights in recent years. The richest one per cent now control 25 per cent of Canada’s wealth, according to a recent Parliamentary Budget Office (PBO) report. High levels of inequality damage economic growth as organizations like the IMF and OECD have begun to acknowledge.
Tackling inequality with a wealth tax on the super rich is hugely popular, backed by an overwhelming majority of Canadians across party lines in the most-recent polling. It is also supported by a growing body of economic research and analysis.
Our latest analysis provides an up-to-date estimate of the revenue potential of a wealth tax in Canada, finding that a one per cent tax on wealth over $20 million would generate about $10 billion in revenue in its first year, substantially more than an earlier $5.6 billion estimate published by the PBO in July 2020.
The PBO revenue estimate reflected a sharp, but temporary, drop in asset values early in the pandemic, which have since bounced back. And, the PBO assumed that 35 per cent of the wealth tax base would be wiped out by “behavioural responses” such as tax avoidance and evasion. This behavioural response rate is too high and out of line with the latest economic research on wealth taxes, including from the University of California, Berkeley and the UK Wealth Tax Commission, based out of the London School of Economics. Both estimate substantially lower rates.
Leading economic experts on tax havens and wealth taxation, like Emmanuel Saez and Gabriel Zucman, emphasize we largely know how to crack down on evasion and how to design a wealth tax that minimizes it. What’s been missing is the political will.
With a $10 billion boost to annual public revenues, Canada could lift hundreds of thousands of people out of poverty, increase investments in child care, health care and seniors care, and help to pay for more ambitious action to tackle the climate crisis.
A more ambitious wealth tax with rates of one per cent on net worth over $20 million, two per cent over $50 million and three per cent over $100 million could raise nearly $20 billion in its first year.
Alongside a wealth tax, Canada needs a suite of other tax fairness policies, including ending the preferential treatment of income from capital gains compared to income from work, reforming corporate taxation and raising the top marginal income tax rate.
The super rich would no doubt flex their economic and political power to oppose a wealth tax, but it can be won if Canadians get organized to demand it.
Alex Hemingway, PhD, is an Economist and Public Finance Policy Analyst at the Canadian Centre for Policy Alternatives BC Office. His research focuses on tax fairness, public finances, public services, and economic inequality in BC and Canada.
