Will budget bring windfall for wealthy?

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As we approach budget day, March 4, Parliamentary Budget Officer Kevin Page tells us we are headed for structural deficits in the medium term and even larger ones in the long term and Stockwell Day, the President of the Treasury Board tells us there are bleak times ahead, the issue of taxes is being forced onto the political stage. There are many elements to this story: the tens of billions in revenue lost yearly to 10 years of tax cutting, the upcoming additional corporate tax cuts and lastly, the regressive nature of our personal income tax system, tax havens and the lack of an inheritance tax in this country.

There has been a growing problem in this latter category over the past 25 years. It can be summed up this way: the rich are no longer with us. As Canadian social programs erode, along with municipal infrastructure; as the gap between rich and poor widens to 1920s levels, and we face huge deficits into the foreseeable future, wealthy Canadians have long absented themselves from any responsibility for the country or the crisis it faces.

The rich and super-rich seem completely oblivious to the plight of their fellow citizens -- how else can we explain the obscene pay packages of CEOs and other executives? They are the product of upper-class exceptionalism: the normal rules of citizenship do not apply to them. They need not consider the fate of the country, they can with no guilt hide their money in foreign banks, evading taxes; they are simply entitled to everything they have -- and even more if they can get it. Class divisions in Canada have been growing now for at least 25 years to the point that we seem to be entering a new feudalism. This is a part of the crisis in democracy that almost never gets talked about.

The secession of the successful

Robert Reich, secretary of Labour under Bill Clinton, once called it "the secession of the successful." This abandonment of the national project is due in large part to a quarter century of corporate globalization, a process that at one and the same time relegated nation-building to the historical dust-bin and created a global class of the super-rich who identified with each other. They are symbolized by the corporate executive class, none of whom could make an argument that their skills are worth any where near their pay packages. They are not supermen. This has nothing to do with talent or ability -- it is purely about class privilege and the drive to create a huge gulf between the new nobility and everyone else. The primary role they see for government is protecting their property rights against all incursions by an activist state.

The rich have seen their wealth increase dramatically and their tax rates go down radically in the past 20 years. In the early 20th century the top one per cent of income earners took home 15 per cent of total national income. That declined to 11 per cent after WWII when nation-building -- and the social equality that was integral to it -- was the focus of democratic government. By 1980, their share had fallen to 7.5 per cent. Then it started to climb again. As of 2008 we are back to the early 20th century: the top one per cent take home nearly 14 per cent of national income -- nearly twice the share they had 30 years ago.

According to a Canadian Centre of Policy Alternatives study by Lars Osberg: "Between 1992 and 2004 the average taxable income of the top 0.1 per cent of families rose from $1,270,000 to $2,650,000 (in 2007 dollars)." By 2008, the average income of the top. One per cent had risen a further $710,000, reaching $3,360,000.

In terms of accumulated wealth, the picture is even more stark. The median net worth of the wealthiest 10 per cent of Canadian families increased 35 per cent between 1984 and 1999. They gained a further 65 per cent from 1999 to 2005 while the wealth of the bottom 50 per cent of Canadians saw no gains at all since 1984.

Much of this staggering wealth comes as a result of a tax system that has been getting less progressive since the 1970s. In the days of nation-building Canada had a tax system that was amongst the most progressive anywhere. According to a 1995 article by Roger Smith "In 1949 PIT [personal income tax] rates ranged from 15 to 84 per cent and there were 17 brackets. In 1994, the range was 26.35 to 46.4 per cent and there were three brackets." In 2009, there were four federal brackets: 15 per cent, 22 per cent, 26 per cent and just 29 per cent on income over $126,264.

Throughout the 10 year period of huge tax cuts, both personal and corporate ($100 billion over five years by Paul Martin and a further $100 billion, including GST, by the Harper government) there has been an aggressive rejection of any criticism of this gutting of the federal purse. Anyone talking about tax increases could be expected to be immediately attacked and ridiculed.

There's something happenin' here

But there may be real change in the wind. Canada now faces huge decisions about its future and its fiscal viability as a nation-state. And for the first time in 30 years some very unusual suspects are calling for tax increases. Perhaps the most prominent (because it unleashed a nasty attack from the PMO) was Ed Clark, CEO of TD Bank. He told a business meeting in Florida that Mr. Harper was not listening to the voices on Bay Street that were telling him the best way to get rid of a large deficit is through tax increases -- on people like him. And it wasn't just Clark -- he was reporting on the judgement of the Canadian Council of Chief Executives (CCCE), the voice of the 150 largest corporations in Canada.

The head of the CCCE, John Manley had the point earlier. And two high-powered experts, C. Scott Clark, former deputy minister of finance and Peter DeVries, former director of fiscal policy at the Department of Finance, wrote a Globe article in December calling for tax increases. Even the political elite seems to be getting in on this dramatic shift. Historian Michael Bliss, a man with impeccable conservative credentials, penned an op-ed piece in the Globe entitled: "Taxing the über-rich would reduce the deficit and social resentment."

Are the corporate and political elite finally getting it? Or are they worried about potential social unrest? Are they awakening from their wealth-accumulation binge with a political hangover and recognizing that it actually matters whether they have to step over destitute people on their way to the opera? Do the CEOs now, finally, realize that they need more than tax cuts to make them competitive -- that eroding Medicare, bridges falling down, science being gutted, workers going untrained and disposable income for the rest of us on a steep downward slope, might have something to do with their future prosperity?

It's almost too much to hope for -- not change we can believe in quite yet. But what the hell, if no one else is going to take the lead on increasing taxes on the rich, I'll follow Ed. 

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