Tax cut mantra music to ears of the wealthy

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“The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.” John Kenneth Galbraith

For the past 2 1/2 decades, modern conservative economic thought, also known as neo-conservatism, has dominated Canadian public debate and shaped Canadian public policy.

By now, we're so steeped in it that we're barely aware there are other ways to think about these things. As the incomes of the rich soar ever higher, we've come to accept all sorts of rationalizations for what amounts to a policy of letting the rich indulge their selfishness.

This experiment in neo-conservatism has changed the face of Canada. Thirty years ago, the richest 10 per cent of Canadians had incomes 31 times as big as the bottom 10 per cent. Today, their incomes are 82 times as big.

Meanwhile, the bottom 40 per cent of Canadians — about 12 million people — are actually worse off, with lower incomes today (after inflation).

For most of the rest, the picture is also pretty dismal. They're managing to keep pace or slightly improve their incomes only by working considerably longer hours.

Only the rich are actually doing well and they're doing smashingly well, earning significantly more and working fewer hours.

This striking portrait of rapidly growing inequality, based on incontestable data from Statistics Canada, emerges from a study prepared by economist Armine Yalnizyan and released last month by the Canadian Centre for Policy Alternatives. Now, one would have thought that, with a federal budget in the offing and a possible spring election, this portrait of dramatic change in Canadian society would have ignited a furious debate about where the country is heading. Instead we seem locked in a trance, unwilling or unable to question what has become economic gospel.

At the very heart of conservative economic philosophy is the theory that if we unleash market forces — cut back government interventions in the form of taxes and social supports — the economy will grow vigorously and we'll all benefit.

Now that we've experimented with this for two decades, we can see that the theory is at best only partly true. The economy has grown vigorously. But only the rich have benefited.

Okay, so we tried.

When facts undermine a perfectly good theory, shouldn't we re-examine the theory? Or as the great economist John Maynard Keynes remarked after being accused of changing his mind: “When the facts change, I change my mind. What do you do, sir?”

Such open-mindedness appears absent in members of the Canadian financial élite and their acolytes in business-funded think-tanks and the media. With their theory disproved by the facts, they cling ever tighter to the theory.

And so the commentary leading up to today's federal budget has mostly focused on how big the tax cuts will be.

Utterly lost is a key point made in Yalnizyan's study — tax cuts are of little benefit to most Canadians. In fact, they ultimately hurt the majority of Canadians, by depriving government of revenue it needs to fund social programs and transfers, which do help Canadians.

Indeed, the study found that while Canada's tax-and-social-transfer system has been whittled down in the neo-conservative era, it remains the crucial bulwark protecting the financial well-being of the majority of Canadians. Without it, about 65 per cent of Canadians would be worse off. So, by any logic, we shouldn't be considering more tax cuts but, rather, tax increases for the richest Canadians.

Neil Brooks, a professor of tax law at Osgoode Hall, notes that the top one per cent of income earners have increased their share of national income substantially, from 7.5 per cent during the post-war decades to 13.6 per cent in the neo-conservative era — a level of inequality not seen in Canada for about a century.

Brooks suggests a higher marginal tax rate, clicking in at $450,000 and $900,000 a year, as well as a tax on inheritances above $3 million, in order to fund more public programs.

Such an approach, which would make Canada more egalitarian, like Europe, might appeal to many Canadians. But it's completely off the agenda.

Instead, the public debate remains confined within the narrow limits of neo-conservative theory.

Even though the theory has been undercut by the facts, we're still encouraged to repeat it like a mantra.

Altogether now: Tax cuts benefit us all. Tax cuts benefit us all. Tax cuts benefit us all ...

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