The tax system can be a powerful tool for redistributing wealth and reducing inequality and poverty. We all benefit (including the rich) from a more equal society with better population health, reduced crime, and better education. Recent research also now shows that lower inequality also means better employment opportunities and a more vigorous economy, again, from which we all benefit.
There are a number of ways that the tax system can be changed to address inequality and poverty in Canada. Key, however, is that inequality needs to be tackled at both ends of the income scale.
At the top end, while the federal government and several provincial governments have made the income tax system more progressive by taxing the very rich more, these reforms do not work very well because the tax system is riddled with unfair and ineffective tax loopholes and there is no federal or provincial tax on wealth (as opposed to income).
The loopholes often allow corporations and the wealthy to pay far less than their actual tax rate on much of their income, bleeding the government of revenue that could otherwise be used to fund government programs. A recently published study from the Canadian Centre for Policy Alternatives, found that 59 of 64 loopholes benefit mostly the wealthy at a cost of over $100 billion.
Some key changes needed include:
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Closing the most egregious tax loopholes. Canadians for Tax Fairness has identified over $16 billion in revenue that could be raised by closing these loopholes. The worst offenders include the Stock Options Deduction, the Capital Gains Deduction and the Business Entertainment Tax Deduction.
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An inheritance tax for large estates. The federal government needs to get started on taxing wealth by introducing a progressive inheritance tax with a minimum of 45 per cent on estates valued above $5 million, similar to the estate tax in the U.S., which would net an estimated $2 billion annually in new revenues (see the Alternative Federal Budget 2017).
At the lower end of the income scale, it is possible to achieve ambitious poverty reduction targets by significantly augmenting many of the efficient and cost-effective delivery mechanisms that already exist in the federal and provincial tax and social transfer systems. These have been relatively successful in reducing poverty for seniors and more recently for families with children. But current inequality and poverty rates clearly indicate that much more needs to be done to bolster distribution of income at this end of the scale.
Some key changes needed include:
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Child and family poverty: The federal government has taken a very positive step in reducing child poverty by introducing a new and improved Canada Child Benefit. However, Campaign 2000 estimates that even after recent improvements in the child benefit, it would still leave a million children living in poverty.
While a combination of measures including a national housing strategy and a national child-care program could contribute, annual increases of $1 billion to the CCB could do a lot of the heavy lifting and help us achieve the goal of ending child poverty.
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Seniors poverty: Canada has had some success in reducing poverty among Canadian seniors to a low of 3.9 per cent in 1995. However, since then we have been losing ground and poverty rates have risen to about 11 per cent as more Canadians are retiring without adequate company pensions or retirement savings.
The government did increase the Guaranteed Income Supplement top-up benefit by 10 per cent in 2016. But we shouldn’t stop there when we have over 600,000 seniors still living in poverty. There should be annual increases of $670 million with the goal of eliminating poverty among seniors in the next 5 years.
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Working-age poverty: More than 12 per cent of working-age Canadians live in poverty. Provincial minimum wages and social assistance rates fall far below the poverty line in most cases. While child and senior poverty has been the focus of government anti-poverty initiatives in recent years, very little attention has been given to addressing working-age poverty.
A very cost effective and efficient way to deliver benefits to many low-income Canadians would be to boost the GST/HST credit. The GST/HST benefit now costs about $4 billion. We recommend doubling this amount.
Another tax system-based program, called the Working Income Tax Benefit, was introduced in 2007 with the aim of helping low-income people on social assistance enter the work force. The benefit levels at $1,015 a year for single persons and about $1,844 per couple, depending on the province, are too low to do an effective job.
The maximum benefits should be doubled over four years, and the program should extend its reach higher up the income ladder so that it becomes a major income support for Canadians who work but remain poor. This would cost an additional $250 million a year.
Raising minimum wages so that a single person working full time would have an income above the poverty line would be an important complement to this program — one that would not require any government expenditure and that could actually increase tax revenue. While the federal minimum wage covers less than 10 per cent of the workforce, reinstating a federal minimum wage at $15 an hour — the rate recently targetted by the leading provinces — could help to establish a national benchmark.
How to pay for boosting poverty-reduction measures
The enhancements described above would cost about $6 billion a year. The steps above could easily be funded by closing the $16 billion of unfair and ineffective tax loopholes that were identified by Canadians for Tax Fairness. And there would be funds left over to invest in a national child-care program and a national social housing program that would also help reduce poverty while boosting employment and the economy as a whole.
The priorities identified in this article would effectively begin the process of tackling inequality simultaneously at both ends of the income scale. Canada cannot afford to leave inequality unchecked. It can act now.
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