How do we pay off pandemic debt? Tax the rich

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Image: KMR Photography/Flickr

Governments across the world are spending trillions of dollars on emergency stimulus packages to deal with the COVID-19 pandemic. As a result, debts across the Western world will skyrocket over the next two years. In October 2019, Canada's federal debt-to-GDP ratio was just under 31 per cent. Some economists believe Canada's total debt could increase to around 100 per cent. For every tax dollar Ottawa collected in November 2019, seven cents was spent to service the debt. By the end of 2021 that figure may increase dramatically. 

Governments across the world will be desperate to find new revenues to reduce their massive debt burdens. While conservatives will argue for deep cuts to our education, health-care, pension and social support systems, that will be very difficult considering our social safety net is already cut to the bone. Ontario Premier Doug Ford initially wanted to make big cuts to Ontario's budget, until he reckoned with the fact that Ontario's spending per capita was the lowest in the country. Any cuts would have a big impact on the health-care and education services we rely on. 

Governments across the world can make a strong case to increase progressive taxation. Make no mistake about it, there is a class element in the fight against coronavirus. Blue-collar workers risk their lives to keep our supply chain moving. While high-income, white-collar employees work from home, healthcare staff, delivery drivers, grocery store employees, truckers, factory workers and many others risk their health to make sure our economy doesn't collapse. An agricultural employee from Nicaragua working on a Canadian farm has a more important role to play than a hedge-fund manager watching helplessly as stock markets collapse. Wealthy, white-collar Canadians owe their country a higher share of taxes. 

Canadians can begin to end tax loopholes that allow wealthy Canadians to significantly cut their tax bill. By ending tax breaks on stock options, meals and entertainment, capital gains, dividend gross-ups and offshore tax havens, the Canadian government could recuperate $20 billion a year

Once the recession begins to end, governments will be forced to pressure large multinational corporations across the world into paying higher taxes. Before 2020, governments throughout the world lost over US$600 billion in tax revenues every year through corporate tax dodging. The parliamentary budget officer estimated last year that Canada loses $26 billion through legal tax dodges every year.

Some will say it's too difficult to tax wealthy individuals and corporations. Corporations have created a large web of international tax avoidance schemes to reduce their tax bill. If taxes go up, companies will simply relocate their operations and finances to tax havens. That argument may have been true in 2019, but I'm not sure it will hold up in 2020 and beyond. 

Even before the pandemic, there was a growing global consensus for cracking down on tax havens. Last year, a European Union parliamentary committee created a list of member states who behave like tax havens. Here in North America, the IRS filed a lawsuit against Facebook for claiming its headquarters are located in Ireland, even though the vast majority of its work is done in California. 

In other words, governments can crack down on individual and corporate tax avoidance schemes if they have the political will. While Canadians pay taxes to pay for police protection, sewage, water utilities, education and health care, some wealthy people don't think they need to pay for the services they depend on as well. 

Taxes shouldn't be seen a necessary evil. Most people understand you get what you pay for. If you pay low taxes, you will have a weak government, inadequate health care, a poor education system, weak job security, very little mobility and a government that cannot respond quickly and efficiently enough to a global pandemic. If you pay high taxes, you will enjoy more security in your social and economic life.  

Greg Dwulit works in the non-profit sector in the Toronto area. He has an MBA from the Lazaridis School of Business and Economics.

Image: KMR Photography/Flickr

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