Dec 23, 2011

Tackling inequality means rethinking upper-income tax rates


2011 was the year rising inequality finally exploded into the mainstream discourse.

A few year-end reading recommendations: Victoria Times-Colonist editorial writer Paul Willcocks wrote a terrific piece on the subject (you can find it here); and similarly, a group of UBC economists (including CCPA research associate David Green) authored a series on inequality for the Vancouver Sun (which you can find here).

Now we need to have a serious conversation about what to do to reduce the gap. Tackling inequality means focusing on a poverty action plan for those with low incomes, strengthening the economic security of those with middle incomes, and redistributing more of the income of the wealthy.

For lower-income individuals and families, we need our governments to adopt comprehensive poverty reduction plans (provincially and federally). The BC Poverty Reduction Coalition has been actively promoting the former, while nationally a similar call has been spearheaded by Make Poverty History, Canada Without Poverty, Citizens for Public Justice, and Campaign 2000. For how to enhance economic security across the low and middle-income spectrum, look no further than the CCPA’s Alternative Federal Budget.

But rising inequality hasn’t been driven by low incomes. Rather, as the Occupy movement rightly highlighted, the growing gap has been driven by the runaway-rich; the wealthiest 10% of households, and especially the wealthiest 1%, have been breaking away from the rest of us (as outlined in this CCPA report a year ago).

So if we are going to reduce inequality, we need to revisit our top tax brackets.

Here in British Columbia, thus far, Premier Clark seems resistant to doing so. But in a year-end interview with the Globe’s Gary Mason (available here), BC NDP leader Adrian Dix indicates that he is prepared to look at the tax rate of BC’s highest income earners:

“I don’t think there is a massive amount of room on the income tax side to get more money,” Mr. Dix said. “I haven’t really landed on the high-income stuff. But I don’t think there is any room under $100,000 or even $150,000 for that matter.”

“So, in the short term in B.C., the rich are not going to have to pay more,” I say.

“I haven’t said that,” Mr. Dix replied. “These are the issues we have to review.”

Currently, BC has five income tax brackets, and the top rate kicks in at about $100K of income. So it would seem from the above that Mr. Dix is open to considering an upward adjustment to that top rate and/or a new tax bracket that kicks in at $150K or higher. That’s good – much needed and long overdue.

Most British Columbians would be unaffected by such changes. Only about 4% of British Columbians make over $100K a year, and only a little more than 1% make over $150K. A new bracket at $250K of income would impact only about 0.5% of BC taxpayers. Yet such increases could yield some much needed income to the public treasury (the amount would depend on the new rates, but, for example, a new 20% tax rate on incomes over $150K could generate about $400 million in new revenues – enough to build about 2,000 new units of social housing per year, to give but one comparison).

As we noted in a CCPA report last summer, BC’s wealthiest 1% have been doing extremely well in recent years. Most would be willing to pay somewhat more in taxes, particularly if we could demonstrate that such revenues would help to reduce poverty and homelessness.

I’d argue that the BC government should not restrict itself to adjustments to the top rate alone. I think there is room to modestly increase the 3rd and 4th brackets as well (which kick in at incomes of about $73K and $84K respectively; again only impacting a small minority of taxpayers). As I noted in a blog post a couple years ago, I find my personal income tax rate to be remarkably low, given what we receive in public services, and the scope of unmet social and environmental needs.

If you too think that our upper tax brackets should be increased, may I recommend that you let our political leaders know. Too often our leaders are overly cautious, and presume we will not abide such increases. If we really want action on inequality, we need to tell them otherwise.

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