One of Canada’s best examples of performance art, outside of the House of Commons, will take place this week with the latest edition of the Munk Debates in Toronto. This round’s topic – income inequality – is a current favourite of the cocktail set that bemoans the accumulation of wealth by the top 1 per cent.
The unemployed politicians and cranky ideologues who will argue for and against taxing the rich promise to make for fine entertainment at Roy Thomson Hall on Thursday. It’s unlikely, however, that they will advance our understanding of this deeply complex issue.
For starters, the debate organizers seem to have rigged the event. Why else would they invite failed Republican presidential candidate Newt Gingrich and Arthur Laffer, the modern father of the discredited doctrine of supply-side economics, to argue the case against tax increases? Serious people stopped taking these men seriously a long time ago.
Mr. Gingrich, the bombastic ex-House of Representatives Speaker, can be counted on to provide clever cracks and scalding ripostes. But his intellectual consistency is inversely proportional to his colourful vocabulary. His main contribution to the art of politics, if you can call it that, has been in the realm of semantics, not solutions. His favourite word is “grotesque” – as in Barack Obama tells “grotesque lies.”
Mr. Laffer’s theory that governments can raise more revenue by cutting tax rates rather than raising them is true – to a point. But taken to the extremes he advocated, it caused massive budget deficits under Ronald Reagan and George W. Bush. Now, Mr. Laffer is on a push to get Kansas and Oklahoma to join Texas and eight other states in eliminating income taxes altogether.
Former Greek prime minister George Papandreou and U.S. economist Paul Krugman will make the case for soaking the rich. Of all people, Mr. Papandreou should know how hard that is. In Greece, tax evasion is as ubiquitous as olive oil. It doomed Mr. Papandreou’s (short) disastrous stint leading the country. A crackdown he began against the 1,500 biggest tax debtors has so far yielded a meaningless €19-million. Not even bankruptcy can change Greek culture, apparently.
As for Mr. Krugman, a Nobel laureate, he seems to have abandoned serious academia for professional antagonism as a New York Times columnist. Fellow professor turned popular scribe Niall Ferguson recently criticized Mr. Krugman’s “inability to debate a question without insulting his opponent,” a tic Mr. Ferguson said may have resulted from “a childhood trauma.”
“Pathetic,” Mr. Krugman replied. “All I have ever done to him is point out that he seems to not know what he is talking about … I would never stoop to speculating about his childhood!”
Entertaining, the Munk Debates? Surely. Edifying? Probably not.
Framing a debate on income inequality around taxes misses the point, anyway. The goal of public policy should be reducing before-tax income inequality, not fixating on ways to redistribute wealth. But creating an economy that generates rising incomes for everyone is a far tougher nut to crack. Indeed, is there any way to make global capitalism work for everybody? So far, nobody knows.
By all means, tax the rich – if you can. Just don’t expect it to make much of dent in either the budget deficit or the Gini coefficient, the most common statistical measure of income inequality. Even before France’s constitutional court struck down President François Hollande’s proposed 75-per-cent income tax rate on the rich, economists forecast that it would raise no more than a few hundred million euros. France’s budget deficit in the first quarter of 2013 alone was €31 billion.
As the Munk debaters take the stage, Canadians should not lose sight of how much our governments already do to offset the impact of income inequality through cash transfers and progressive taxes. As the Canadian Institute for Health Information recently found, public health care alone reduces the income gap by 16 per cent, as wealthier Canadians pay much more in taxes than they reap in benefits.
Still, it’s clear that global capitalism is not working for many Canadians. Just ask the former workers at Caterpillar’s shuttered Ontario plant, who lost their jobs after refusing a 50-per-cent pay cut. Caterpillar’s CEO was rewarded with a $22-million (U.S.) paycheque in 2012.
We’d be deluding ourselves if we thought raising or lowering taxes alone would fix this asymmetry. A debate that suggests otherwise can be nothing but a show.