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Economy Lab

We're ignoring inequality at our peril Add to ...

Armine Yalnizyan is a senior economist with the Canadian Centre for Policy Alternatives



Concern about growing inequality has been a hot topic in the U.S. for the past few years, triggered by the path-breaking work on income distribution by economists Thomas Picketty and Emmanuel Saez in 2003 and Emmanuel Saez and our very own Mike Veall in 2005.

That research took the story up to the year 2000. When Saez updated the story for the U.S. last year, it triggered a storm of debate in the media and among people trying to cope with a troubling dynamic – the gains from growth are increasingly concentrated in the hands of the rich.

Earlier this year at the Canadian Economics Association annual meetings, Mike Veall showed slides from the Canadian updates, running to 2007. On Wednesday, the Canadian Centre for Policy Alternatives released a report based on these unpublished data, generously shared by Prof. Veall.

It shows that this generation of rich Canadians now takes a bigger cut of the action than any previous generation. The richest 1 per cent accounted for a third (32 per cent) of all income gains from economic growth between 1997 and 2007. This is four times the share of growth in the 1960s, and double the share of growth in the Roaring Twenties.

The richest 1 per cent accounted for 14 per cent of all personal income by 2007 -- levels comparable to the mid 1920s.

Then there’s the T-word. Prof. Veall is still updating these numbers, but the data show the top marginal tax rate was half the rate it was in 1948 by 2000, even before a massive wave of tax cuts kicked in. By 2000, average taxes paid by the elite – the richest 0.01 per cent of Canadians – were at levels last seen in the 1930s. Their tax “burden” has been further eased since.

Just about here you might expect me to insert the “tax the rich” solution. There are good reasons to raise taxes on the most affluent. But let’s be clear: while taxes (and the programs they buy) aren’t offsetting inequalities as they once did, neither are they the drivers of these trends.

The primary factor behind growing inequality is how much people get paid for their work. The data show that more of the income enjoyed by rich Canadians comes from wages than in the past, causing some people to trigger memories of Donna Summers and chirp that the rich now work hard for their money.

Well if hard work and a good education was the fool-proof recipe for success, the middle class should have seen big gains in the past generation. This generation of workers is better educated than any previous generation, and they are working more hours per household than ever before. But median pre-tax incomes were essentially at the same level in 2007 as in 1980 (about $55,000 in inflation-adjusted dollars).

Houston, we have a problem. And finding the solution is in everyone’s interest, including the richest Canadians.

In the U.S., Bill Gates urges billionaires to step up their philanthropy, Warren Buffett questions why he is taxed more lightly than his housekeeper, and Google execs emulate Henry Ford by paying their workers more, in the middle of a recession.

Canada’s leaders on this issue have yet to emerge. But they will.

Rising inequality, in good times and bad, is another inconvenient truth of our era, and every bit as unsustainable. You can ignore the growing concentration of income, wealth and power for a time, but that’s not a long-term strategy.

What should we do about rising inequality? The first step is discussing it. From there the solutions will flow.

Let the debate begin.



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