Churchill said socialism was the equal sharing of misery. If so, Ontario has moved a bit closer to egalitarian hardship with its ideological tax increase on people it supposes to be rich: people with taxable incomes of $500,000.
And closer to socialism, too. By the Liberal government’s own reckoning, the tax increase will move $470-million a year from the private sector to the public sector, a significant incremental expansion of the state; further, it will remain as long as the province runs a budget deficit – which is to say forever.
It is an elementary principle of economics that you get more of what you subsidize, less of what you tax. With this tax hike, Ontario’s consumption of wealth will increase and Ontarians’ savings will decline. And it is savings, once put to productive work, from which all blessings flow. Premier Dalton McGuinty’s deal with New Democratic Party Leader Andrea Horwath has nothing to do with economics. It is entirely political.
In part at least, it is a populist incitement of hatred of “the rich.” But high incomes don’t make a person “rich.” As Statistics Canada observed, in a major analysis of income distribution in Canada in 2007, the rich can be identified only by an absolute measure of wealth – not by employment income.
“There is a big difference between high-income people and the rich,” the agency said. “Some of the very highest income families [have]lower net worth than many families further down in the income distribution.” As a matter of statistical fact, high-income earners are poorer, in many cases, than average-income earners (with, say, $100,000 in taxable income).
The McGuinty-Horwath tax deal raises the marginal tax rate for 23,000 high-income earners to 49.5 per cent – a mere 5 cents per marginal dollar less than a straight 50-50 split between the people who earned the incomes and the government that wants to spend them.
This small minority (in a province of more than 13 million people) share a single common marker that makes them especially vulnerable to arbitrary government action. They are, by one criterion at least, above average.
Sadly, not everyone can be above average – a fact that Dutch economist Jan Pen illustrated in his celebrated 1971 treatise that portrayed low-income people as dwarfs and high-income people as giants. The analogy was deeply disturbing. People’s worth, after all, cannot be determined by incomes alone. Mr. Pen’s “parade of the dwarfs” has insidiously infiltrated economic analysis for 40 years.
Wicked though it was, Mr. Pen’s imaginary march proved irresistible – perhaps empowered, in part, by the literary force of Gulliver’s travels in Lilliput. Mr. Pen simply measured people’s height by their incomes, then lined everyone up for a one-hour parade, the lowest-income people at the head of the line.
By his calculations, using British income distribution, the low-income people were midgets, standing only inches in height. It wasn’t until the 40-minute mark in the parade that the marchers grew to average human height, and were visible to the parade watchers (also assumed to be of average height). At the 54-minute mark, the marchers stood twice as high as the average. At 59 minutes, marchers stood five times as high. With four seconds left, the top 0.1 per cent of earners passed the reviewing stand, standing 19 times higher than average earners. In the final split second, the top 0.01 per cent of earners finish the parade – as giants standing 165 times higher than the average earners: a mutant of macabre proportions.
Mr. Pen’s parade anticipated the soak-the-rich ethic that now dominates political discourse in so many of the affluent Western democracies in general and in the United States in particular. From the Occupy movement to the rhetoric of President Barack Obama, one strident message has become audible above all others. The rich must be cut down – until they, too, are average size.
It is easy to imagine a different parade than that of Mr. Pen (who died in 2010). Let low-income earners stand erect, carrying a tax burden equal to 10 per cent of their incomes – think of it, perhaps, as rocks on their backs. Let the average earners carry boulders equal to 30 per cent of their incomes. Let the high earners carry Sisyphean boulders equal to 60 per cent of their incomes – a reasonable estimate of total taxes paid by high-income earners in Ontario.
Implicit in this parade is an appreciation of the labour of absolutely everyone – and of the tax contributions of everyone, too.