Economic inequality in Canada | AS THE economic problems in Canada get worse, we hear more and more from business and government that low and middle income people must tighten their belts. The point is always that we have grown soft on the easy life, and now we must be prepared to sacrifice if things are to improve. Higher taxes, wage controls, cutbacks in welfare and social services, continuing high interest rates, and higher energy costs are ways that governments are tightening the squeeze on working people and the poor. The whole attack on workers and the poor is an at- tempt to divert attention from the reality of who controls our economy and who really benefits from it. Workers have not been the prime beneficiaries nor are they now the cause of our present economic difficulties. They and the poor are its main victims. An attack on our economic problems must not be allowed to be an attack on its main victims. Instead, we must identify the real causes and correct them, and in the process, we must rebuild our economy and introduce greater equality among Canadians. In the first article in this series, which appeared in the Sept. 21 issue of UE News, we looked specifically at the - effects of inflation, interest rates and higher energy costs on the budgets of Canadians. This second ina series of research reports will look at the extent of economic inequality in Canada and how our tax and welfare systems perpetuate that inequality in the interests of the big corporations and the rich. ke | INEQUALITY IN INCOME AND WEALTH There are two widespread myths about economic in- equality in Canada. One is that, while economic inequal- ity exists here, it is much less than in countries like Great Britain which have long-standing traditions of great wealth in the hands of a few. The second myth is that our tax and social welfare systems are significantly reducing the inequality that still exists in Canada. Neither of these myths is true. Income Looking first at income, Table 1 shows the distribu- ~ tion of before-tax income in’ Canada by income group, ~ and how that distribution has changed since 1965. For purposes of this table, all Canadian families and unattached individuals are grouped in order of income and divided in fifths, from the top 20 per cent of income recipients to the bottom 20 per cent. Table 1 Share of the total before-tax income received in Canada by income group (including all social welfare payments) Year 20% . . 20% 20% 1965 4.4% ~ 18.0% 41.4% | 1969 Sk eee 17.6 ~ 42.6 1975 4.0 17.6 42.6 1979 - 4.2 17.6 42.3 Source: Statistics Canada (13-207, May, 1981) Table 1 shows us that the top 20 per cent of income recipients receive 42.3 per cent of all income in Canada, while the bottom 20 per cent receive only 4.2 per cent of all income. And it shows that the top receive more now than in 1965, while the middle and bottom 20 per cent receive less. The real situation is even worse than the table shows since Statistics Canada does not count as income two important sources of income received mainly by those a the top — inheritance and capital gains. When we look at after-tax income, we see a similar pattern (See Table 2). Table 2 < ‘ - Share of total after-tax income by income group Bottom . Middle — Top 1961 5.6% 18.2% 39.4% — 1969 $.1: 17.353. Me VES Eee 1976 5.0 Se PRES Oo aa Source: Wolfson, Canadian Taxation 2(2), 1980 This substantial inequality in Canada is larger than that in Great Britain, Japan, Norway, Sweden, the Netherlands and Sweden. Of the major Western countries only France, Ger- many and the United States has greater inequality of income than Canada, according to an Organization of PACIFIC TRIBUNE—OCT. 23, 1981—Page 10 Economic Co-operation and Development study of in- equality among its member countries. Wealth The distribution of wealth is the best indicator of inequality of economic power. Income only measures how much one’s wealth changes in a year. What really determines your place and power in the economy is how much total wealth you have. It is here that the massive inequality in Canada is most evident. Table 3 indicates the distribution of wealth (to- tal assets, minus debts) in Canada in 1980. Table 3 Distribution of Wealth in Canada, 1980 Totalnet worth % share of (assets minus debts) total wealth Topi% | $146,361 ,000,000 18.8 Top 10% (includes top 1%) 444,534,000,000 SH1 Next 10% 126,120,000,000 16.2 Next 40% 200,857,000,000 25.8 Bottom 40% 6,228,000,000 0.8 Source: Osberg, Economic Inequality in Canada, 1981, page 37 The top one per cent of the population of Canada has almost 24 times as much wealth as the bottom 40 per cent of the population, and the top 10 per cent controls over half of all wealth. The bottom 40 per cent does not even have one per cent of the wealth. ee a Gens TAXATION AND WELFARE: WHO BENEFITS AND WHO PAYS? The massive inequality in wealth noted in Table 3, and the growing inequality in incomes noted in Tables 1 and 2, continue despite tax and social welfare systems that allegedly promote equality. - This reality does not stop business propagandists and pro-business politicians from claiming that the tax sys- tem is unfair to business and the wealthy and that social welfare programs have gone too far, are too expensive, and are taking away any reward for hard work. | Aclose look at the tax system shows that it is working people and the poor who bear the heaviest burden, while it is business and the rich who reap the benefits. Corporate income taxes Although corporations are supposed to pay tax at the rate of about 50 per cent of profits, a variety of loopholes reduce the effective rate as low as 10.5 per cent for some categories of corporations. The Canadian Imperial Bank of Commerce only paid 8.9 per cent in taxes despite a profit of over $210-million in 1980. Toronto Dominion Bank paid 9.0 per cent in- come tax in 1980 when its profits exceeded $200-million. Deductions, tax preferences, resource allowances, fast write-offs and other loopholes reduced corporate tax bills by an estimated $9-billion in 1980 alone. Because these tax reductions are equivalent to the government giving the money to the corporations, they have come to be called ‘‘tax expenditures.” Corporate assistance In addition to tax expenditures, totalling $9-billion for 1980, corporations received direct government aid of over $6-billion for 1980-81 and are budgeted to receive almost $9-billion in 1981-82. ° : The largest portion will come from the federal Department of Energy, Mines and Resources whose _ exploration and development incentives, and oil-import and synthetic-oil subsidies programs, will cost taxpayers close to $5-billion this year. The Department of Industry, Trade and Commerce doled out $256-million in direct aid, and a further $156- _ -million in loan insurance, in 1980-81. The Department of Regional Economic Expansion gave away $132-million. The list goes on and on. There are so many giveaway programs that the Department of Industry, Trade and Commerce has pub- lished a book, ABC: Assistance to Business in Canada, which takes H6 pages simply to list the programs, ser- vices and taxation measures available to business. The real welfare bums The extent of corporate welfare is evident when we combine the direct aid (direct expenditure of $6.2-billion in 1980-81) and the indirect aid (tax expenditures of $9-billion). This $15-billion given to corporations stands in stark contrast to the $10.9-billion expected from cor- porate income taxes. oe The taxation burden is increasingly shifting from cor- porations to individuals, as can be seen in Table 4. ~ _.. . Changes in the share of income taxe ».. Taised from individuals and corporations Year . Individuals. Corporations 1951 45.0% 55.0% 1961 58.4 41.6 1980 - 76.6 23.4 Source: Department of Finance, Taxation Statistics Personal income taxes Although the personal income tax is our ‘‘fairest’’ tax, since it charges according to ability to pay, deductions and loopholes favor the rich so much that the ‘*fairness”” is destroyed. 4 According to the Department of Finance’s Taxation Statistics, 160 people who had incomes of over $200,000 paid no income tax in 1979 (the most recent year for which such information is available). And of those earn- ing $50,000 and over, 3,467 paid no income tax. When we look at all the tax expenditures given indi- vidual taxpayers in 1980, we see that they total approx- imately $25-billion. : : ie Some of the major items that benefit the rich are failure . to tax all capital gains (estimated to cost $700-million in lost taxes), dividend deductions and tax credits ($1.1-bil- lion lost in tax revenue) and the'$1,000 investment in- come deduction ($900-million in lost tax revenue). e The effect of personal tax expenditures on different income groups was explored in a detailed study of 1976 taxteturns. As indicated in Table 5, it shows that the top — income-earners benefitted the most, while the poorest — benefitted the least. 2 “Table 5 Tax expenditure benefits by income group (1976 personal income tax returns) % of % of ~ total tax ~ Income ey total expenditure “=“under $5,000 29.1 5.0 $5,000-$10,000 Be i) 15.4 $10,000-$15,000 20.4 19.9 $15,000-$25,000 » 16.9 or B10 $25,000-$50,000 Ao 19.2. $50,000 and over 0.6 <9 9,4 Source: Maslove in The Public Evaluation of Government Spending, page 168. The most telling comment on our tax system comes when we look at wealth rather than income. : Although no study has been done for Canada on the proportion of individuals’ net wealth that is paid in tax — each year, a study done in the United States reveals a — pattern that is undoubtedly similar to that in Canada according to a report by Gerald Sazama in the journal, Canadian Taxation. « Sazama found that the poor paid tax equivalent to over — 99 per cent of their total wealth while the rich paid a rate equal to 2.4 per cent, as reported below; ae Table 6 Effective tax rates on wealth — United States, 1966 Adjusted Family tk va “ Income by this group of wealth under $5,000 (ss i ogee OO3 S57 ~ $5,000-$10,000 5.0 rsh. -$10,000-$15,000 15.0 : 15.7 * $15,000-$25,000 250 0.0 - $25,000-$50,000 20 ee Si $50,000 and over —s—s:35.0 Od "Source: Canadian Taxation, 2(1980), p. 20. The federal government is about to introduce a new budget to deal with the economic problems of Canada. To cut through the phony arguments of business and government, it is important to know who is benefitting and who is paying under the present system. This second article inour economic series makes clear that business and the rich are the real gainers despite their cries for bigger government handouts. This article is reprinted from the Oct. 19 UE NEWS, jour- nal of the United Electrical, Radio and Machine Workers Un- ion. To receive other articles in this series, write UE News, 10 Codeco Ct., Don Mills, Ont. M3A 1A2.