Tax cuts for corporations and the rich, which Canadians were told would “trickle down” to them, have been a massive and expensive failure, says a prominent tax expert.
In a Gamechangers podcast interview released Monday, Toby Sanger, economist and executive director of Canadians for Tax Fairness, says tax cuts for corporations, capital gains and stock option income have been a “multi-hundreds of billions of dollars experiment that has effectively failed.”
Not surprisingly, the result of big tax cuts for corporations and rich Canadians has been rising inequality.
Top 1% now pay lower tax rate than lowest 10% incomes
People living on investment income now “pay a much lower rate of tax than ordinary Canadians pay on their employment income,” said Sanger.
Sanger cited a recent tax analysis by the Canadian Centre for Policy Alternatives that showed the average top one per cent income earner pays a lower tax rate than the average person who earns among the lowest 10 per cent of incomes.
The Chretien Liberals cut the so-called inclusion rate for capital gains from 75 per cent to 50 per cent — meaning half of capital gains income is now completely tax-free. That cut has been kept by Prime Ministers Martin, Harper and Trudeau, though Jagmeet Singh’s NDP has committed to reversing it.
Liberal changes saved the wealthiest individuals massive amounts. A Canadian with a $100 million fortune that generates capital gains of $10 million a year now pays tax on only $5 million, $2.5 less than the $7.5 million taxed at the old inclusion rate.
Based on combined federal-Ontario tax rates, by doubling the capital gain exclusion, Chretien’s tax cut gives that wealthy person with a $10 million income at least an extra $1.3 million each year.
The Chretien Liberals also launched corporate tax cuts continued by the Harper Conservatives. Corporate tax rates have been cut from 29 to 15 per cent. And in the 2008 federal election campaign, the Liberals led by Stephane Dion even promised to cut federal corporate tax to 14 per cent.
Tax cuts for wealthy come with health and housing cuts
Liberal and Conservative tax cuts for corporations and wealthy Canadians have reduced federal revenues, which have fallen from an average of about 17 per cent to about 14 per cent of GDP.
While the wealthiest got tax cuts, the federal government abandoned any new support for non-market housing construction and cut health care transfers to provinces.
The Trudeau Liberals have continued to shrink the Canadian Health Transfer in real terms, increasing it only three per cent a year, less than inflation plus population growth.
And although the Trudeau Liberals have put a communications premium on making — and remaking — housing announcements, a recent report from the Parliamentary Budget Office found housing investment under the Trudeau Liberals is substantially the same as under the Harper Conservatives.
According to the PBO report, the Trudeau Liberals’ much-hyped National Housing Strategy “largely maintains current funding levels for current activities in nominal term and slightly reduces targeted funding for households in core housing need.” The report concluded “it is not clear that the National Housing Strategy will reduce the prevalence of housing need”.