Last month, NYU Professor Scott Galloway gave an 18-minute TED talk in Vancouver, sounding the alarm on economic inequality between younger generations and baby boomers.
The video quickly became one of TED’s most-watched videos of the year, underscoring the relevance and urgency of addressing growing inequality.
For many class-conscious Canadians, Galloway’s conclusions are nothing new. For the past couple of years, Canadian social media has been teeming with middle-class Canadians decrying the widening gap between the rich and poor.
Adam Melnyk/Shutterstock
According to Abacus polling, roughly 80% of Canadians support a wealth tax and believe it could be a viable new source of government revenue.
Given the widespread SOS calls on nearly every Canadian social media platform that remains unblocked (*cough cough* Bill C-18), it’s worth asking whether a wealth tax could be an effective solution to our growing inequality, as French economist Thomas Piketty pointed out in his bestseller Capital in the Twenty First Century.
In his book, he theorizes the tax would be levied on individuals whose net wealth exceeds a certain threshold; in this case, $10 million. Net wealth would be calculated based on an individual’s total assets (cash, investments, properties, etc.) minus their liabilities (mortgages, debts, etc.). Overall, a wealth tax would affect around 0.5% of Canadians.
To find out if the Canadian political class should follow the lead of Norway, Switzerland, and Spain with individual net wealth taxes, Daily Hive spoke to Alex Hemingway, senior economist and public finance analyst at the Canadian Centre for Policy Alternatives. Our aim was to better understand how a wealth tax would work and why there’s so much political resistance to asking the richest 0.5% of Canadians to pay more taxes.
Growing inequality makes a case for wealth taxation
According to government data, income and wealth inequalities are widening in Canada, and Hemingway points to the concentration of wealth in fewer hands as a cause for concern and an impetus for rethinking free-market fundamentalism and the “trickle-down” economic theory that was sold to North Americans throughout the 1980s.
Alex Hemingway is a Senior Economist and Public Finance Analyst at the Canadian Centre for Policy Alternatives/Daily Hive
“The promise of neoliberalism and the idea of cutting taxes for the wealthy and we’re going to have prosperity for all — that’s not what we’re seeing on the ground. [Wealth inequality] has been rising for decades, and 87 of the richest families in the country control more wealth than the bottom 12 million people,” he said.
While Hemingway admits a wealth tax isn’t a silver bullet for wealth inequality and recognizes that increased taxation is nullified in the absence of prudent government spending, he believes it’s a policy measure that can help address the “extreme” inequality growing in Canada.
What could a wealth tax look like in Canada?
The Canadian tax system is multifunctional and aims to promote economic growth while fostering social equity.
Hemingway believes these two principles are not mutually exclusive and that the latter could benefit from introducing a 1% wealth tax on Canadians with net wealth over $10 million, 2% above $50 million and 3% above $100 million — a policy measure that would affect roughly 87,000 families.
Calculating net wealth
The design features of Hemingway’s proposal incorporate including someone’s stock portfolio when calculating net wealth, even if the stocks have not been sold (unrealized capital gains), an idea that has been criticized for its volatility.
Despite fluctuations in stock prices, Hemingway asserts it’s justifiable to include unrealized capital gains when evaluating someone’s net wealth, given how micro-targeted the tax is.
“If you’re in the top 1% of the richest households, you’re still not rich enough to be captured by this wealth tax, we’re talking about a tax that would affect 0.5% of households; in an extremely unequal society, it’s fair to ask those at the very top to contribute.”
Toronto’s wealthy Bridle Path neighbourhood (Spiroview Inc/Shutterstock)
Hemingway is also a proponent of including assets that individuals indirectly own through corporations when calculating net wealth. He points to jurisdictions with wealth taxes that exempt certain asset classes, such as privately held businesses and real estate assets, which then “immediately created a huge incentive to move wealth into that exempt asset class.”
How much would the wealthy pay?
Under Hemingway’s proposal, in an illustrative tax scenario, the first ten million dollars of wealth are exempt; therefore, those meeting the inclusion criteria would only be taxed on their net wealth above the $10 million threshold.
For example, if your net wealth is $11 million, you would only be taxed on the amount that exceeds the $10 million threshold. According to Hemingway’s proposed rates, this individual would pay a 1% wealth tax on $1 million, amounting to $10,000—that’s about two round-trip business class flights from Toronto to London, England, on Air Canada.
Potential uses for wealth tax revenues
Through modelling, Hemingway estimates this wealth tax could generate over $30 billion in the first year and over $400 billion over ten years, a “conservative” estimate that Hemingway says accounts for the inevitability of tax avoidance and evasion and the increased cost of enforcement through the Canada Revenue Agency (CRA).
So, what can the feds do with these funds?
Suppose the money isn’t lost in the black hole of federal bureaucracy, federal contracting, and corporate welfare, a wealth tax, according to Hemingway’s analysis, could pay for universal public pharmacare, free tuition for postsecondary education for Canadians (because perhaps getting more Canadians into trades school and nursing school might help alleviate the multitude of crises that concurrently incapacitate our society), 100,000 non-market affordable homes each year and major increases in public transit investment combined.
A wealth tax probably isn’t coming any time soon
In 2021, Liberal and Conservative parliamentarians, including Prime Minister Justin Trudeau and Conservative Leader Pierre Poilievre, unanimously voted against a 1% wealth tax.
Hemingway believes this reflects a political and economic system that favours the interests of the elites and questions why a policy with wide support from Canadians isn’t given serious consideration in our House of Commons (the italics serve as a reminder to Canadians that our parliamentarians are meant to represent our interests, not those of foreign powers, transnational corporations, or the elite).
What are your thoughts on wealth taxation in Canada? Sound off in the comments on email [email protected].