Canada needs a wealth tax on the super rich to rein in extreme inequality and contribute to crucial public investments in the wake of COVID-19.
The crisis has shone a light on a simple truth: no individual or corporation becomes wealthy without an enormous collective effort, both by workers and through public investments in social and physical infrastructure.
A wealth tax is a policy whose time has come.
Taxing the super wealthy has the backing of a growing body of economic research. Building on the work of French economist Thomas Piketty, Berkeley economists Emmanuel Saez and Gabriel Zucman recently developed the research case for wealth taxation in detail and policy proposals have been popping up in the US, Canada, Spain and the EU.
Wealth taxes enjoy strong public support—at levels rarely seen on any public policy issue—with the latest poll in Canada showing 75 per cent support, including 69 per cent among Conservative Party voters.
What would a wealth tax look like in Canada?
A proposal put forward by the NDP in last year’s federal election would apply a one per cent annual tax on net wealth over $20 million, which the Parliamentary Budget Office (PBO) estimated would ultimately raise almost $10 billion per year.
This proposal was timid compared to Elizabeth Warren’s and Bernie Sanders’ wealth tax plans, which tripled or more the rate applied to the highest levels of wealth.
Would a wealth tax work in practice? Saez and Zucman make a strong case that it would.
A wealth tax would apply to the worldwide assets of any Canadian citizen or resident above the established threshold. Legally, shifting funds to low tax jurisdictions won’t get you out of it.
Some suggest that the wealthy will go so far as renouncing their citizenship to avoid the tax. To address this, a much steeper “exit tax” would apply to their wealth, set at a rate of 40 per cent in Warren’s and Sanders’ plans.
Perhaps of most concern, the super rich could engage in outright illegal tax evasion. Ramping up tax enforcement and cracking down on tax havens is critical to make a wealth tax work. Even without a wealth tax, the PBO recently estimated that investing an additional $750 million in tax enforcement would raise federal tax revenues by about $3 billion.
As Saez and Zucman emphasize, we already know how to crack down on tax havens. Key elements include targeting the financial services industry that enable them, imposing stronger data transparency requirements for banks that do business with Canada and greater resources and penalties for tax enforcement. What’s needed is political will.
A wealth tax is one of the tools available to reduce inequality. Others include an excess profits tax, corporate tax reform, raising the capital gains inclusion rate and closing a proliferation of tax expenditures that mainly benefit the affluent.
It’s clearer than ever that we create our prosperity together and it doesn’t belong solely in the hands of a wealthy few. While the economic and political power of the super rich is real, if people get organized to demand it, change is within reach.
Alex Hemingway is an economist and public finance at the Canadian Centre for Policy Alernatives BC Office.