It’s uncouth to talk about wealth inequality. If you do, you sound like you’re bitter, or envious, or some kind of communist. So when the media does talk about it, they make sure to include “both sides” and quote some conservative saying that people who complain about inequality are bitter, envious communists. Or he'll say that the critics don’t understand economics and capitalism and the way free markets work. But these aren’t actual arguments, they’re pathetic deflections. Extreme inequality- the hoarding of insane amounts of wealth by a few people – is really bad for our economy and our politics. In fact, it is one of the biggest threats we face if we want a peaceful, healthy society.
There are currently 10 people in the world whose net worth exceeds 100 billion USD. I know many people aren’t good at really comprehending such large numbers so let me break this into something workable. Pretend you win 10 million bucks in the lottery. Now fantasize how you’ll spend it – houses, vacations, Ferraris, tummy tuck, diamonds for your dog (hey whatever, it’s your fantasy). It probably won’t take you long before you run out of things you want to buy. But now consider this: Amazon founder Jeff Bezos could spend 10 million bucks each and every single day for the next 40 years, and he’d still have several billion dollars left over.
The fact is that you can’t have extreme wealth without extreme poverty – the cliched “a rising tide lifts all boats” is pure bullshit. The richest one percent own almost half of the world's wealth, while the poorest half of the world own just 0.75%.(Read those numbers again.) Over 3 billion people on this planet live on less than $5.50 a day. Tens of millions of Americans are one serious illness away from losing everything, and 52 percent of Canadians are $200 away from being unable to pay their bills. Meanwhile, economic growth has been anemic for decades. As I’ve written before, the velocity of money has slowed dramatically, which is reflected in stagnant aggregate demand for goods and services. To put it in non-economist jargon: people like Bezos simply can’t spend even a fraction of the wealth they have amassed, so it sits in passive investments and does almost nothing for the economy.
But Bezos et al earned all that money, right? Not entirely. None of the mega rich would be near as wealthy if the tax burden hadn’t shifted from them to you. You’d probably be surprised to learn that in the 1960s, the top income tax bracket in the US was 91 percent on any income over $400,000 (about $4 million in today’s dollars). In Canada, the top rate was around 70 percent. The period from 1945-1970, when these rates were in effect, had much higher economic growth than we have now, a direct counterpoint to the claim that high taxes on wealthy people will kill the economy. The average Canadian family pays about 35 percent of its income in taxes. (I’m not including EI and CPP premiums, because contrary to what the Fraser Institute thinks, those aren’t actually taxes. If you did include them, the bill would be around 42 percent.) The top 26 billionaires in the US paid a rate of 18.2 percent on their income from 2013 -2018. If you apply the taxes they paid to the actual increase in their assets over that time, they paid an average tax rate of 4.8 percent, with many paying less than 2 percent. No, that's not a typo.
You’d think all these tax cuts the wealthy have been handed would be enough, right? Nope. It’s not enough because it’s never enough. A recent study pegged the amount of taxes evaded by the top 1 percent in the US to be a mind-boggling $175 billion per year. How do they do it? By hiding assets in offshore tax havens. This has been going on for a long time, and a lot of it was detailed in the Paradise Papers and the Panama Papers. You hire some lawyers to set up myriad shell companies in these tax havens and you transfer assets and the associated income to these companies. Some of this is technically legal; some of it is tax evasion. Either way, you could take this amount of unpaid taxes and apply it to programs like Medicaid, affordable housing and welfare and it would almost be enough to end poverty in the US. To repeat, this is not raising taxes, this is just collecting the money they currently owe. But to do that, you would need a lot of audit manpower to sift through the paper trail of all the companies and transactions. Why did Trump in 2016 and 2020 get so much support from so many billionaires? Because when he became president, he promptly cut the IRS’s budget by a fifth and forced the department to fire 13,000 employees. If you’re looking for a single word to describe this situation, that word would be corruption.
It isn’t much better here in Canada. Corporate Canada’s answer to everything is “more, please.” Taxes are never low enough, regulations are always far too burdensome and ever-ballooning executive compensation – now 243 times what their average employee makes- is always justifiable because of ’reasons’. Since about 10 percent of the population owns more than half of all stocks, cuts in corporate taxes have mainly benefited the wealthy. A study here in Canada found that the real tax rate for the 123 biggest companies was 15 percent, when the published rates say they should be paying about 26.5 percent, a gap that costs the federal and provincial governments tens of billions of dollars every year. The companies do the same thing the billionaires do, shifting assets to low or no tax jurisdictions. Did you know Loblaws (Superstore) has a banking licence in Barbados? If you work for Loblaws, they have no problem withholding every penny of the taxes you owe the government, while they are free to shift money around the world to drastically decrease their own tax bill. As Alanis would say, isn’t it ironic?
Despite a lot of blather about opportunity, freedom, choice, etc., any society with extreme inequality takes on the characteristics of a hereditary aristocracy. Advantages accrue to people at the top, while disadvantages perpetuate for people at the bottom. Donald Trump Jr is demonstrably a moron (even his father thinks so) and there are literally millions of kids with much more to offer that will never get a fraction of the opportunities Junior has been handed. This is not merely unjust, it is terrible for the economy because we aren’t maximizing all the resources we have available, which are millions of people with potential skills and talents. Being poor means you live your life under constant coercion – where you live, what jobs you can take, where your kids go to school, etc, etc. There isn’t much actual freedom for the bottom 20-25 percent. Making decisions under such duress inevitably leads to bad outcomes, so you get all the social costs that poverty contributes to – broken homes, bad schools, property decay, drug abuse, etc. Add it all up and it’s clear that extreme inequality is grossly inefficient; it stifles innovation, inhibits economic growth, and forces us as a society to waste innumerable dollars on band-aid solutions.
In 2008, the greed of Wall Street investment bankers and hedge fund traders blew up the world economy. Despite reams of documentation of unethical and illegal behavior, not a single one of them ever went to jail or even had to return a penny of their multi-million-dollar bonuses. The moral of the 2008 meltdown was that Wall Street - and by extension, big corporations and wealthy people - could get away with almost anything. If Wall Street can screw everybody over to collect their millions, why can’t you tell a couple of lies and pocket some extra cash? If the super-rich can evade taxes, why should you declare all of your income? Once these kinds of attitudes set in and become hardened, they are very difficult to reverse (see Greece, as an example) and more and more people begin to question the legitimacy of the existing order. Legitimacy is a very important concept; it can be defined as the belief of the citizenry that the hierarchy in place – laws, rulers, institutions – has a right to the power it wields. Without legitimacy, you are in a society that is on the verge of collapse. We’re not at that point yet, but if we don’t dramatically reform our tax system, we will get there, sooner or later.
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