Transcript The Context of `Flat Tax` in Canada - 2008

Lars Osberg
Economics Department
Dalhousie University
ACEA – October 24, 2008
Real Family Incomes in Canada 1976-2006
120000
20th, 40th, 60th & 80th Percentiles ($2006)
CANSIM v25731821 - v25731824
100000
80000
20th %ile
60000
40th %ile
60th %ile
80th %ile
40000
20000
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
0


“growth is largely limited to the top 5%
which in turn has been driven largely by
increases to the incomes of the top 1%”
“marginal increase in the stability of the high
income population”
 No Evidence for: “Greater Returns for Greater Risk” Ho
6.5% 6.5%
6%
5.5%
5%
4%
2.9%
3%
2.5%
1.8%
2%
1.2%
1.1%
1%
0.1%
0.2%
0%
-1%
-0.3%
-0.5%
-0.7%
-0.9%
-1.1%
-2%
-1.2%
-1.5%
-1.8%
-2.2%
-3%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
All
Trimmed
All
Trimmed
All
Trimmed
Top .01
Absolute Change in Income Share
7%
Vingtiles
Total Income Quantile Group
Source: Statistics Canada, Special Tabulations from the LAD.
Top
5
Top
1
Top Top
.1 .01
Total Tax Rate in Canada – “Flat” & declining
Lee, Marc (2007) Eroding Tax Fairness: Tax Incidence in Canada, 1990 to 2005
Canadian Centre for Policy Alternatives, Toronto November 2007
Tax cuts greatest at top
Income tax crucial to
progressivity of system

Fundamental change in tax structure
◦ Would remove sole progressive element in tax system
◦ Total tax burden then becomes regressive
◦ “Middle 90%” – no increase in income for 30 years
 Recessionary losses loom in 2008-2011

Dramatic income rise of top percentile imply
major personal gains from “flat tax”
◦ Corresponding losses imposed on poorer neighbours

Politics in the coming recession – rhetoric of
“flat tax” rings hollow
Percentage Change in Real Income
1982 to 2004
90.00%
80.00%
70.00%
Individual % change
60.00%
Family % change
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
-10.00%
20%
to
25%
25%
to
30%
30%
to
35%
35%
to
40%
40%
to
45%
45%
to
50%
50%
to
55%
55%
to
60%
60%
to
65%
65%
to
70%
70%
to
75%
75%
to
80%
80%
to
85%
85%
to
90%
90%
to
95%
95 to top 1
99%
%




Brian Murphy, Paul Roberts and Michael Wolfson (2007)
“High-income Canadians” Perspectives on Labour and Income
– September 2007 Pages 5 to 17 Statistics Canada Cat No.
75-001-XIE
Statistics Canada (1998) Income Distribution by Size in
Canada Catalogue No. 13-207.
CANSIM Table 202-0701V1546461 to V1546465
J.R. Podoluk (1968)Incomes of Canadians, Dominion
Bureau of Statistics.


Canada, UK, US, France – top income shares fell sharply
during WWII & stayed down for 30 years
1980-2000: sharp increase in top end shares
◦ Concentrated in top 1% & even larger for top 0.1%
 Not driven by tax law changes - no coincidence in trends
 But big decline in top marginal rates
 Similar trends for individual & family income
 Not result of greater spousal income correlation
 Income mobility – same or decrease since 1980
 Same concentration trend in 3 & 5 year average income
 Probability still in top 0.1% approx same 1982-2000
 Labour income increase greatest in top 1%  Less among Francophone Quebecers
 Lags US increase in top CEO compensation
◦ WHY?
 Skill biased tech change cannot explain concentration of income
gains
 Emigration option to USA & ‘Brain Drain’ – the ‘threat effect’ &
keeping up with US CEO salaries
Real Income in Canada by Quintile
1980 - 2005
CANSIM v21188957-v21188962 ; After-tax income; Adjusted average (2005 Dollars)
80000
70000
60000
Average
50000
2005 $
bottom 20%
quintile 2
40000
quintile 3
quintile 4
30000
top 20%
20000
10000
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005