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  • 2019 Federal Budget Analysis February 27, 2019
    Watch this space for response and analysis of the federal budget from CCPA staff and our Alternative Federal Budget partners. More information will be added as it is available. Commentary and Analysis  Aim high, spend low: Federal budget 2019 by David MacDonald (CCPA) Budget 2019 fiddles while climate crisis looms by Hadrian Mertins-Kirkwood (CCPA) Organizational Responses Canadian Centre for Policy […]
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  • CCPA-BC welcomes Emira Mears as new Associate Director February 11, 2019
    This week the Canadian Centre for Policy Alternatives – BC Office is pleased to welcome Emira Mears to our staff team as our newly appointed Associate Director. Emira is an accomplished communications professional, digital strategist and entrepreneur. Through her former company Raised Eyebrow, she has had the opportunity to work with many organizations in the […]
    Canadian Centre for Policy Alternatives
  • Study explores media coverage of pipeline controversies December 14, 2018
    Supporters of fossil fuel infrastructure projects position themselves as friends of working people, framing climate action as antithetical to the more immediately pressing need to protect oil and gas workers’ livelihoods. And as the latest report from the CCPA-BC and Corporate Mapping Project confirms, this framing has become dominant across the media landscape. Focusing on pipeline […]
    Canadian Centre for Policy Alternatives
  • Study highlights ‘uncomfortable truth’ about racism in the job market December 12, 2018
    "Racialized workers in Ontario are significantly more likely to be concentrated in low-wage jobs and face persistent unemployment and earnings gaps compared to white employees — pointing to the “uncomfortable truth” about racism in the job market, according to a new study." Read the Toronto Star's coverage of our updated colour-coded labour market report, released […]
    Canadian Centre for Policy Alternatives
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Inequality and progressive taxation

As Andrew Jackson points out, there are some interesting musings in the US about progressive taxation. In a recent post, Mark Thoma cites four good reasons for progressive taxation:

Personally, I’m not much on redistribution simply to make outcomes more equal. But there are (at least) three reasons to depart from this. First, when there is change such that makes one group better off at the expense of another as has happened recently with globalization, and when redistribution can leave everyone better off, then redistribution is justified.

Second, I think everyone should have equal opportunity to be a CEO or a hedge fund manager, or whatever they want to be. However, the playing field is far from level and there is a lot more we could do on this side of the equation. Not everyone will be a CEO of course, or achieve their dream job whatever it might be, but everyone should have an equal chance to be one of the winners. In the meantime, until more has been done to level the playing field, progressive taxation is a means of making up for inequality in opportunity.

Third, for me at least, progressive taxation is justified by the equal marginal sacrifice principle (the last dollar paid should cause the same amount of disutility for everyone). Thus, even if opportunity is equal, and even if there were no winners and losers to worry about, justification for progressive taxation would remain. I think a more progressive tax structure than we currently have is needed to equalize the disutility of paying taxes.

We could list “preventing a political backlash” as a fourth reason for redistribution. But I’m not sure we need to invoke the political economy argument. If we use progressive taxation in accordance with the three principles above, then income will be more equally distributed and a backlash against globalization is less likely to occur.

At least one other really important consideration is that we tend to think of progressive taxation only in terms of income taxes, but we also have to take all other taxes into account. This is the domain of tax incidence studies. I have done some work on this topic for Canada that will be published later this year, and the general finding is that the tax system is less progressive today than it was in 1990. Back then, as a classic study of Vermaeten, Gillespie and Vermaeten in the Canadian Tax Journal found, the tax system in 1988 was progressive up to the median then relatively flat thereafter. In my preliminary estimates, the system is less progressive through the bottom half, and regressive thereafter.

In our PEF session on taxation and social democracy at the CEA meetings, Andrew Jackson suggested that there is scope for higher marginal income tax rates as a means of offsetting the top of the distribution pulling away from the middle, but also noted that much of the reduction in inequality in the Nordic countries stems from transfers rather than taxes. This relates to Stephen Gordon’s presentation in which he highlighted the use of value-added taxes in getting taxes-to-GDP up closer to Nordic levels, but that an enhanced GST credit could serve to offset the regressive impact of such a move, and could even serve as the basis for a guaranteed annual income. All of these are good ideas that are not incompatible with each other, and I would add that we should also enact changes (such as easier unionization in the service sector, higher minimum wages, and capping the tax deductability of excessive executive pay) that make the labour market – the source of rising inequality – do more of the heavy lifting.

The session raised an interesting debate between Erin Weir and Stephen Gordon about how much we should rely on corporate taxation as a base. I won’t get into that right now, but suffice it to say that the Nordics show us what’s possible, and the tools are there. The real issue is political will and whether we as a society want to go there.

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