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The Progressive Economics Forum

Of the 1%, For the 1%, By the 1%

The first leg of the federal election campaign has featured much debate over who benefits from different proposals. At least indirectly, it has been a conversation about income inequality. What have they been saying?

The Harper Conservatives have introduced a number of high-cost measures all of which are based on tax cuts, all of which would widen the rich/poor gap. The Liberals promise poverty reduction, direct supports to caregivers, propose a learning strategy, suggest a range of approaches to improve health care, and name rising income inequality as a problem. The NDP pledge to eliminate seniors’ poverty, legislate targets and timetables for eliminating child poverty, aim to ease the affordability of a range of basic family expenditures, and tackle the basics of health care – train more doctors and nurses. They, too, say we can ill afford to exacerbate inequality. Everyone claims they are trying to relieve pressures on the middle class.

The Harper team would like to you to believe their platform is targeted squarely at families in the middle. Nothing could be further from the truth. It is hard to imagine a federal government that has done more to accelerate the concentration of income, wealth and power. It is hard o imagine a federal government that has done more to render the most vulnerable populations invisible. But they are now in striking distance of forming a majority.

What is at stake?

This month’s issue of Vanity Fair features an article by Joseph Stiglitz — former chief economist of the World Bank — on the topic. The title says it all: Of the 1%, For the 1%, By the 1%.

I mentioned his remarkable essay in a speech about economics, inequality and democracy I prepared for TVO’s Big Ideas series last week, to be aired in a couple of weeks’ time.

Yesterday a journalist who attended that presentation, and not easily persuaded, followed up with a question – “How perfect a fit is it – government by the 1%, of the 1% – for Canada?”

My answer was “pretty perfect”. Indeed, a more perfect fit here than in the U.S., land of super-sized reward.

Let me elaborate.

In 2007, you were in the top 1% club if your pre-tax income was over $169,000. That’s taken from data provided by Michael Veall, co-author with Emmanuel Saez of cutting-edge research on the evolution of high incomes in North America since 1920. The data end in 2007 and don’t include capital gains.

Sitting in front of me when I received the email was an article from the newspaper that said: “An MP makes a base salary of $157,731.”

I went to the CRA tax statistics and calculated that, of 24.2 million tax returns in 2008, 2.1% of Canadians had pre-tax incomes over $150,000, including capital gains.

There’s enough people in that category that you wouldn’t know them all: 513,180 people had incomes of $150,000 or more. (Of these, 1,380 people didn’t pay any taxes.)

That’s a lot of people, more than you’d have as friends, even on facebook.

But it’s not common to make more than $150,000. Only 2% of Canada’s taxfilers do. If you include the whole population, only 1.5% of Canadians do.

That was in 2008. The next year wiped out almost half a million full-time jobs, and the incomes that go with them.

Without doubt, people with incomes over $150,000 make up an even smaller share of Canadians today.

Now some of you reading this will not see $150,000 as extraordinarily rich. But close to 99% of Canadians make less. And our MPs make more than $150,000.

We send MPs to Ottawa to represent our interests. Some of them take pay cuts to do the job. Many of them have friends who make more than they do. They think they are the middle class. (We all do, rich and poor alike.) They are not.

Making more than $150,000 doesn’t make our MPs bad, or out of touch, or unable to govern in the public interest.

But little of what surrounds them helps them stay in tune with what is happening to most Canadians.

The media and markets mostly reinforce the reality of households making relatively high incomes, rarely reflecting the daily grind faced by the vast majority of Canadians.

That’s why we need researchers, analysts and the media to pay attention to tell us what is happening to the whole picture, not just what’s happening to the people at the top.

As a point of reference, the half-way mark of the distribution of incomes for families raising children in 2008 was $48,000. That’s after taxes. That’s only $2,000 more than it was in 1976. Yet today’s young family is better educated and has more adults working than a generation ago.

The growing concentration of income, wealth and power is not inevitable. But it is coming to be viewed as normal. More importantly, like climate change, it is not sustainable. Ignore it if you will, but it will only grow more problematic.

Government of the top 1%, by the top 1%, for the top 1%? Written as a cautionary tale by an American for an American audience, it is fast becoming reality here in Canada.

The democratic promise is that our governments will be of the people, for the people, by the people; that they will balance interests and pursue outcomes that serve the greater good.

Election 2011 puts that promise to the test.

Enjoy and share:

Comments

Comment from duncan cameron
Time: April 12, 2011, 12:14 am

Does it make more sense to use after tax figures when discussing income inequality? Rather than pre-tax ? Anybody have a view on this.

Comment from Travis Fast
Time: April 12, 2011, 6:15 am

Duncan I think you need both because they tell you different things. On tells you about market determined inequality and the other tells you the degree to which the tax system works to ameliorate that inequality.

Comment from Louis Erlichman
Time: April 12, 2011, 7:12 am

I seem to recall some years ago polls done in the US that indicated that 50% of the population thought that they were in the top 10% of earnings, and 90% thought they were in the top 50%. I wrote an article about it at the time in our union mag, with similar numbers to yours.
A further problem is that people (for reasons we can guess at) tend to identify up (with the winners) rather than down (with the losers), which explains why you get people on welfare complaining about welfare cheats.
Presumably people would vote their own interests if they were aware of them, but awareness is an elusive goal, like the eternal NDP search for the magic words (“average families”, “working families”?).

Comment from Denise Freedman
Time: April 13, 2011, 10:07 am

I am someone who sees $150,000 as an enormous annual income, though I can understand how many do not.

I also understand how many who do not make $150,000 don’t really understand the sort of discourse that happens on a website like this, and who are not considered to be worth speaking to. But that path leads to political failure.

I do understand that there are those, like Armine Yalnizian, and Jim Standford, are trying to devise a discourse that will do for the left what the right has been doing so successfully for so many years, thanks to people like Frank Lundz and Grover Norquist.

I remember hearing Yalnizian reach back to the Regina Manifesto to forge a rhetoric for the left, when Standford spoke in a humorous to address the wage theft of those who benefit from the tax cuts of the Harper, AND Liberal governments. At the same conference, I remember hearing about a new economic indicator, on an obscure website, which was touted as the solution to the democratic challenge of our time.

Heterodox macroeconomic theory and policy is all well and good, which is why I read this site, but until it challenges the established and pervasive rhetoric of the right, it will fail in its explicit goal: “The democratic promise is that our governments will be of the people, for the people, by the people; that they will balance interests and pursue outcomes that serve the greater good.”

Until the discourse is changed, by those on this website, and other, all we will hear is what we hear now, fantastical visions of what “the family” is, skewed by generations of successful right wing rhetoric.

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