VANCOUVER — A one per cent tax on wealth over $20 million would generate nearly twice as much revenue as previously calculated by the Parliamentary Budget Officer, money that could lift thousands of Canadians out of poverty and fund health, social and environmental programs says new research by the Canadian Centre for Policy Alternatives, BC Office.
Such a tax would generate about $10 billion in revenue in its first year compared to the $5.6 billion estimate by the Parliamentary Budget Officer (PBO), says Alex Hemingway, the economist and public policy analyst who made the calculations.
Hemingway explains that the PBO’s July 2020 estimate reflected a large but temporary drop in asset values early in the pandemic, which have since bounced back in Canada. More significantly, the PBO assumed that 35 per cent of the wealth tax base would be wiped out by “behavioural responses” such as tax avoidance and evasion.
“This estimated behavioural response rate is out of line with the latest economic research on the impact of wealth taxes,” Hemingway explains.
“The use of large-scale tax avoidance and evasion schemes is often assumed to be inevitable, but leading experts emphasize that we largely know how to crack down on this behaviour and how to design a wealth tax that minimizes it. What’s been missing is the political will,” he added.
University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman estimate a substantially lower average behavioural response of 16 per cent and suggest that this figure should be understood as an “upper bound.”
An extensive new body of research produced by the UK Wealth Tax Commission, based out of the London School of Economics, suggests a seven to 17 per cent behavioural response rate.
The lives of millions of working Canadians have been upended by the COVID-19 pandemic while the wealth of the richest few has continued to balloon, says Hemingway whose research shows that a wealth tax on the super rich is an important policy to address extreme inequality and help raise revenue for needed public investments after the pandemic.
Also, tackling inequality with a wealth tax on the super rich is hugely popular, backed by an overwhelming majority of Canadians across party lines, polling shows.
“This tax would apply to only about 25,000 wealthy families, representing the richest 0.2 per cent of the country,” Hemingway says. “This tiny fraction of Canadians—the richest of the rich—together control $1.8 trillion of the country’s wealth.”
Revenue from the tax could implement long-term increases to funding for important social programs like child care, health care and seniors care, and help pay for more ambitious climate action.
A moderately more ambitious wealth tax could further reduce inequality and fund additional investments. For example, a wealth tax with rates of one per cent on net worth over $20 million, two per cent over $50 million and three per cent over $100 million could raise nearly $20 billion in its first year. These rates aren’t nearly as high as those called for by Bernie Sanders and Elizabeth Warren in the United States, Hemingway says.
A wealth tax is just one piece of the puzzle when it comes to tackling inequality and raising revenue for important public investments. It should be accompanied by a suite of other tax fairness policies, including ending the costly special treatment of capital gains income in the Canadian tax system and closing a range of other tax loopholes that benefit the affluent, Hemingway says.
The Canadian Centre for Policy Alternatives is an independent, non-partisan think tank
that researches social, economic and environmental justice issues.