Taxation and Poverty

Injustice built into our tax system hurts poor the most
June 1, 2009

U.S. Justice Oliver Wendell Holmes once famously declared: “I don’t mind paying taxes. They buy me civilization.” I completely agree. But in the last 28 years, tax policies have been ever more biased in favour of powerful special interests which dominate our society and dispossess the poor: the unearned income of the rich, tax-evading corporations with teams of tax lawyers, and high-on-the hog business expenses.

Indeed, the Canadian tax system might now be called a war of the rich against the poor -- which is the way John Kenneth Galbraith saw the North American pattern. Taxes on unearned capital gains and corporations keep declining at a cost to the public of endless hundreds of billions of dollars, while write-offs allow big business to end up paying zero tax or a lower percent of income than the poor.

The logic of taxation on corporations and the rich, writes corporate law professor Harry Glassbeek, “is the logic of tax evasion. Tax law,” he observes in his definitive book, Wealth By Stealth, is set to make “rich people pay less than working people” and “to maintain the accumulation of wealth by the few.”

Just look at your own tax form. There is a perfect class division on allowable expense deductions. Business people can write off luxury meals, drinks, and car bills from their taxes, while the salary and wage earners cannot deduct a bus ticket.

The class war for the rich against the public sector and the poor has skyrocketed since the Reagan-Thatcher counter-revolution for the rich began -- so successfully that Galbraith concluded that “the rich have won their war against the poor.” Yet even then, demand by the rich for a “flat tax” seeks to eliminate completely what remains of the progressive income tax.

The war is waged at all levels of the tax system itself. Ever more tax evasion, off-shore banking, loopholes, transfer pricing, and corporate shell-companies combine with ever lower upfront tax rates for the wealthy and big business and extravagant tax and other subsidies to transnational oil corporations, factory agribusiness, weapons manufacturers, and Big Pharma.

This tax largesse for the rich contrasts with ever more of the vast public revenue transfer to the plutocracy paid for by ever more flat taxes on consumers, ever more defunded social programs and universities, ever more unenforced environmental and work-safety regulations, and -- to crown it all -- ever more business-controlled political party promises to cut taxes further. In short, the interests of the public and democracy have been increasingly defunded and ridden upon by a plutocratic rule which has reversed the very meaning of economy. The poor suffer most.

Plutocratic dismantling of the social fabric has occurred across nations and has been most of all enabled by borderless trade which has rendered public authority impotent and transnational corporations predominant. Democracy, universal social programs, and the public economy, along with support for those in poverty, have been largely eradicated. Yet corporate media and business-led parties still favour even lower taxes from which most benefits go to the rich, more use of armed force in poor countries like Afghanistanwhich have desired oil-access and mineral resources, and of course “getting tough on crime” -- that is, jailing the poor, most of whom have committed no crimes against persons.

The ultimate goal is to turn money into more money for those with the most money, with no limit and no requirement of productive contribution. Nothing that comes out of the Fraser and CD Howe Institutes, the Citizens’ Coalition, and the Harper Reform-Tories proposes to change the pattern, except to make it more extreme. And because this ruling money code is life-blind in principle, its cumulative effect over time is to hollow out most people’s lives and incomes, as well as ecological support systems -- all affecting the poor most of all.

The tax war for the rich began in the U.S. with the Reagan administration, which immediately gave away an unprecedented $500 billion in tax cuts in 1981 dollars to the wealthy to force a reduction of social programs. This perverse strategy has been imitated by branch-plant business parties in Canada ever since. Four out of five taxpayers ended up paying more, the richest 5% got much richer, social programs got stripped, and armed forces expenditures and public debt multiplied. The Great Reversal of substantive democracy was then pressed onto corporate free trade, which exported secure well-paying jobs to far-lower-wage and non-regulated Third World sweatshops.

Inexorably and severely pushed down were workers’ life security and incomes, life-protective workplace regulations, and environmental safeguards -- all creating more real poverty in society. At the same time there were massive public revenue transfers to the rich and corporations, while 20%-prime private bank lending rates squeezed public sectors and poorer people dry in an irresponsible race to the bottom. This was called “the competitive economy.”

The main effect was what the late Senator Eugene Forsey called “the greatest ever romp of the rich to skin the poor in history.” His remark was not reported in the press. Canada’s new rising homelessness, unemployment,child poverty, food banks, poor mothers, and student debt slaves are some of the predictable consequences of the life-blind war of money theocracy for ever more. As Mel Hurtig noted in Pay the Rent or Feed the Kids, official poverty in Canada, which business-funded institutes tirelessly seek to define away, has steeply risen. Families below the poverty line multiplied five times faster during the 1990s than the family population; the bottom fifth of income earners have seen their incomes drop by 31% since 1984, with even average personal incomes declining by 6% -- the biggest drop since the Great Depression. And all the while, the wealthy grew much wealthier after taxes as regulatory regimes and public sectors were scaled back.

As the predicted financial meltdown today unfolds, the very same deregulating, defunding, non-governing and tax-supported regime which is structured to enrich the richest has come back to demand trillions from the public purses of the world to keep its private money-pyramids afloat. We might recall that, last October, before Wall Street’s black hole swallowed over $700 billion of public money in a trice, Wall Street’s bank slogan was: “Nobody, including governments, are going to pay off their debts. They are just going to pay on time.” So they piled up compound-interest debt obligations from societies, poor credit-card holders, anywhere they could, until more and more citizen demand was bankrupted.

The strategy throughout was ever new financial instruments for squeezing more out to unproductive financial devices, all backed by so called “free market” governments. They refused to impose even a tenth-of-one-percent tax on financial transactions.

Silently, behind the whole redistribution of wealth from the public and the poor to the wealthiest, sits the tax system itself. It is by far the major allocator of wealth in the country, and it has been driven by an ideology of equating economic progress with the rise of private money demand and priced commodities, a measure that is perfectly consistent with the poor having ever lower standards of living than before.

Think here, as well, of the handouts of credit creation and currency to private banks in which even a 1-to-20 ratio of legal tender to back up the debt-money loaned out was called an “unfair tax on banks.” And so even this modest restraint on the banks was eliminated by a servile federal government in the early 1990s.

And think, too, of government tax breaks and subsidies to Harper’s home province tar-sands corporations which destroy native ecosystems and are the world’s biggest source of carbon gas emissions, or the military-oil complex to the south, of which we are increasingly a junior partner -- all fouling the world with tax breaks and subsidies while public benefits at all levels are slashed to single mothers, the working poor, the disemployed, and now students. To worsen this life-blind irresponsibility, the social programs that mainly benefit the most vulnerable among us -- public housing, affordable university access, public jobs, unemployment insurance, and environmental regulatory enforcement – have all been drastically cut back.

To top it all off, everyone who earns an income has been forced to join the money maximizing game with private RRSP stock speculations paid for by tax-deductions from the public coffers in place of secure public pensions. At the bottom are the poor who cannot afford any RRSPs for their retirement, and the newly poor who have had their retirement savings wiped out by the private stock markets in which they were tax-forced to invest.

As poverty from the economic crisis deepens and spreads, citizens wonder what they can do. As individuals, they are limited by their own resources, so that only public action in the end works at the system level -- and tax policies are at its core. Yet understanding of the connections between taxation and poverty at a systemic level is lacking. A system shift requires four re-sets of tax policy:

  1. No tax obligations fall on individual and family annual incomes until they exceed poverty level, with negative taxation implemented to raise all children above the poverty line.
  2. All unearned income is taxed as highly as earned income, and more as poverty rates rise to reconnect the rich to the poor.
  3. Corporate taxes are returned to pre-1980 levels and reduced only so far as their enterprise demonstrably serves the life requirements of society by producing life goods.
  4. Toxic market commodities are prohibitively taxed in accordance with their life-cycle carbon imprint, their known ill-causing effects, and their failure to ensure recycling of their packages and remains - all of which are afflictions on the poor most of all (e.g., climate destabilization, junk foods, and throwaway packaging).

Where international trade edicts block these tax reforms, as with flight capital, overdue level-playing-fieldrules of corporate and capital-gains taxation become imperative. These corporate treaty edicts which protect transnational corporate property, profit, and commodities alone -- the ultimate bias structure of the global market order – must be revised to overcome their life-blind cycles of injustice and ecological depredation.

(John McMurtry, PhD, F.R.S.C., is University Professor Emeritus at the University of Guelph and the author of Value Wars: The Global Market versus the Life Economy.)