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The Context of “Flat Tax” in Canada - 2008
Lars OsbergEconomics Department Dalhousie UniversityACEA – October 24, 2008
30 years of no Growth – for most!
1976
1977
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Real Family Incomes in Canada 1976-2006 20th, 40th, 60th & 80th Percentiles ($2006)
CANSIM v25731821 - v25731824
20th %ile40th %ile60th %ile80th %ile
Income Trajectories of High Income Canadians 1982-2005 Murphy, Michaud &Wolfson Statistics Canada IARIW 30th General ConferencePortoroz, Slovenia, August 24-30, 2008
“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
Absolute Change in Income Shares for Various Total Income Quantiles Between 1982 and 2005
0.1% 0.2%
-0.3% -0.5%-0.7%
-0.9% -1.1% -1.2%-1.5%
-1.8%-2.2%
6.5%6.5%
1.1%
5.5%
2.5%2.9%
1.8%
1.2%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
1 2 3 4 5 6 7 8 9 10
11
12
13
14
15
16
17
18
19
20 All
Tri
mm
ed
All
Tri
mm
ed
All
Tri
mm
ed
To
p .
01
Vingtiles Top5
Top1
Top.1
Top.01
Total Income Quantile Group
Ab
so
lute
Ch
an
ge
in
In
co
me
Sh
are
Source: Statistics Canada, Special Tabulations from the LAD.
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
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
Rising share of top 5%- a post 1995 issue ?THE EVOLUTION OF HIGH INCOMES IN CANADA, 1920-2000 Emmanuel Saez Michael R. VeallWorking Paper 9607 http://www.nber.org/papers/w9607
Only the top 1% has increase in income share in Canada !THE EVOLUTION OF HIGH INCOMES IN CANADA, 1920-2000 Emmanuel Saez Michael R. VeallWorking Paper 9607 http://www.nber.org/papers/w9607
Marginal Income Tax Rates in Canada: 1920-2000Top Incomes Over the 20th Century: A Contrast Between Continental European and English-Speaking Countries by A.B. Atkinson and T. Piketty Oxford University Press, 2007,
Canada: “both inequality and poverty rates have increased rapidly in the past 10 years, now reaching levels above the OECD average. “OECD (2008), Growing Unequal? : Income Distribution and Poverty in OECD Countries October 2008
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
Income & CorporateTax – only progressive elements in tax system
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
“Flat Tax” – “them that has, keeps”
Changes in real income- far larger in top percentiles 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
Percentage Change in Real Income 1982 to 2004
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
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 to99%
top 1%
Individual % change
Family % change
Income Tax data show increase in income share of top 1% of families of 3.4 percentage points in twelve years 1992-2004 – a very large change in historical context !
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.
The BIG NEWS in Canada & USA – sharply rising income share at very topTHE EVOLUTION OF HIGH INCOMES IN CANADA, 1920-2000 Emmanuel Saez Michael R. VeallWorking Paper 9607 http://www.nber.org/papers/w9607
Lessons from Canadian Income Tax data
THE EVOLUTION OF HIGH INCOMES IN CANADA, 1920-2000 Emmanuel Saez Michael R. Veall Pp. 226-227 in A.B.Atkinson and T. Piketty Top Incomes in the 20th Century Oxford University Press 2007
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 Quintile1980 - 2005
CANSIM v21188957-v21188962 ; After-tax income; Adjusted average (2005 Dollars)
0
10000
20000
30000
40000
50000
60000
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80000
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
2005
$
Average
bottom 20%
quintile 2
quintile 3
quintile 4
top 20%
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