The decline of the 1% in Canada
Ever since the Occupy Wall Street movement in 2011, there has been an ongoing preoccupation with the share of total income earned by the top one per cent. The impression one gets is that the top one per cent’s share of total income is increasing dramatically, at the expense of everyone else. What has been largely overlooked is that even as Canadian Occupy protesters held up signs decrying the alleged rise of the one per cent, the share of income earned by the one per cent was already on the decline in Canada.
Let’s look at recently released Statistics Canada data to see what’s really happened. The share of market income (income before taxes and government transfers) earned by the top one per cent has been falling for the better part of a decade. After peaking in 2006, the share of the one per cent has steadily declined from 13.7 per cent to 11.6 per cent in 2014 (last year of available data). Even using other measures of income (such as total and after-tax income), the share earned by the top one per cent has decreased.
This is completely at odds with much of the prevailing rhetoric, which is used to argue for economically damaging government policies such as higher taxes on highly skilled, educated workers. For instance, the federal government’s new top personal income tax rate of 33 per cent was recently introduced in part as a response to the perception that a greater share of income is going to the one per cent. Same goes for many provincial increases in their top rate.
For example, in 2014 the Ontario government added a new provincial top tax rate of 20.5 per cent. Combining this with the new federal top rate has resulted in a combined top personal income tax rate of 53.5 per cent. This rate is the seventh highest among 34 industrial countries and the highest among English-speaking countries.
It’s a serious problem because high personal income tax rates discourage people from working hard, expanding their skills, investing, and being entrepreneurial. High taxes also make it difficult for Canada to attract and retain highly-skilled workers.
Given the economic costs that come with a higher top tax rate, it’s unfortunate that increasing the top tax rate is partly motivated by the misperception that the top one per cent’s share of total income is rising. Government policy should be based on facts—not on false perceptions.
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