The government is barely scratching the surface when it comes to using its taxation tools to fight against wealth inequality, according to an economist frequently cited by Deputy Prime Minister Chrystia Freeland before her political career.
Freeland’s updated mandate letter, published earlier this month, directs her to “identify additional ways to tax extreme wealth inequality.” But so far, that seems limited to “very gingerly” closing some stock option loopholes, Miles Corak said in an interview on CBC Radio’s The House.
If the government wants to make substantial efforts to reduce wealth inequality and its “corrosive” effects on social mobility, Corak told host Chris Hall, the first place to start is to stick with the taxation principle of “a dollar is a dollar” and treat income and capital gains the same way. Currently, only half of capital gains — the increase in value of investments, such as stocks — qualify as taxable income.
“That’s a huge benefit to the well-to-do,” Corak said. “That is the elephant in the room.”
Corak, a professor at the Graduate Center of the City University of New York, is best known for his work contributing to the “Great Gatsby curve” — a chart showing the relationship between inequality and lack of social mobility. That research was frequently referred to by Freeland in her former career as a journalist and author.
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Government approaches leave much off the table: Corak
But as the deputy prime minister begins consultations ahead of her first budget as Canada’s finance minister, Corak said the government’s actions may not be living up to the economic inequality challenge Freeland described seven years ago before entering politics. It depends, he said, on how the government interprets its own promises around taxing extreme wealth inequality and making the rich pay their “fair share.”
If the budget “just focuses on a very narrow interpretation of those phrases, I think a good deal will be left off the table in a way that Minister Freeland, the author, might somehow regret,” Corak said.
The idea of closing stock option loopholes and even beefing up enforcement by the Canada Revenue Agency is not as significant as the wealth tax proposed by the federal NDP or debated in the United States, Corak said.
To truly attack wealth inequality he said, more ambitious action is needed, including eliminating the taxation gap between capital gains and income, and implementing something like an inheritance tax.
The economist said Freeland was an informed observer of the challenges facing many Canadians, and she was a principled person sincerely acting to benefit Canadians.
“But she’s also a capable politician,” he said. “And sometimes in politics, where you stand depends upon where you sit. And she sits in the seat of the minister of finance.”