OECD Concerned Over Income Inequality

Economic think tanks echo Occupy protest concerns
April 30, 2014 10:59 pm Last Updated: April 30, 2014 9:06 pm

Occupy protesters probably weren’t expecting status-quo economic groups like the IMF and OECD to back up claims that inequality was a growing problem.

Now, the disgruntled “99 percent” that took over Wall Street in 2011 and inspired similar protests in Canadian cities are hearing their concerns raised by a growing list of influential groups.

The Organization for Economic Co-operation and Development released a report Wednesday that finds Canada’s highest earners have seen their income rise more quickly than other Canadians. The group prescribes measures, including tax changes, to equalize incomes.

The top one percent of income earners took 37 percent of total income growth in Canada over the past 30 years, says the OECD. The figure climbs to 47 percent in the U.S. and falls to 20 percent for Australia and the U.K.

The OECD paper suggests that the rapid rise of the salaries in the financial sector could have prompted other sectors to raise their top salaries. It notes the income gap is more pronounced in English-speaking countries.

A major factor for the jump, however, is that taxes have dropped for the most wealthy, including net wealth and inheritance or estate taxes. Canada repealed its estate taxes in 1972, the same year it brought in capital gains taxes. Capital gains taxes now include substantial exceptions. 

Falling Taxes

But overall, taxes have fallen dramatically. The Chartered Professional Accountants detailed that change in a June 2011 article in its magazine: “In 1972, the top personal tax rate was close to 70 percent, when taxable income reached $60,000.”

Today, the combined top personal tax rate is between 39 percent and 54.7 percent (depending on the province) and the top income bracket is $136,270, far below 1972 rates when calculated for inflation.

The Bank of Canada’s inflation calculator says $60,000 in 1972 is around $347,000 today.

Meanwhile, corporate taxes have been slashed in half over that time, from 52 percent to a combined provincial/federal rate of around 25 percent.

Income inequality has become a major concern in recent years. Nasa’s Goddard Space Flight Center helped fund a University of Maryland study which found that inequality could lead to the collapse of global industrial civilization because the wealthy use too many resources.

“While some members of society might raise the alarm that the system is moving towards an impending collapse and therefore advocate structural changes to society in order to avoid it, Elites and their supporters, who opposed making these changes, could point to the long sustainable trajectory ‘so far’ in support of doing nothing,” reads the study.

Parliament’s finance committee studied income inequality for three days late last year, but in its subsequent report the presiding government majority downplayed the issue and laid out recommendations generally in line with existing policies. Those include promoting the resource sector and keeping taxes low. 

The NDP’s dissenting opinion contained in the report noted the study was limited to equality of opportunity and did not study the broader issue of income inequality, which the NDP said was “spiraling out of control.” 

The NDP called on the government to “look to the historical and ongoing causes of escalating income inequality.”

In a move that surprised many, recently the International Monetary Fund also called attention to the issue of income inequality. The IMF is worried income inequality could lead to social and economic instability.