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  September 28, 2011

Rich Getting Richer in Ontario


Hugh Mackenzie: From 1992 to 2007, 90% of the income gain in Canada went to the top 1% while their effective tax rate went down
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biography

Hugh Mackenzie is principal in an economic consulting business, Hugh Mackenzie and Associates, based in Toronto. He has worked for over 30 years in a variety of capacities related to public policy development in the trade union movement, the private sector, and at all three levels of government. He is a Research Associate of the Canadian Centre for Policy Alternatives and of the Centre for Urban Studies at the University of Toronto. He is a nominee of the Ontario Teachers Federation on the Board of the Ontario Teachers Pension Plan, the nominee of AMAPCEO on the Ontario Pension Board. He is a former member of the Actuarial Standards Oversight Committee of the Canadian Institute of Actuaries. He is a member of the Pension Investment Advisory Committee of the Canada Post Pension Plan and Chair of the Atkinson Charitable Foundation. From 1991 to 1994, Mr. Mackenzie was Executive Director of the Ontario Fair Tax Commission. He is a graduate of the University of Western Ontario and holds a Masters degree in economics (public finance) from the University of Wisconsin (Madison).


transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Toronto. In the United States, there's a fierce fight taking place over who will pay taxes and how much. And Obama administration itself is finally actually saying the rich should pay more taxes. Of course, they don't want to use the word rich, 'cause that implies there might be classes in the United States, so they say fortunate people should pay more taxes. But at any rate, at least they're debating whether wealthy people should pay more taxes or not. There's an Ontario election coming up on October 6, and, no, there's not a great fight taking place about whether wealthy Ontarians should pay more taxes. Why is that? Well, now joining us to help us understand all this better is Hugh Mackenzie. Hugh is a research associate at the Canadian Centre for Policy Alternatives. Thanks for joining us.

HUGH MACKENZIE, RESEARCH ASSOCIATE, CANADIAN CENTRE FOR POLICY ALTERNATIVES: Thank you.

JAY: So you've been following taxes in Canada a big part of your life.

MACKENZIE: Yeah, unfortunately.

JAY: So talk about--we know about the income disparity and the growing gap that's taking place in the United States between the top one or two percentile and everybody else. Has that been happening in Ontario? Why don't we start there?

MACKENZIE: Absolutely it has. The disparities aren't as extreme as they are in the United States, but the direction of the change, the vector, if you want, is exactly the same. Income inequality is growing in Canada just as it is in the United States. And the interesting thing is that both in the United States and Canada it's exactly the same driver. What's being driven by--what's driving the growth and inequality now is very different from any other period where inequality has grown. What's driving growth and inequality is growing disparities in wage and salary income. It's people who are paid very, very high salaries in both Canada and the United States. I mean, the poster child for it is the growth in CEO salaries, but there's a huge gap now between the salaries that the very wealthy--the very fortunate, to use the term that they use in the United States--earn and everybody else.

JAY: And not just salaries; I mean, coupon clipping, and the amount of accumulated wealth through various bubbles, and people that have been able to play the bubbles correctly.

MACKENZIE: Absolutely. But as I said, what's really interesting about this is that that's always been the case. What's really--what's really the engine now is stuff that appears, at least in the national accounts, as wage and salary income. Now, an economist will tell you that a lot of what a CEO makes is actually income from capital, but it shows up as wage and salary income and it shows up in these huge disparities in salary [crosstalk]

JAY: So the gap between higher wages and lower wages is growing.

MACKENZIE: It just exploded, in both Canada and the United States.

JAY: So what's happening on the tax side? Which--supposedly it's supposed to deal with some of that.

MACKENZIE: Well, frankly, in Canada we are way behind the United States, both in debating the phenomenon of the growing gap and in any conversation about doing anything about it. So whereas even a couple of years ago you had people in the context of the debate about what to do about bank bonuses and that sort of thing, you had this debate taking place in The Wall Street Journal or The New York Times about whether there should be regulation of banks' salaries or whether you should simply just [incompr.] bank presidents' salaries, where you should just tax it away. And, you know, the tax-it-away folks were winning that argument. In Canada there's been no such debate. And, in fact, nothing has really interfered in Canada with this basic nostrum that taxes is one of those third rails in politics, that you just don't step on it, that as soon as you talk about increasing anybody's taxes, people perceive it as talking about raising their taxes, and they don't want to hear about it. And so it's just not on the agenda.

JAY: So what are some of the numbers that represent the gap?

MACKENZIE: Well, a couple of my favorites are that in the period from 1992 until 2007, so that 15-year period, something like 90 percent of the gain in income in Canada went to the highest income--1 percent of Canadian income earners. So there's been a huge expansion in inequality. That's one of my favorite examples. The other--my other favorite factoid, if you want, about income inequality is that over that same period, the effective tax rate on people right at the top of the income scale has actually gone down, and the effective tax rate of people on the bottom has gone up.

JAY: For example?

MACKENZIE: Pardon me?

JAY: What's--how--what--.

MACKENZIE: Well, the effective tax rate on--it dropped about 6 percentage points. The effective tax rate on the people right at the top of the income scale was about 36 percent in the early 1990s. It's now around 30. At the bottom end of the scale, the effective tax rate was probably in the neighborhood of 15 to 20 percent, and it's gone up by 2 or 3 percentage points. So there's been a--so the tax system, in fact, is just reinforcing that trend towards greater inequality.

JAY: So in Toronto, municipally, we have--there is a right-wing populist mayor who's talking about cutting libraries and local zoos and all kinds of things because of the fiscal deficit. We're told at the Ontario level the debt is a problem, and the Conservatives are running talking about cuts to various kinds of things. Where is the debate about raising taxes so that there's more revenue to pay for this? I must say that whatever one thinks of President Obama and what he's done (and on The Real News we've been pretty critical about all of that), there's nothing here. The--even at the NDP, you don't hear anything about how you need higher taxes on the wealthy, coming from what's supposed to be the social democratic party.

MACKENZIE: Right. Well, there's one--there's one really bizarre underlying phenomenon that's going on in the Ontario election that I found just sort of drilling into some of the data from the parties' costings of their platforms. There's a curious thing that's happening. There's kind of an agreement to have a truce about the deficit amongst the parties in Ontario. The government, the Liberal government, at budget time published a five-year projection showing how the deficit was going to gradually go down over the next five years. And all three parties have adopted the same target. So it's as if they've had an agreement that we're not going to debate the deficit; we'll yell at each other before the election starts, but as soon as the election starts, we're not going to talk about that. So why is that the case? Well, I think there's a very simple reason why, because as soon as you say, I don't like your deficit target, I think you should be raising it, I think you should be eliminating the deficit more quickly, it begs the question, well, what are you going to do? There's only two things that you can do. You can either raise taxes, which nobody wants to do, or you cut services, which nobody wants to talk about. So there's this kind of agreement that we're not really going to have a debate about anything important. It's really bizarre. And one of the things that's kind of reinforced this desire not to have this discussion about the deficit is what's going on at the municipal level in Toronto, because what's happening here is that we're getting, live and in color and in real detail, what actually happens when those bromides about, well, we can be more efficient and we can make--we can balance the budget without laying anybody off and without cutting services, at the local level, you can't hide behind those bromides when you start actually doing stuff. And so what's happening is that people are seeing, live and in color, what that actually means.

JAY: What are some examples?

MACKENZIE: Well, for example, it turns out that there isn't a gravy train. It turns out that there isn't a whole lot of fat in the system. It turns out that if you want to save millions instead of tens of thousand of dollars, you actually have to cut things that people notice. And I think of all the politicians that are running in Ontario right now, the one that's most damaged by that is Tim Hudak, the leader of the Conservative Party, because he's issuing exactly the same bland bromides that Rob Ford, the mayor of Toronto, did when he was running for election a year ago. He was saying, oh, there's a lot of fat in the system, and we can save a lot of money here, and we can save a lot of money there, but no, we won't have to lay anybody off and we won't have to do anything bad; you won't really--.

JAY: No cuts to health care.

MACKENZIE: Yeah, no--you won't really notice anything. And meanwhile, you've got this--you've got the reality check going on at the municipal level in Toronto, and I think it's really damaging him, even to--. [incompr.] I did a piece a couple of days ago in which I characterized Tim Hudak as sneaking in and out of Toronto like a secret agent, hoping that nobody notices that he and Rob Ford might have had anything to do with each other.

JAY: You wrote a piece. I think the title was something like it's time to have an adult conversation about taxes.

MACKENZIE: I'm still waiting.

JAY: Yeah, we're not hearing that in this election.

MACKENZIE: That's for sure. We are not hearing it in this election. And, in fact, we're seeing something quite bizarre, I think, in this election. We're seeing--first, there's a couple of very strange things. One is that if you measure the size of a platform or the ambition of a platform by the total amount that it's going to cost, either in reduced revenue in the case of tax cuts, or on the expenditure side by increased spending, by far the biggest platform is the Conservative Party's platform. It's--the Conservative Party's platform is as big, measured in those terms, as the NDP and Liberal platforms combined.

JAY: In terms of how much they'll spend?

MACKENZIE: In terms of how much impact they're prepared to have on the province's fiscal capacity. Now, in the case of the Conservatives, most of that money is going into big-ticket tax cuts. But just if you'd sort of measure it as how ambitious are these people being in this campaign, the Conservatives are clearly being more ambitious in the campaign than the other parties are. The other thing that's very strange about this is that half of the NDP's platform, measured by value, is tax cuts. Strikes me as kind of strange for a social democratic party.

JAY: A little similar to the underlying logic of the Conservative platform.

MACKENZIE: Yeah. Yeah. Exactly.

JAY: The--there's a debate going on in the union movement about whether or not to support the NDP or whether to do what they call strategic voting. The Steelworkers and CUPE are campaigning for NDP candidates. Autoworkers and some others are saying, no, decide which can win in your riding, Liberal or NDP; do whatever you can to stop the Conservative. What's your sense on that? I mean, the CAW position is essentially there's not enough difference between the Liberals and the NDP to vote NDP, even if it might mean a Conservative victory in your riding.

MACKENZIE: I've always felt that that debate, which is sort of kind of--it's kind of the quintessential debate about politics in Ontario on the left. I've always thought that that was a bit--a lot of sound and fury that didn't really mean very much, because in practical terms, the unions that say that they're going to support the NDP and not support the Liberals, they don't put their resources into NDP campaigns across the province; they put their resources into the NDP campaigns that they think will win. They focus their resources. They're strategic in the way they use their resources. So I'm not sure that there's that much practical difference between those things. I mean, you obviously don't have--you don't have the headline of, you know, unions supporting both parties, depending on where they are, but in practical terms in what people actually do on the ground, I don't know that it really makes that much difference.

JAY: And do you think there'll be a significant difference with--if you have a Conservative government, people are pointing to the previous Harris government, which our younger Ontarians don't even really remember.

MACKENZIE: Yeah, no, except they remember how much fun it was to be a student in the school system when Mike Harris was premier.

JAY: So how's--given today's politics and this Conservative Party, how legitimate is that concern that this government could be another Harris government?

MACKENZIE: Well, it depends how you--I mean, if you assess it without the probabilities, if you just look at what would these guys be likely to do if they did get elected--so let's assume that they do--I think these guys are every bit as much of a disaster as Harris would have been. The difference is that I think the probabilities are very, very different. Tim Hudak's campaign has been an absolute walking disaster. And I've described Dalton McGuinty as a very lucky man. His--the opponent that he's worried about has had just a disastrous campaign. Hudak wasted the first week and a half of the campaign trying to make a wedge issue out of assisting--assisting immigrants in getting their first job in their profession in Canada, and ended up spending half that first week and a half explaining to people that that didn't make him anti-immigrant. And then the campaign got so upset about the fact that he'd done that that they put the wraps on it, and, you know, the campaign got disciplined. So all of a sudden Tim Hudak started to sound like a robot, going around the province, giving the same answer to every question, no matter what it was. And then, just when he started to kind of come out of that shell and they started talking about what they wanted to talk about, the wheels came off Rob Ford's bus. And so now, everywhere he goes, people are asking him, well, are you going to ask for the endorsement of Mr. Ford? And, I mean, he just--you know, he can't win for losing. And then you've got--content doesn't matter. This--.

JAY: Yeah. Well, we're in the midst of a global economic meltdown. The markets are crashing. Europe's unraveling. If you look at the stock markets--and the logic for the crash in the stock market in the financial pages of various papers, it's because they're worried about a deep recession and a lack of real demand. And you wouldn't know any of that's taking place in the Ontario elections.

MACKENZIE: No, no, exactly. And here's the perfect symbol of that, here's the perfect symbol of how weird things are. One-third of the funding required to pay for the Liberals' platform comes from improving their economic assumptions from March. Now, how bizarre is that?

JAY: That's pretty bizarre.

MACKENZIE: And none of the other parties is challenging them.

JAY: 'Cause they're probably using somewhat similar assumptions.

MACKENZIE: Because--well, there you--but they're using assumptions that really aren't materially different. I mean, the Tories and the--the Tories--the NDP is quite straightforwardly saying, we're just using the projections in the budget. The liberals are saying, we're using the projections in the budget, except things--except we're tweaking them upwards a little bit. And the Conservatives are saying, we're using the projections of the budget, and we're tweaking them upwards a little bit, just not quite as much upward as the Liberals. So they're all basically saying, well, things are just fine, they're just like they were in March. I don't know that there's anybody out there who thinks that, but that's what's going on.

JAY: Crazy.

MACKENZIE: It's very weird.

JAY: Crazy piece of theater. Three parties fiddle while the global economy is burning, and you wouldn't know it.

MACKENZIE: Well, it's sort of like--it's sort of like they have an agreement not to talk about anything important.

JAY: About the real world.

MACKENZIE: Yeah.

JAY: Thanks for joining us.

MACKENZIE: Okay.

JAY: Thank you for joining us on The Real News Network. Don't forget: we're viewer-funded. So if you don't click on the donate button over there, we can't do interviews like this.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.



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