The Conference Board of Canada (2014) is concerned that income inequality in Canada has increased over the past 20 years. Since 1990, the richest group of Canadians has increased its share of total national income, while the poorest and middle-income groups have lost ground.
The same phenomenon is also happening in the United States. For example, the Economist reported that the democratization of living standards has masked a dramatic concentration of wealth over the past 30 years, on a scale that matches, or even exceeds, the first Golden Age. Including capital gains, the share of national income going to the richest 1% of Americans has doubled since 1980, from 10% to 20%, roughly where it was a century ago. Even more striking, the share going to the top 0.01%, some 16,000 families with an average income of $24M, has quadrupled from just over 1% to 5%. This is a bigger slice of the national pie than the top 0.01% received 100 years ago (The Economist, 2012).
This paper will attempt to investigate the concept of income inequality in Canada and, as such, will address the following two objectives: firstly, to show that income inequality has increased over the last years between the rich and the poor, and secondly, what measures are used in Canada in order to diminish income inequality.
In the first part of the paper we will present data on the taxpayers' share of income and taxes in Canada. The second part will cover income and wealth inequality on OECD countries before and after social transfers. In the following section, we will use health care in Canada as an example of income distribution. In the last two sections, we will try to identify who pays for health care by presenting the tax bill for each Canadian based on his/her income and the federal transfers to the provinces to fight income inequality and support social programs such as health care. We will finish with a conclusion.
TAXPAYERS' SHARE OF INCOME AND TAXES IN CANADA
An analysis of the most recent Statistics Canada survey on market, total and after-tax income by economic family type shows that in general, Canada's richest 20% of families takes over 50% of all income. To that effect, we are presenting three tables from Statistics Canada that covers the period from 2007 to 2011 (see Tables 1-A, B, C). These tables ranked the taxpayers by the value of their income on a specified income concept (Market, Total, or Aggregate tax paid). Then, the ranked population is divided into five groups of equal numbers of units, called quintiles. The concept of income covers income received while residents of Canada, or as relevant for income tax purpose in Canada. Market income is the sum of earnings from employment and net self-employed, net investment income, private retirement income and the items on other income. Total income refers to income from all sources including government transfers and before taxes. Table 1-A presents the distribution of Market income in five quintiles for the years 2007 to 2011. For 2011, the highest quintile earned 52.3% of the total Market income earned in Canada, and the lowest quintile earned approximately 1% of the total Market income, showing that income is not evenly distributed. For example, in 2011, the two highest quintiles earned 77.2% (24.9% + 52.3%) of the Market income, and the three lowest quintiles, or 60% of the population, earned 22.8% (1.0% + 7.2% + 14.6%) of the total Market income. We can also observe an increase in inequalities in income distribution from 2007 to 2011. The highest quintile saw an increase in the Market income compared to the two lowest quintiles in which a decrease could be observed.
Table 1-B shows the Total income distribution, which includes government transfers to the lower incomes, and it is slightly more distributed. For example, in 2011, the highest quintile earned 47.2% of the Total income, compare to 52.3% for the Market income (Table1-A), and the lowest quintile earned 4.1% compared to 1% for the Market income. Government transfers and credits for the families and the unprivileged can explain a better distribution of the Total income as compared to the distribution of Market income.
These tables have shown that income distribution is not distributed evenly between all quintiles, with the highest quintile earning a higher percentage of the Total or Market income. However, the tax system in Canada tries to share wealth between taxpayers by imposing a graduated tax rate system, with higher tax rates for a higher level of income. We will see later in this paper that the tax system tries to overcome income inequality by way of government transfers and social programs.
Table 1-C presents the share of the Aggregate income tax paid by each quintile. The highest quintile share of the tax paid was 61.6%, compared to approximately 0.9% for the lowest quintile. The two highest quintiles, 40 percent of taxpayers, paid 83.7% (22.1 + 61.6) of the tax, and the remaining 60% of taxpayers paid 16.3%, showing that the highest earners paid a large share of the income tax. As we can recall from table 1-A, the highest quintile earned 52.3% of the total Market income but paid 61.6% of the Aggregate income tax.
These tables support the views that Canada's richest families account for a large percentage of all income. Studies on wealth show similar results. As you move up the income ladder, the wealth gap is even greater. The Canadian Centre for Policy Alternatives (CCPA) reported that over a 13 year period, there has been a pronounced increase in wealth in Canada, but that wealth has flowed into the hands of a concentrated few. Almost 70% of all Canadian wealth belongs to Canada's wealthiest 20%. Moreover, for every new dollar of real wealth generated in Canada since 1999, 66 cents of that dollar has gone to the wealthiest 20% of families. For every new dollar in real wealth generated in Canada since 1999, the upper middle class reaped 23 cents, while the bottom 60% of families had to settle for the last dime.
As reported in the CCPA document, the level of wealth inequality in Canada has reached such extremes that in 2012, according to figures derived for Canadian Business magazine, the 86 wealthiest Canadians (and families) held the same amount of wealth as the poorest 11.4 million Canadians combines (Canadian Business magazine, 2012; Canadian Centre for Policy Alternatives, 2014).
However, income is only a partial measure of social welfare....