Focus on income inequality misguided

Raising taxes on high-income individuals will not promote the welfare of Nova Scotians

HALIFAX, NS, Apr 25, 2014/ Troy Media/ – Policies that promote economic growth and job creation will help low- and middle-income Nova Scotians more than misguided efforts to reduce inequality by raising taxes on high-income individuals.

Protestors in New York City launched Occupy Wall Street in 2011 to lament inequality between individuals in the top 1 and bottom 99 per cent of the income distribution. The movement garnered support from economists, policymakers, and public intellectuals, many of whom advocated raising taxes on affluent individuals and redistributing their wealth.

In A Budget for the 99%, for instance, the Canadian Centre for Policy Alternatives (CCPA) suggests that inequality in Nova Scotia is responsible for the province’s underwhelming economic performance and urges policymakers to take measures against it. Specifically, they recommend higher tax rates for the province’s wealthiest and greater union presence in the labour force. This assumes that wealthy individuals and families have benefitted in recent years at the expense of everybody else. There is clear evidence, however, that living standards increased for the majority of Nova Scotians – not just the rich.

The data indicates that average Nova Scotians have higher incomes today than 30 years ago. Median after-tax income, adjusted for inflation, for example, grew from $14,200 in 1976 to $25,100 in 2011; for families with two or more persons, it increased from $48,200 to $61,100. In fact, 40.5 per cent of individuals in 1976 had incomes above $20,000, yet, in 2011, 60.2 per cent had an annual income exceeding that amount. There has also been progress for those at the bottom of the income distribution: the percentage of persons considered “low income” dropped from 18.5 to 13.5 per cent and the share of individuals with incomes below $10,000 declined from 39.5 to 19.9 per cent.

There is more concern about whether differences between individuals in the top 1 and bottom 99 per cent of the income distribution stifles economic growth and suppresses the latter group’s material wellbeing. As the CCPA emphasizes, median after-tax income grew faster at the top of the income distribution than the bottom. The effect of this development, however, remains unclear, and obsessing over it distracts from recognizing that economic growth produced income gains and improved living standards for most of Nova Scotia’s population.

This is further borne out by evidence from other provinces, especially in Western Canada, where income gains at the top of the economic spectrum outpaced those at the bottom in the last three decades. Rising inequality in these provinces did not preclude them from achieving strong economic growth that also significantly benefitted those at the bottom of the income distribution.

Alberta’s experience reflects this pattern. Between 1982 and 2011, the income gap between the top 1 and bottom 99 per cent remained larger and widened faster than in Nova Scotia. Furthermore, income growth of Alberta’s top 1 per cent was threefold the rate in Nova Scotia. During this period, however, Alberta’s economic growth rate was 3 per cent and its unemployment rate was 6.7 per cent. Interprovincial net migration also averaged 8,985 annually, as people flooded into the province to participate in the benefits of growth. By comparison, Nova Scotia’s economy grew roughly 2 per cent per year, unemployment remained in the double-digits, and interprovincial net migration was negative.

Median after-tax income in Alberta grew from $20,100 in 1976 to $33,300 in 2011; for families with two or more persons, it increased from $62,300 to $83,800. Low-income incidence also dropped from 11.1 per cent to 8.2 per cent and the percentage of individuals with incomes below $10,000 declined from 33.9 to 15.5 per cent. If the CCPA were correct in hypothesizing that inequality is “bad for the economy and democracy,” Alberta, and British Columbia – two of the most unequal provinces in Canada – should be on the brink of economic collapse and Nova Scotia – where inequality is second lowest in Canada – should be booming. However, income inequality, at least in the Canadian context, did not weaken economic growth or deteriorate living standards for low-and middle-income individuals in the more unequal provinces.

Obsessing over the income gap between individuals in the top 1 and bottom 99 of the income distribution does little or nothing to promote the welfare of Nova Scotians. Creating opportunities for businesses and entrepreneurs to flourish by lowering taxes, reducing the regulatory burden, and implementing policies that promote job creation are the most effective avenues for raising living standards and increasing the wealth of low- and middle-income individuals and families.

Shaun Fantauzzo is a policy analyst at the Atlantic Institute for Market Studies (www.aims.ca)

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0 Responses to "Focus on income inequality misguided"

  1. Avatar
    GlenCoco   May 1, 2014 at 9:48 pm

    It appears that you’re arguing against a strawman. The claim is not that income inequality makes a state/province/nation poor or “be on the brink of economic collapse”, but that, among other things, it slows growth. It’s what BC, Alberta, or Nova Scotia would be like otherwise that you need to compare against.
    Similarly, the argument that income inequality enriches the wealthy at the expense of the poor does not require that the inflation-adjusted income of the poor to decrease relative to their former position while the wealthy see an increase. Obviously, if the income distribution today was the same as that in 1982 and the GDP had grown similarly, the poorer would be better of than they are in the current distribution of income. 

    That does place a burden of proof on those who rail against income inequality being bad for the economy. They need to demonstrate that the claim that economic inequality slows growth bears out, which isn’t easy. Similarly, they need to demonstrate that restricting the growth of economic inequality doesn’t hinder more than help economic growth. There are economists attempting to do this.
    In any case, even if you had demonstrated that income inequality doesn’t harm economic growth by looking at three provinces, you don’t get to make the jump from correlation to causation and argue for measures that may increase inequality. That’s just terrible logic.

    Finally, you’re arguing against only one aspect of the issue with income inequality. Income inequality has been linked to poorer health outcomes, weakening social cohesion, and increases in crime. I don’t think it is a leap to link health, social cohesion, and crime rates to the welfare of Nova Scotians.

  2. Avatar
    Finewine69   May 5, 2014 at 5:18 pm

    Amazing tat you’d take that line Shaun, as it’s been disproven over and over by empirical evidence.   But voodoo neoliberal ideology is never confused by evidence and facts.

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