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Who cares about growing inequality in Harper's Canada? The Finance Committee gets an earful!

A lot happens in Parliament, aside from the theatre of Question Period and the now ritualized scrums that follow in the lobby of the House.

Some of it is sublime; some, ridiculous.

Some of it is enlightening; some, mind-numbing.

And most of it happens far from the gaze of the media or the public.

On April 25, for instance, the House Finance Committee heard from a number of expert witnesses on -- believe it or not -- the subject of inequality.

How and why -- in this time, and with the current Conservative Party in power -- a House of Commons committee decided to even talk about such a subject is a bit of a mystery.

It happened, however, and it was an exercise that might have merited a bit more attention.

The witnesses ranged from an eminent expert on tax policy and fiscal federalism, to a university professor of business who once worked in banking, to the head of the Canadian Medical Association (a doctor).

They brought very different perspectives and approaches to the big subject of inequality.

Some started with the assumption that increasing inequality is bad -- a waste of human potential, and drain on the economy -- and proposed specific tax and income support policy remedies.

Some took the personal, anecdotal approach, and told tales of their own wayward youth and up-by-the-bootstraps advance into relative affluence.

Others focused on the macro economy -- on, for example, the need, in a competition-driven, market economy, to have a certain measure of inequality in order to spur innovation and entrepreneurship.

Yet others were most concerned with the bitter social costs of poverty, the bastard offspring of inequality.

Tax policies add to inequality

Robin Boadway, a professor of economics at Queen's University, talked policy, in as detailed manner as one could in five minutes.

He told the Committee that Canada's tax system, despite being notionally progressive in its over-all architecture, is designed, in many respects, to exacerbate inequality.

"Not enough targeting exists in the system," he said, "Too many tax expenditures are going to the better off."

That odd technical economists' term "tax expenditures" refers to the raft of deductions and credits available in the tax system -- some of them quite narrowly targeted, "boutique," credits (the tax credit for kids' sports activities); some, available to the majority of taxpayers (the registered retirement savings plan).

Boadway focused on a specific tax expenditure issue, the fact that some tax credits are "refundable," meaning even low income taxpayers get the money; while others are not.

When the credit is not refundable it is returned to taxpayers as a portion of taxes they pay, or deducted from taxes owed. Low income people -- who don't pay enough tax or any tax at all -- are left out, and get nothing.

"I would make all tax credits refundable, including the current non-refundable ones," Boadway recommended, and then went further, "I would condition many of them to income, the way we condition the GST credit. I would enhance disability tax credits and make them available to all provincial disability recipients."

On tax breaks for upper income Canadians and corporations, Boadway prescribed tough medicine: "I would eliminate the dividend tax credit and make the taxation of dividends, capital gains, and interest more even. I would rationalize the corporate tax to make it distortion-free and making it a tax on supernormal profits or so-called rents."

Better family leave and using EI to lift up the poor

Boadway would also tackle the (federal) Employment Insurance (EI) program and the way it meshes with provincial welfare programs.

"I would improve the EI welfare nexus so that the transition from one to the other is smoother," he told the Committee. "Far ranging reform would be to make the EI system two-tiered, at the federal level. The first tier for a certain period of time, being like the current system which replaces lost income; the second tier for people who stay on a little longer would be based on need, and then the fallback would be the provincial welfare system. I would make training and employment services available to all workers, whether they're on EI or not. I would finance EI from general revenues, rather than financing it from the current regressive payroll tax."

Miles Corak, a professor of public policy at the University of Ottawa, had similar prescriptions for EI.

One of his suggestions is that we use EI as income support for low income workers -- allowing low income earners to work and still keep some EI benefits. Such a measure would have the corollary effect of reducing the disincentive-to-work factor of EI. The current government is also concerned about that disincentive issue, but has chosen to deal with it through a punitive approach, forcing the unemployed to move, travel great distances or accept low paying "McJobs."

Corak would also expand the use of EI to support parental leave, based on the notion that family life, especially for those with precarious and low incomes, is under great stress these days.

And, like Boadway, Corak advocates for an expanded tax base, in particular targeting income from capital. He even suggested to the Committee that it might be the time to consider an inheritance tax in Canada. Unfortunately, that may make good economic sense, but it would be poisonous politically, if past experience is any guide.

'At 18 I thought life was a big party...'

Ian Lee, of the business school at Carleton University, had an overall policy thrust, mostly focused on tying social welfare benefits to training, somehwat in the manner of Bill Clinton's welfare reforms in the USA.

But he did not present his proposals with anywhere near the same level of detail and specificity as did Boadway and Corak.

The Carleton professor used much of his time to regale Committee members with the story of his own catch-as-catch-can early life.

Lee told the MPs that he dropped out of high school while still in his teens, more than 40 years ago.

"At 18," he admitted, "I thought life was a big party and I wanted to party as much as possible."

But the Carleton professor wanted the Committee members to know he had no one but himself to blame for his youthful missteps.

"I did not drop out because I experienced low income, or income inequality," Lee explained, "That has causality running backwards. Dropping out of high school caused my subsequent low income ... because I was not qualified for higher paying jobs."

Then -- fortuitously and almost as in a Dickensian tale of fate and coincidence -- Lee got an entry level job with a large USA company that changed his life.

"They proceeded to train me ... and I eventually became branch manager at 24,” he recounted.

More to the point, Lee said, his employers gave him a shot at higher education, by offering to reimburse him for university courses that he passed.

"I started at 20, and graduated in 10 years ... at the age of 30. And then, partly because of the training and the education, I was recruited by the Bank of Montreal where I became a mortgage manager."

The moral of all this, said Lee, is that "education is the most radical, liberating force in the world."

When we worry about inequality, Lee argued, we should not focus so much on redistribution of income, but rather on the "levelling up" potential of post-secondary education.

Education, he intoned, is "the most effective policy of all in addressing inequality."

As an aside, Lee wanted to make a point of singing the praises of capitalism, or, as he prefers to call it: the market economy.

He cited the work of University of Illinois historian and economist Deirdre McCloskey, who has posited what she calls "the great fact."

"After thousands of years of humans around the world living on a dollar a day, almost overnight we went to 150 dollars a day in today's dollars, after 1800."

Then, Lee admiringly cited Mcloskey's perhaps startling conclusion: "The poor have benefited the very most from the market economy."

Words to live by, on $600 per month.

'Distorting incentives' versus health outcomes

Subsequent presenters, such as Michael Holden of the Canada West Foundation, were somewhat more prosaic and less entertaining than Lee.

Holden focused on Aboriginal poverty and proposed addressing it through on-reserve economic development.

He also talked about the need to assure continued "labour mobility." We have to recognize, he argued, that in some parts of Canada, notably Saskatchewan, there are near-severe labour shortages.

"Policies that address income inequality must not impede labour mobility," Holden cautioned the Committee members.

The CEO of the Conference Board of Canada, Daniel Muzyka, echoed Holden's argument.

"Poorly designed efforts to reduce inequality could distort incentives and undermine growth," he warned, "One needs a win-win policy implemented over time."

But the witness who represents one of the highest earning groups in Canada -- medical doctors -- Anna Reid, President of the Canadian Medical Association (CMA), did not share the relatively stand-pat views of Lee, Holden and Muzyka.

Reid was not particularly worried about the distorting impact on incentives and growth that might result from measures to combat inequality. She was far more concerned with the devastating effects the current level of inequality has on the health and well-being of millions of low income Canadians.

The CMA President started by saying that the effectiveness of the health care system together with biology and heredity only account for about half of the totality of health outcomes -- outcomes which are measured by such indicators as incidence of disease, life expectancy, and rate of use of the health system.

"Having a much greater impact," Reid said, "Are factors such as the state of a person's housing, whether people get enough to eat, how educated they are and what kind of experiences they had in their early childhood."

These social determinants of health, she explained, account for fully half of health outcomes and "the most influential of these determinants is income."

She continued with a dreary list of ways on which being poor is bad for one's health.

"The poor experience higher rates of suicide, mental illness, disability, cancer, heart disease, and chronic illnesses such as diabetes," she said, "We know that the poor are 1.9 times more likely to be hospitalized. The poor are three times less likely to fill prescriptions and 60 per cent less able to get needed tests because of cost. And the poor live shorter lives."

Reid built up to an almost common-sense conclusion, but it was one that seemed very far from the cool and detached discourse of a number of the witnesses.

"Economics are important," she allowed, "[But] so too are fairness, dignity, and compassion. Canada's doctors are concerned that as a nation we are not doing enough to address these factors."

Wealthiest to median: ratio of 248,744 to 1

A few days after this Committee meeting, the Canadian United Food and Commercial Workers (UFCW) published a document called: "By the Numbers: the growing wealth gap -- billionaires and the rest of us."

"Canada's richest person," the UFCW reported, "Is David Thomson, with a net worth of $20.3 billion, which means he has 248,744 times more individual wealth than his fellow Canadians, whose median wealth is $81,610 per adult."

Now, the UFCW is talking about total wealth here (including one's home), not annual income. The median Canadian income is way lower than eighty odd thousand dollars per year.

The union's report added that in 2012 the net worth of the world's "super rich" increased by 16 per cent, "at a time," the union said, "when all major types of wealth [for the majority] ... were down."

As for annual income, the UFCW compared the mid-twentieth century situation to today.

In 1950, it said, top executives earned 24 times the average worker's pay.

Forty years later, in 1990, top executives earned 122 times the average worker's pay.

Most recently, in 2009, it was 550 times.

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