richest 1 percent
TRANSCRIPT
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December 2010
THE RISE OF CANADASRICHEST 1%Armine Yalnizyan
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isbn 978-1-926888-30-9
Canadian Centre or Policy Alternatives
410-75 Albert Street, Ottawa, on k 1p 5 e 7tel 613-563-1341fa x 613-233-1458www.policyalternatives.cawww.growinggap.ca
Acknowledgements
The author wishes to acknowledge the generous support of Mike Veall, of McMaster University. He shared the data used in his 2005 study with EmmanuelSaez, and more recently updated, unpublished data for Canada. He reviewedthis analysis for its technical accuracy, as pertains to these shared data. Anyremaining errors or omissions are the authors responsibility. The author alsowishes to thank John Myles of University of Toronto noted expert on incomeinequality, and Canada Research Chair for his review and comments
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3the rise of canadas richest 1%
Executive Summary
this generation of rich canadians s stak ng cla m to a larg r shar o
conom c growth than any g n rat on that has pr c d d t n r cord d h story. An
examination o income trends over the past 90 years reveals that incomes are as con-
c ntrat d n th hands o th r ch st 1% today as th y w r n th Roar ng w nt s.
And v n th n, th Canadas l t d dnt p r nc as rap d a growth n th r n-
com shar as has occurr d n th past 20 y ars.
Canadas richest 1% 1 the 246,000 privileged ew whose average income is
$405,000 took almost a th rd (32%) o all growth n ncom s n th ast st grow-
ng d cad n th s g n rat on, 1997 to 2007.
T nk thats normal? T last t m th conomy gr w so ast was n th 1950s and
60s, wh n th r ch st 1% o Canad ans took only 8% o all ncom growth.
T r ch st 1% took almost a th rd o all growth n on o th slow st grow ng d c-
ades in recent history too, 1987 to 1997. Tis eclipses anything seen be ore in Canadian
history, including the share o gains eaten up by the richest 1% in the Roaring wenties.
Tis is the result o a stunning reversal o long-term trends, rom steady increases
in equality during the post-war years to growing inequality over the past genera-
t on, n good t m s and bad.
From the beginning o the Second World War to 1977, the income share o the
r ch st 1% was cut almost n hal , rom 14% to 7.7%, as th ga ns rom growth l d to
mor p opl work ng and b tt r pa d jobs.
1 T r w r 24.6 m ll on ta l rs n Canada n 2007. T r ch st 1% mad mor than $169,000 and hadan av rag ncom o $404,000. T r ch st 0.1% mad mor than $621,000 and had an av rag ncom o
$1.49 m ll on. T r ch st 0.01% mad mor than $1.85 m ll on and had an av rag ncom o $3.83 m ll on.
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5the rise of canadas richest 1%
Introduction
almost exactly a hundred years ago, th G ld d Ag that d n d th
h ght o Am r can opul nc cam to an nd. T ra o robb r barons and trav-
agant tycoons ros rom th ash s o th Am r can C v l War, wh ch nd d n 1865.
Dur ng th ollow ng hal -c ntury, ndustr al zat on and global comm rc pand-
d n gr at l aps and bounds, prop ll d by advanc s n transportat on and commu-
n cat ons.
For th rst t m , th good l was no long r th clus v playground o th ar-
istocracy. In this new land o opportunity a plucky immigrant, gold panner, country
bumpk n or small-t m ntr pr n ur could str k t r ch. roubl was that or v ry
Horatio Alger, millions o people were struggling to survive. Despite a society awash
in money, the majority ound themselves on the outside o the Gilded Age looking in.
It was an era known or its wild excesses, overt exploitation and increasingly
volatile markets. It was also known or its un olding promise o modernity, rich
with unprecedented technological potential and personal reedom. Both sides o
th G ld d Ag gav r s to a grow ng wav o soc al unr st and r orm mov m nts,
both r l g ous and s cular. T anarch st mov m nt aros out o th s t mp stuous
period, but was vastly eclipsed by the movement o those seeking to improve society
through structural and institutional change. At the heart o these re orm movements
was th pursu t o gr at r nd v dual and soc al progr ss. T product o th G ld d
Ag was th Progr ss v Era and th N w D al, and th qu st or gr at r qual ty.
Wr t ng n th 1950s, conom st S mon Kuzn ts trac d th r lat onsh p b tw n
economic growth and income inequality over time, noting that the t rajectory o
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6 growing gap project
d v lopm nt look d l k an nv rt d U-shap d curv .2 Us ng h stor cal data rom a
hand ul o rap dly ndustr al z ng nat ons, h show d a cons st nt tr nd: n qual ty
ros n t ally, th n d cl n d, start ng as arly as 1880 n Br ta n. T acts and th
th ory po nt d to on prom s ng conclus on: prosp r ty or th major ty, not all,
was poss bl g v n su c nt conom c d v lopm nt.
By the end o the 20th
century, two economists, Emmanuel Saez and TomasP k tty, stood Kuzn ts th ory on ts h ad.3T y show d a stark r v rsal o d v lop-ments in the U.S. between 1913 and 1998. Emmanuel Saez and Michael Veall showed
s m lar r sults n both Canada and th U.S., show ng how long-t rm tr nds toward
gr at r ncom qual ty w r r v rs d a t r 1980.4
Some have dubbed this phenomenon the Great U- urn: a fip rom decades o st ady d cl n s n ncom n qual ty to ts oppos t : a st ady ncr as n n qual ty,
n good t m s and bad. Econom c growth no long r pav d th path to w d spr ad
prosp r ty. But or a s l ct w, good t m s n v r s m d so good. Incom s o th
v ry r ch hav doubl d and tr pl d wh l th y at-l n d or th major ty, wh ch has
also been squeezed by rising costs and worsening household debt. Whether theeconomy grew or altered, the rise o the rich has been unstoppable. Welcome toCanadas n o-g ld d ag .
2 Simon Kuznets, Economic Growth and Income Inequality, American Economic Review, 1955, 45 (1),
pp.128.
3 Tomas Piketty and Emmanuel Saez, Income Inequality in the United States, 19131998, Quarterly
Journal o Econom cs, 2003, 118(1), pp. 139.4 Emmanuel Saez and Michael Veall, Te Evolution o High Incomes in Northern America: Lessons rom
Canadian Evidence, American Economic Review , 2005, 95 (3), pp. 831849. It reviewed trends in high income
rom 1920 to 2000 n Canada and compar d to th U.S., bas d on ta data go ng back to 1920.
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7the rise of canadas richest 1%
Who Gains from Growth?
for decades, the kuznets theory gave he t to the aphorism a rising tide
l ts all boats. But n r c nt d cad s, no such ph nom non has occurr d th
ga ns rom growth hav b com mor un v nly d str but d. In at on-adjust d
data rom Sa z and V alls 2005 study shows thos at th top always d d b tt r
than thos n th m ddl . But, on av rag , ncom s n Canada bar ly gr w ov r
the course o a generation, making the gains or the richest 1% look more ex-
travagant than v r. 5
T or g nal Sa z and V all data s t nd d n 2000, wh n Canadas surg n co-
nom c growth had r ally just tak n hold. Trough oth r data sourc s w know that
between 1997 and 2007 Canada was a job juggernaut, creating more employment
than any oth r G7 nat on. T 1980s and 1990s w r d cad s plagu d by two r c s-
s ons and long p r ods o jobl ss r cov ry.
Updating the data post-2000 could show that the trajectory traced by Saez and Veall
was an aberration, the unhappy result o slow and uneven growth, but updated and un-
publ sh d data rom M cha l V all6 r v al that snt th cas . Much l k n th G ld d
Age, the richest 1% o Canadians harvested the lions share o nancial gains rom both5 Unless otherwise noted, all gr aphics and tables in this document are drawn rom or ca lculated rom data
prov d d n th tabl s wh ch support d th Sa z and V all (2005) study, cov r ng th p r od 1920 to 2000;
and th updat d, unpubl sh d Canad an data prov d d by V all, wh ch run rom 1982 to 2007. All data ar
drawn rom ta l s.
6 In Apr l 2009 Emmanu l Sa z r l as d US r sults updat d to 2007. M cha l V all pr s nt d h s unpub-lished updates or Canada at the Canadian Economic Association Annual Meetings in Qubec City, Qubec
on May 29, 2010, and has k ndly mad th data ava labl . T data ar bas d on a 20% sampl o ta l s,
th LAD data bas (Long tud nal Adm n strat v Data) o Stat st cs Canada. T s data s t runs rom 1982
to 2007. T m thodology has chang d but th r sults or th ov rlapp ng y ars ar s m lar.
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robust and weak economic growth. Between 1997 and 2007, just be ore the global eco-nomic meltdown quelled Canadas roaring economy, the richest 1% o Canadians the
246,000 pr v l g d w who took hom $169,300 or mor had la d cla m to almost a
th rd (31.8%) o th d cad s growth n total ncom . It was not always th s way. From
th lat -1950s to th lat -1960s, a s m lar p r od o strong and susta n d growth, th
r ch st 1% o Canad ans only took 8% o th growth n total ncom . Noth ng n th
cours o th pr v ous c ntury r s mbl s what has occurr d n th last g n rat on.
0%
5%
10%
15%
20%
25%
30%
35%
198797 19972007192028 192847 194757 195767 196777 197787
Old Series New Series
chart 2 Share of Income Gains Captured by Top 1% Canada, 19202007
0%
50%
100%
150%
200%
250%
300%
1977200019461976
Average Income Income of Top 1%
chart 1 Compared to Earlier Era, Growth in Average IncomesHas Collapsed, While Incomes at the Top Continue to Soar
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9the rise of canadas richest 1%
The Great U-Turn:Reversing The TrendToward Greater Equality
the charts that fol low reveal a clear pattern emerging over time, which be-
comes more accentuated higher up the income ladder. Tis pattern has been dubbed
the Great U- urn o our time, reversing the trend toward greater equality that char-
act r z d most o th 20th c ntury.
The 1920s and 1930s : Boom Times or Tough Times, Rising Inequality
Te share o income held by Canadas elite dropped in the early-1920s because other
p opl start d mak ng b g ga ns n th r ncom s. Industr al zat on took hold and
th populat on o wag d labour rs gr w. Mass m grat on rom country to c ty saw
mor Canad ans arn ng mor than th y had wh n th r l v l hood d p nd d upon
agr cultur . By 1925, th s tr nds r v rs d. T shar o ncom h ld by th top 1%
ros , rst b caus Pra r droughts tr gg r d an conom c slowdown, th n b caus
o th stock mark t crash n 1929. Tat tr nd cont nu d through th Gr at D pr s-
s on, as un mploym nt soar d.
World War II and Post-War Growth: The Great Equalization
Te richest Canadians saw a dramatic drop in their income (both be ore- and a ter-
ta ) dur ng th S cond World War (1939 to 1945). From 1946 to th nd o th 1970s,as mass consumption o private and public goods expanded and more women joined
th work orc , Canad ans p r nc d growth both n th shar o th populat on
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that was mploy d and n un on zat on. T m grat on rom country to c ty cont n-
u d, and th major ty o Canad ans saw a rap d r s n ncom dur ng th s p r od.
T cl ar and cons st nt tr nd ov r th s d cad s was towards gr at r qual ty.
Post- 1980 : The Neo-Gilded Age
wo pro ound r c ss ons n as many d cad s d splac d m ll ons o work rs and puthug downward pr ssur on th wag s o th major ty. By th m d-1990s, Canadas
plac n th global supply cha n had grown mor mportant and th conomy n-
t r d a d cad o unbrok n growth, v n as th str ngth o th manu actur ng s c-
tor altered. Tis sustained expansion was unlike anything Canada had experienced
s nc th 1960s. How v r, n compar son to th 1960s, th b n ts o growth w r
not as broadly shar d. T shar o ncom accru d by th r ch st Canad ans gr w
at a ast r rat than any r cord d p r od n our h story.
Te ollowing charts reveal the shares o income enjoyed by Canadas richest 10%,
richest 1%, richest 0.1% and richest 0.01% since 1920. Te higher up the income spec-
trum, the more striking the U pattern. Te shares o income going to the richest Ca-nad ans now r s mbl s patt rns last s n at th nd o th S cond World War, and
even earlier or those at the very top o the income ladder. In act, the richest 0.01% is
taking home a bigger piece o the economic pie than at any time in the past century.
shares of income for the richest 10%of canadians
Who alls nto th r ch st 10%? I you mad mor than $63,350 n 2007, you mad
more than 90% o Canadian tax lers. Nearly 2.5 million Canadians ell into this
category. Te richest 10% o Canadian tax- lers accounted or 41% o the nations
30%
32%
34%
36%
38%
40%
42%
44%
46%
48%
1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006
Old Series New Series
chart 3 Share of Total Income, Richest 10% Canada, 19412007
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11the rise of canadas richest 1%
$970 b ll on n total pr -ta ncom .7 T r ch st 10% hasnt h ld such a larg shar
o total ncom at any t m s nc th S cond World War, wh ch s as ar back as th
h stor cal ta data go or th s group.8
share of income for the richest 1%
In 2007, a Canad an n th r ch st 1% o ta l rs mad a m n mum o $169,300. T
av rag ncom o th s class was $404,500.
a r cords or Canadas r ch st 1% go back to 1920. T y show that th top 1% o
tax lers increased their share o total income rom the mid-1920s to the mid-1930s.
It only d cl n d a t r Canada w nt to war.
From th b g nn ng o th S cond World War to 1977, th ncom shar o
th r ch st 1% was almost cut n hal , all ng rom 14% n 1941 to 7.7% n 1977.
h n that tr nd, wh ch had b n go ng on or d cad s, stopp d and r v rs d
d r ct on.
7 otal ncom s sourc d rom R v nu Canadas Incom Stat st cs or 2007. Most o th s ncom s m-ploym nt r lat d (almost $660 b ll on). T gur prov d d do s not nclud $24.8 b ll on n ta abl cap -
tal ga ns n 2007. Cap tal ga ns w r not ta d b or 1972. T r or th s long-tr nd h stor cal analys s o
ncom , bas d on ta data go ng back to 1920, clud s cap tal ga ns. Mark t ncom nclud s wag s, sala-
r s, comm ss ons, arn ngs rom s l - mploym nt, d v d nds, nt r st ncom , r ntal ncom , p ns ons,
EI b n ts, w thdrawals rom r g st r d p ns ons and sav ngs. T r w r 24.6 m ll on ta l rs n 2007.8 Later charts in this report go back to 1920. Tese charts plot data rom the Saez and Veall paper, running
1920 to 2000, and the Veall updated series, rom 1982 to 2007, showing the overlaps and diferences between
th two s r s. Data rom 1920 to 2000 w r bas d on h stograms, collaps ng ava labl ta r cords nto ta
brackets. Until the past ew decades, ta x data did not entirely capture trends at the very bot tom o the income
sp ctrum, as many p opl s mply d d not arn nough to warrant l ng a r turn. W th chang s n trans r
and ta pol cy, mor p opl now l . Data s nc 1982 s bas d on a 20% sampl o Canad an ta r cords.
5%
8%
11%
14%
17%
20%
1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Old Series New Series
chart 4 Share of Total Income, Richest 1% Canada, 19202007
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12 growing gap project
T shar o all ncom go ng to th r ch st 1% almost doubl d b tw n 1982 and
2007, r s ng rom 7.9% to 13.8%.
By 2007, the 246,000 Canadians lucky enough to be among the richest 1% claimed
a b gg r p c o th ncom p than at any t m s nc 1941.
shares of income for the richest 0.1%
T h gh r up th ncom scal , th mor dramat c th ga ns.
Te richest 0.1% o tax lers includes 24,600 Canadians who have a minimum
ncom o $621,300 and an av rag ncom o $1.49 m ll on.
Te share o total income held by the richest 0.1% o tax lers was cut rom roughly
6% to l ss than 2% b tw n th 1940s and th 1970s. T n th tr nd r v rs d ts l .
By 2007, th r ch st 0.1% o Canad ans h ld 5.5% o total ncom n Canada, mor
than double their share in early-1980s. You would have to go back to the Roaring
w nt s to s a comparabl ph nom non.
shares of income for the richest 0.01%
In 2007, th r ch st 0.01% o Canad ans mad a m n mum o $1.845 m ll on. T av-
rag ncom o th 2,500 p opl n th s rar d group was $3.833 m ll on.T shar o total ncom h ld by Canadas l t (th r ch st 0.01%) r ma n d r -
markably constant throughout the Roaring wenties and Dirty Tirties, roughly
1.8% o th total. But a t r th war brok out, th r shar o total ncom ll dra-
mat cally, dropp ng to 0.5% or l ss by th m d-1960s and stay ng at thos l v ls r ght
unt l th nd o th 1970s.
0%
1%
2%
3%
4%
5%
6%
7%
8%
1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Old Series New Series
chart 5 Share of Total Income, Richest 0.1% Canada, 19202007
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13the rise of canadas richest 1%
What happ n d n t was shock ng, by any m asur . B tw n th m d-1970s and
2007 th shar o ncom accru ng to th r ch st 0.01% Canad ansmore than quin-
tupled.
Te updated series starts in 1982, when the richest 0.01% o Canadians had incomes
o no less than $640,000. Te average income o this group was $1.172 million in
1982. As not d, m n mum ncom o th r ch st 0.01% had r s n to $1.85 m ll on by 2007 and th av rag ncom had soar d to mor than $3.8 m ll on. No oth r cat-
gory has s n ncom s grow at such an plos v pac .
By 2007, th r ch st 0.01% la d cla m to 2.6% o total ncom n Canada, a larg r
shar than at any t m on r cord.
including capital gains
Unt l now, h stor c analys s o ncom tr nds d d not nclud cap tal ga ns b caus
pr or to 1972 cap tal ga ns w r not ta abl n Canada, and so w r clud d rom
th ta databas us d to ollow th long-t rm volut on o ncom s.
V alls r c nt updat s or Canada run rom 1982 to 2007, p rm tt ng a rst- v r
look at how th nclus on o cap tal ga ns a cts long-t rm chang s n ncom s.
T U-turn patt rns ar v rtually th sam as thos d scr b d arl r, but add ng
cap tal ga ns to th m sl ghtly ncr as s th shar s o total ncom go ng to thosat th top.
By nclud ng cap tal ga ns w can s that by 2007, th r ch st 10% o Canad ans
held 42.5% o all income generated by the market (compared to 41% when capital
ga ns clud d). T s s up rom 34% n 1982 (33.6% clud ng cap tal ga ns).
0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Old Series New Series
chart 6 Share of Total Income, Richest 0.01% Canada, 19202007
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14 growing gap project
abl 1 mak s t cl ar that most o th chang s b ng dr v n by th r ch st 5%
o arn rs. It also mak s cl ar: cap tal ga ns ar not th caus o surg ng ncom s
at th top.
Richer Canadians are more likely to have capital gains. According to Revenue
Canadas tax statistics 9, capital gains accounted or 10.4% o the total income as-s ss d among ta l rs w th ncom s o $250,000 or mor n 2007, compar d w th
0.85% or thos w th ncom s b tw n $40,000 and $45,000. T av rag ncom o
Canadas 26.4 m ll on ta l rs n 2007 was $40,400, b or d duct ons and ta s.
But the Veall data suggest that, as a source o income, capital gains are not appre-c ably mor mportant or th r ch st Canad ans than th y hav b n ov r th past
25 y ars, d sp t th colossal growth n ass t valu s n ov r th past g n rat on.
higher rates of pay for canadas richest driving trends
T r ar many d r nc s b tw n th l styl s o th r ch and th r st o us, but
ov r th d cad s w hav d v lop d th s n common: wag s ar th pr mary sourc
o income or all Canadians; we earn our money by working or someone else. Tats
a b g sw tch or th r ch.
H stor cally, Canadas r ch st c t z ns r l d h av ly on un arn d ncom such asreturns rom their investments in stocks and bonds, and rents rom their real estate
hold ngs. In 1946, just a t r th S cond World War nd d, l ss than hal th ncom
o th r ch st 1% o Canad ans cam rom pay ch qu s. Wag s account d or 45.5%
o their incomes and a urther 10% came rom pro essional ees ( or the doctors, law-
9 http://www.cra-arc.gc.ca/gncy/stts/gb07/pst/ nl/tbls- ng.html
table 1 Shares of Total Income Going to the Top, With and Without Capital GainsCanada, 1982 and 2007
Top 10% Top 5% Top 1% Top 0.5% Top 0.1% Top 0.01%
Groups ranked by income including full Capital Gains
1982 34.0 21.7 8.3 5.7 2.5 1.1
2007 42.5 30.6 15.7 12.0 6.5 3.1
Groups ranked by income excluding Capital Gains
1982 33.7 21.5 8.1 5.5 2.4 1.0
2007 41.2 29.3 14.5 11.0 5.9 2.7
Growth in Share of Income from 1982 to 2007
With capital gains 8.6 8.8 7.3 6.3 4.0 2.0
Without capital gains 7.5 7.8 6.4 5.5 3.5 1.7
Difference 1.0 1.0 0.9 0.8 0.5 0.3
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15the rise of canadas richest 1%
y rs, tc. n th s group). H gh r up th ncom ladd r, r ntal ncom s and d v d nds
w r ncr as ngly mportant sourc s o ncom .
oday th ncom o th r ch st 1% s du mostly to th lav sh sums th y ar pa d
or the work they do. Tey also enjoy additional rewards and extras that the majority o workers dont: bonuses, stock options and other compensation received by bosses,
bankers, inventors, athletes and artists. Teyre basically doing the same job thatboss s, bank rs, nv ntors, athl t s and art sts hav always don n Canada. T y
just g t tr at d as mor o a rar br d than v r.
By 2007, wag s prov d d mor than two-th rds o a ll ncom or th r ch st 1% o
Canad ans, (67.6%), and v n mor or thos h gh r up th ncom ladd r. Pro s-
sional ees, dividends, and interest income were roughly the same as two generations
ago or thos n th top 1%.
Apart rom the growing importance o employment, the most striking diference
between 1946 and 2007 was that only 3.1% o incomes or those at the top came romth r bus n ss s, compar d to 24.3% n 1946. F w o thos at th v ry top ar ntr
pr n urs any mor , t would s m. Or p rhaps th yv just gur d out n w ways o
chann l ng bus n ss ncom s.
Te data show that the rich today are just as reliant on wages as their primary
source o income as the average Canadian. But they are more likely to be hand-
som ly r ward d or th hours th y put n. In 2007, almost thr -quart rs (73.5%)
o all income received by Canadas 26.4 million tax lers came rom their wages.
T s s v rtually d nt cal to Canadas r ch st 0.01%, or whom 73.7% o th r ncom
cam rom th r wag s.
oday as be ore, the richest Canadians received ar more income rom pro essionalees, dividends and returns on investment than the average Canadian. However, only
3% o total ncom s or th r ch st 1% o Canad ans com s rom bus n ss r v nu s,
wh ch s actly th sam proport on as or th av rag Canad an. T sup r r ch
were less likely than the majority o Canadians to rely on business income (only 2.4%
o th r total ncom was bus n ss ncom ).
table 2 Changing Sources of Income For the Rich and the Rest of Us
Top 1% in 1946Top 1%in 2007
Average Taxflerin 2007
Top 0.1%in 2007
Top 0.01%in 2007
Wages 45.5% 67.6% 73.5% 70.8% 73.7%
Professional Fees 10.1% 9.8% 2.2% 5.3% 1.3%
Business Income 24.3% 3.1% 3.0% 2.1% 2.4%
Dividends 8.7% 9.6% 3.6% 12.4% 14.5%
Interest Income 4.3% 3.4% 3.8% 3.8% 3.4%
Investment Income 7.2% 6.5% 4.0% 5.5% 4.7%
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16 growing gap project
Te main reason the rich are getting richer is how much they are getting paid.
T p s d s how much th y ar g tt ng ta d. H r , too, th tr nds mak cl ar:
th s g n rat on o afu nt Canad ans has both mad mor cash and has k pt mor
o t than any g n rat on s nc th 1920s.
make that a double: lower rates of taxation for the richest
Canadas pre-tax distribution o income is getting more concentrated at the top and
ta s ar not m t gat ng thos r sults as th y onc d d.Marginal tax rates have allen dramatically over the past hal -century or Canadas
richest. In 1948, the top marginal tax rate levied on taxable incomes over $250,000 (in
1948 dollars) was 80%. In 2009, th top marg nal rat l v d on ncom was 42.92%,
averaged across all provinces and it applied to all incomes over $126,264. 10 Te top
marg nal ta rat var s rom prov nc to prov nc .
An ncom o $126,264 today compar s to an ncom o about $13,00011 n 1948
dollars. In 1948, the tax rate on incomes over $13,000 was 45%. Tere were also seven
more ederal tax brackets that kicked in as incomes rose above $13,000, with escalat-
ng rat s o ta at on. In all th r w r 19 ta brack ts n Canada n 1948.
10 Unt l 1972, ncom ta was l v d only by th d ral gov rnm nt. Incom s r r nc d ar all ta ablincomes, i.e. a ter deductions and credits. A ter 1972 provincial taxes were levied as a percentage o the
d ral ta . T d ral ta structu r s d s gn d around an assum d prov nc al ta rat , wh ch accounts
or and synthesizes variations across the country. Te combined ederal/provincial marginal tax rate is
prov d d by th Canad an a Foundat on, abl 3.5 n th 2009 d t on o Finances of the Nation . In 2009
th top d ral marg nal ta rat was 29%.
11 Us ng th Bank o Canada n at on calculator.
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%50%
55%
60%
65%
70%
75%
Wages Professional Fees Business Income Dividends Interest Income Investment Income
Top 1% in 1946 Top 1% in 2007 Average Taxler in 2007
chart 7 Major Sources of Income, Then and Now
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17the rise of canadas richest 1%
Te top tax bracket o $250,000 in 1948 would translate to $2.37 million today.
Tat means 80% o incomes above that amount would have been taxed back in 1948.
Not many Canad ans all nto that cat gory, but thos who do g t ta d at hal th
rat that th y would hav n th past.
All ncom ta syst ms com w th surta s and cr d ts or d duct ons; and s nc
1972 both d ral and prov nc al gov rnm nts apply ncom ta s. T Sa z-V alldata show tr nds rom 1920 to 2000 n th top marg nal ta rat , tak ng th s d -
r nt actors nto account.
S nc ach jur sd ct on has a d r nt ta structur (numb r o ta brack ts, sur-
taxes and exemptions) the Saez-Veall data chose to track Ontario only, as an example
o tr nds n top marg nal ta rat s. As m nt on d, th top ta rat s tr gg r d orincomes over $126,264. Revenue Canadas tax statistics show that almost two-thirds
(63%) o Canad ans mak ng mor than $150,000 l v n Ontar o and Alb rta (42% n
Ontar o). T top marg nal ta rat s v n low r n Alb rta.
Graphing their ndings provides a striking image, one that evokes the U-turn
o all ng, th n r s ng, ncom shar s or th r ch st Ontar ans but ups d down.T top marg nal rat s o ta at on start o h gh n th 1920s, drop sharply ov r th
course o the 1920s, spike up to cover rst the costs o the Depression years, then the
S cond World War, and d cl n th r a t r, w th two mportant drops n th arly-
1970s and th arly-1980s.
Tese data end in 2000, just when a big wave o tax cuts star ted to wash over every
jur sd ct on n Canada. At th d ral l v l alon , ov r $100 b ll on n p rsonal and
corporat ta cuts w r mpl m nt d ov r 5 y ars, start ng n 2000. A urth r $220
b ll on n d ral ta cuts hav b n mpl m nt d or sch dul d s nc 2006. In add -
tion, virtually every province has reduced personal income taxes since the mid-1990s.
20%
40%
60%
80%
100%
1920 1925 1930 1935 1940 1945 195 0 1955 1960 1965 1970 1975 1980 1985 1990 1995 20 00
chart 8 Top Marginal Tax Rate Ontario, 19202000
Note: 1942 omitted due to change in accounting basis 12
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18 growing gap project
Its worth noting that, already by 2000, the top marginal tax rates were approach-
ing levels last seen at the height o the Roaring wenties. In the coming months, the
Saez-Veall tax-related data will be updated to 2008. It is expected these data will show
that top marg nal rat s w ll b at l v ls low r than at any t m n r cord d h story.
life is less taxing for the richest 1%
Chart 9 shows average tax rates applied to high income earners in Canada over time.
Tese are computations o the average rate o taxation or people alling into di -
r nt subgroups o th r ch st 10% o Canad ans, rr sp ct v o th jur sd ct on n
wh ch th y l v , bas d on ta s pa d.
Rat s o ta at on p ak d n 1943, towards th nd o th S cond World War. At
that time, the richest 0.01% o tax lers (average income o $775,000 in 2000 dollars)
paid an average tax rate o 71%. By 2000, the average tax rate o the richest 0.01%
stood at 33%.
A recent study examining changes in total incidence o taxes (income, payroll,consumption, property, capital gains, and corporate taxes) shows that between 1990
and 2005 th r ch st 1% p r nc d tw c th r duct on n ta s as th av rag Ca-
nad an (4% v rsus 2%). In act, by 2005 th r ch st 1% was ta d at a sl ghtly low r
rat than th poor st 10% o ta pay rs.12
T Sa z-V all data ocus only on ncom ta s, but p rm t a compar son ov r a
much longer period o time. Tey reveal that tax rates or the richest Canadians were
roughly th sam n 2000 as th y w r n th 1930s, wh l ta s pa d by th r ch st5% and richest 10% steadily rose between the early 1950s and 2000. (Tey have allen
12 Marc Lee, Eroding Tax Fairness: Tax Incidence in C anada, 1990 to 2005, Canadian Centre or Policy
Alt rnat v s, Ottawa, Nov mb r 2007.
0%
10%
20%
30%
40%
50%
60%
70%
80%
1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Top 10% Top 5% Top 1%
Top 0.5% Top 0.1% Top 0.01%
chart 9 Average Tax Rates on High Income Earners Canada, 19202007
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19the rise of canadas richest 1%
since.) Simply put, by 2000 Canadas elite were no longer shouldering as much o the
cost o runn ng a nat on that r ward d th m so handsom ly.
Since 2000, taxes have been aggressively cut on incomes, capital gains, and money
put aside in savings (easier to do or those with higher incomes). As a result, it is
widely anticipated that updated data will show urther signi cant declines in the
av rag shar o ncom pa d n ta s or h gh ncom arn rs a t r th y ar 2000.
the great hoarding: the growing concentration of wealth
T shar o mark t ncom s h ld by Canadas r ch st s gr at r today than t has
b n at any t m s nc th nd o th S cond World War. As an add d bonus, rat s
o taxation or the r ichest Canadians have been pared back to levels o the 1930s (and
even lower in some jurisdictions or the very richest), triggering dramatic reductions
n th r shar o ncom go ng to pay ta .
oday, ncom s ar mor conc ntrat d n th hands o Canadas l t than th y
w r dur ng th 1920s or 1930s.T r s pl nty o v d nc th conom c prosp r ty o th past w d cad s has
padded the nancial cushion protecting the most power ul Canadians rom the
economic collapse that devastated working- and middle-class households. Call it
th gr at hoard ng.
Up-to-dat data on d str but on o w alth rom Stat st cs Canada snt p ct d
any time soon, 13 and the most recent Statistics Canada survey o how wealth was
d str but d n Canada was n 2005.14 In 2005 hous hold w alth was $4.862 tr ll on
and th r w r 13.4 m ll on hous holds. I w alth was d v d d qually, ach hous -
hold would hav a nanc al cush on o $364,300. Accord ng to Stat st cs Canadas
Survey o Financial Security, about 80% o amilies had less than that to all back on.In 2005, m d an w alth (th hal way po nt n th d str but on) was $148,400. T
r ch st 10% h ld almost 60% o th total w alth n th hous hold s ctor, l av ng th
13 Stat st cs Canadas Surv y o F nanc al S cur ty m asur s th n t worth o Canad ans, but hasnt b nund rtak n s nc 2005. Tat y ar, only 9,000 hous holds w r surv y d, compar d to 23,000 n th pr v -
ous surv y, und rtak n n 1999, so th sampl b cam too small to prov d a r l abl st mat o tr nds or
th top 1%. T top 10% o hous holds saw ts shar o w alth r s rom 51.8% n 1984, to 55.7% n 1999 to
an st mat d 58.2% n 2005, bas d on a study by R n Mor ss tt and Xu l n Zhang: Revisiting Wealth In-
equality , publ sh d n Stat st cs Canadas p r od cal Perspectives , Volum 7, No. 12, D c mb r 2006. Pr orto 1984, the survey had been conducted on a more regular basis 1955, 1959, 1964, 1970, and 1977. Tere
ar curr ntly no plans to conduct th s surv y aga n n Canada. T Un t d Stat s has b n conduct ng th
Survey o Consumer Finances its survey o wealth, or net worth through the Federal Reserve Board
v ry thr y ars s nc 1983, th lat st b ng don n 2007.
14 Wealth re ers to net worth assets minus liabilities. In 2005 total assets o Canadian households
stood at $5.6 tr ll on, wh l total hous hold d bt stood at $760 b ll on. T Surv y o F nanc al S cur ty s
Stat st cs Canadas occas onal surv y wh ch a ss ss s th d str but on o a ss ts and l ab l t s n t worth,
or w alth - by ncom , ag , ducat on, mm grant status and oth r attr but s.
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20 growing gap project
r st o th nat on to d vvy up th r ma n ng 40%. On av rag , thos n th bottom
20% w r stand ng n a $7,800 d bt hol n 2005.15
Tat y ar, 14 p r c nt o Canad an hous holds ow d mor than th y own d, n-
clud ng qu ty n th r hom s. w nty- our p r c nt had no nanc al ass ts at all.
A recently updated annual report by the nancial research institute Investor Eco-
nom cs d nt d 544,000 h gh-n t-worth hous holds n Canada as o D c mb r31, 2009, which they said represented 3.8% o all households. 16 Te report calculated
that th s group controll d $1.78 tr ll on dollars o nanc al w alth, 67% o th total
nanc al w alth o Canad an hous holds.17
Despite the global economic meltdown, the wealth o the nation has grown. As o
th rst quart r o 2010, Nat onal Accounts data shows that Canad an hous holds
had accumulated $5.9 trillion in net worth (assets minus liabilities). Te largest
component o this aggregate wealth is equity in ones home. Tere are about 15.4m ll on hous holds.
Average wealth o Canadian households has grown to $383,100, primarily because
o rising real estate prices. It is possible that median wealth (the hal way mark in thed str but on) has d cl n d s nc th r c ss on, as m ddl class am l s hav tak n
on mor d bt, and t s probabl that mor hous holds ar n n t d bt pos t ons at
th bottom o th d str but on.
Tats b caus most Canad ans nt r d th Gr at R c ss on o 2008-09 mor -
pos d to th r sks o conom c downturns than at any t m s nc th S cond World
War. 18 Jobl ss b n ts ar at l v ls last s n n th arly-1940s. Sav ngs rat s hav nt
been this low since the late-1930s. Household debt has never been higher, rising rom
an av rag o $1.40 ow d on v ry dollar o d sposabl ncom at th outs t o th
r c ss on n 2008 to $1.49 by arly 2010.
Most Canadians are inching their way through recovery, trying to hang onto whatth yv got. But or som Canad ans, th ngs hav n v r b n so good.
15 R n Mor ss tt and Xu l n Zhang, Revisiting Wealth Inequality, P rsp ct v s on Labour and Incom ,Stat st cs Canada Catalogu 75-001-xie, Vol 7. No.12, D c mb r 2006. T s art cl tracks th d str but on
o n t worth n 1984, 1999 and 2005. P ns on ass ts w r not nclud d n arl r surv ys, th r or th 2005
valu do s not nclud p ns on ass ts. In 2005 29% o Canad ans had no p ns on ass ts.
16 Marl n Hab b, For the Wealthy It Takes a Village, T Glob and Ma l, Octob r 6, 201017 Inv stor Econom cs annual Hous hold Balanc Sh t data updat s com rom a var ty o adm n stra-tive and survey sources, and do not line up with Statistics Canadas de nition o nancial assets on the
Balanc Sh t tabl s rom th Nat onal Accounts. T r d n t on o total nanc al w alth ass ts total d
$2.7 tr ll on at th nd o 2009. Stat st cs Canada shows total nanc al ass ts n th hous hold s ctor w r
$2.037 tr ll on by ourth quart r 2009. ( abl 3, Catalogu 13-022-x)
18 Arm n Yaln zyan, Exposed: Revealing Truths About Canadas Recession, Ottawa: Canad an C ntr orPol cy Alt rnat v s, Apr l 2009.
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21the rise of canadas richest 1%
Conclusion
in the 1920s , incomes o the richest Canadians were based mostly on capital
ga ns and r turns on nv stm nt tantamount to w nn ng th lott ry. By 2007, th
ncom s o th r ch st Canad ans w r mostly bas d on mploym nt ncom , just
l k v ryon ls . But that do snt m an g tt ng to th top o th ncom ladd r s
s mply a matt r o m r t or ort any mor than t was n th past. Its got mor to
do w th how on s work s valu d and, as th s r port has shown, th work don by
th p opl at th top s valu d much mor handsom ly today than n th past.
Given there were always talented people in society who advanced innovation, en-
t rta nm nt and product on, ts hard to argu that todays l ad rs ar worth many
multiples o their counterpar ts rom the previous generation while the average worker
s worth, ss nt ally, noth ng mor .
Tis review o the data shows that shares o market income held by Canadas rich-
est 1% have soared dramatically over the past 30 years, making Canadas distribution
o ncom look mor l k t d d n th 1920s than t has at any t m s nc .
But th s s not just a r turn to th past. No pr v ous g n rat on o r ch Canad ans
has tak n such a larg shar o th ga ns o conom c growth n r cord d h story.
I the story ended simply with some people winning the employment lottery, there
might not be cause or concern. But the growing concentration o income and wealth
has also l d to a n w thrust n publ c pol cy, wh ch a cts th ortun s o us all.
Canadas l t has manag d to conv nc d c s on-mak rs that th y k pt mor
o th r ncom , th y could cr at mor w alth or v ryon . A t r th rty y ars, th
v d nc shows that tr ckl -down conom cs was a hollow prom s and a cost ly so-
c al p r m nt.
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22 growing gap project
A ter the mid-1990s, Canadas economy grew at the strongest, most sustained
pac s n s nc th 1960s, but th l ons shar o ncom ga ns was conc ntrat d n
th hands o th r ch st 1%, who also njoy d mass v ta cuts.
Reductions in personal income taxes, tax exemptions or savings, and cuts to con-
sumpt on ta s d sproport onat ly h lp d th most afu nt and actually mad l
hard r or most Canad ans, part cularly thos w th th low st ncom s.a cuts do l ttl to put mor mon y n th pock ts o thos at th bottom o th
income distribution, who pay little or no income tax. But tax cuts have strippedhundreds o billions rom the public purse since the mid-1990s, squeezing the public
programs on wh ch all Canad ans d p nd. T cost o n c ss t s l k post-s cond-
ary ducat on, h alth car , hous ng, ch ldcar and transportat on cont nu to r s .M anwh l m ddl class ncom s stagnat and th poor ar k pt on th s d l n s or
push d out o th gam . T major ty o Canad ans ar runn ng hard r to stay n
plac and many ar los ng ground, v n as th conomy grows.
T s has occurr d not out o n c ss ty but by d s gn. L k th G ld d Ag o 100
y ars ago, Canada s awash n mon y. But nst ad o us ng our r sourc s to cr atgreater prosperity or a ll as our parents and grandparents generations did this
g n rat on o Canad ans has watch d both mark ts and publ c pol cy conc ntrat
r sourc s n th hands o th l t w.
Te excesses o the Gilded Age induced its own collapse and triggered, in response,
a wave o public policy that helped redistribute prosperity through air taxation and
a r wag s n ord r to grow th m ddl class, r duc pov rty and k p a l d on n-
com n qual ty n Canada.
As the story un olds anew, the response to Canadas neo-gilded age may very well
b th sam .