The top one per cent of income earners have taken a disproportionate share of overall income growth over the last 30 years, in Canada and in most OECD countries, according to a study by OECD economists.
In Canada, the top percentile of earners captured about 37 per cent of total growth in the last three decades, according to an analysis of tax filings by the OECD in 28 member countries with advanced economies.
- Why the rich get richer and the poor get poorer
That explains why economic growth is not leading to improved incomes for the rest of us – the 99 per cent, the study found.
The Organization for Economic Co-operation and Development paper urges governments to reconsider tax policies implemented in the past 30 years that have reduced the amount paid by the wealthiest income earners, as well as providing preferential treatment for capital gains and dividends, sources of income most likely to be held by the one per cent.
Canada is second only to the U.S. in its growing inequality. In the U.S., about 47 per cent of total growth went to the wealthiest one per cent between 1975 and 2007, compared to 37 per cent in Canada, while in Australia and the U.K., about 20 per cent of growth went to the wealthiest.
In Nordic countries and in France, Italy, Portugal and Spain, about 90 per cent of growth went to the 99 per cent of middle and low-income earners in the same period.
The growing gap between rich and poor was a focus of the Occupy movement, which resulted in mass protests and sit-ins in New York, Toronto and other cities in 2011 and 2012. It also became a flashpoint last year, during protests over the low U.S. minimum wage.
According to a recent Oxfam report, the wealthiest 85 people in the world hold as much wealth as the poorest half of the planet's population – or about 3.5 billion people. The issue of income inequality is being raised by the International Monetary Fund, by the Davos forum and by the Conference Board of Canada as a concern.
Larry Summers, who was secretary of the treasury under Bill Clinton and is now a Harvard professor, has pointed out how the constant push for tax cuts and the erosion of union bargaining rights has led to greater income inequality.
Like the OECD, he advocates tax reform.
“There’s a concern that if you tax capital, capital will move out. That’s why this has to be done in a spirit of global co-operation,” he told CBC News in an interview last month. Summers said a global pact on taxing capital would help prevent tax avoidance and tax evasion.
The OECD points out that most member countries have reduced rates for top income earners, with the average dropping from 66 per cent in 1981 to 41 per cent in 2008.
“Higher disposable income makes it easier for the one per cent to save and accumulate capital, which eventually increases incomes further,” the OECD report said.
Taxes on dividends and capital, which make up a greater proportion of the income of the wealthiest taxpayers, have been cut.
The study calls for higher marginal tax rates and fewer tax deductions and credits aimed at high income earners. It also advocates wealth or inheritance taxes.