The widening gap between rich and poor is today's central economic issue, says NDP leadership candidate Brian Topp. He's promising to rescind $18 billion in annual tax breaks to corporations and the rich to close it.
Topp, generally considered a front-runner in the race to the New Democrats' March leadership convention in Toronto, says it's time for those at the top to pay more so the country can narrow the divide.
In an 11-page paper entitled "Restoring Balance to Canada's Tax System," Topp argues that successive Liberal and Conservative governments have geared the tax system to favour the wealthy.
"More and more income and wealth has been concentrated in the hands of the wealthiest Canadians," says Topp. "Most middle and working families have not enjoyed a real increase in their income in many years. Income inequality is now as bad as it was in the late 1920s."
Meanwhile, he says, Ottawa spends some $18 billion annually on tax benefits for "profitable corporations and wealthy individuals – recipients who need help the least."
Topp makes three main proposals, what he calls "practical first steps": to tax incomes of over $250,000 at 35 per cent; to reconfigure taxes on capital gains and stock options; and to phase out tax cuts for profitable corporations.
"One of the roles of the tax system is to recognize differences in Canadian families' ability to pay: higher taxes are levied on people with more, and lower taxes on people with less," he says. "Changes in Canada's income tax system, both in the design of the system itself, and in its size relative to other sources of public revenue, have actually reinforced, rather than offset, the powerful trend towards greater inequality.
"Rates of tax paid by Canadians in the highest-income one per cent of the population have dropped dramatically."
What Topp calls "the unfairness in the system" has become unacceptable in recent years, he says.
He points to a widening gap between tax rates on employment income and rates on income from capital, such as income from stock options – a favoured form of compensation for top executives.
"To make matters worse, the benefits from these provisions do not apply to the earnings of retirement savings (RRSPs, RRIFs and pension plans), where most Canadians' financial investments are held."
Meanwhile, he notes, tax rates on corporate profits are plunging, with little to show for it. "There is no evidence that spending on corporate income tax rate cuts has done anything for our economy, or created a single job," Topp says.
"The big winners from corporate tax cuts were, and continue to be, financial institutions and the resource sector – the sectors of our economy that need help the least."
Hike corporate tax rate to 22 per cent
Imposing a 35 per cent rate on income over $250,000 would effectively reduce spending on tax cuts for the wealthy by about $3 billion, he says. Capital gains should be taxed as ordinary income, except for the portion that reflects inflation and for the majority of capital gains from the sale of homes, small businesses or farms.
"Overall, this modernization would cut spending on tax benefits for the highest-income Canadians by approximately $1.5 billion, and cut a further $2.2 billion in spending on the corporate tax side."
Furthermore, he says he would rescind the Harper government's promise to cut the corporate income tax rate to 15 per cent from 16.5 on Jan. 1. He says he'd then boost corporate income tax rates by 1.5 per cent a year until they reach their former 22.12 per cent.
"Once fully implemented, restoring the integrity of Canada's corporate tax system in this way would redeploy some $11 billion to more productive purposes."
Reallocating tax benefits given to people who don't need them to "more productive uses" would improve Canada's public services and its fiscal health, he says.
"Just as important, it would help restore Canadians' confidence in the fairness of our tax system."
Topp has garnered the backing of several NDP heavyweights in his bid for the top job, including former party leader Ed Broadbent and former Saskatchewan premier Roy Romanow. Others bidding for the NDP leadership are Thomas Mulcair, Niki Ashton, Peggy Nash, Romeo Saganash, Nathan Cullen, Paul Dewar, Robert Chisholm and Martin Singh.