These days, it feels as though everything in life is getting more expensive: hydro bills, the ferries, gas, taxes, MSP premiums – the list is endless. The middle class is feeling the squeeze, and although certainly the phenomenon existed in earnest prior to the recession, the economic situation isn’t helping matters. Expenses keep rising and families can barely keep up. What’s going on?
There is a war on the middle class, a war that began with the 1980′s shift in Western public policy towards neo-liberal governance: deregulation, privatization, tax cuts for the rich, and so on. The promise at the time was that these policies would stimulate economic investment and production, create well-paid jobs, and prosperity would in turn “trickle down” to the average Joe. After nearly thirty years in support of such policy, the evidence is quite clear that these promises have not been fulfilled.
According to a Statistics Canada report entitled “Earnings and Incomes of Canadians Over the Past Quarter Century, 2006 Census,” income disparity has grown enormously. Between 1980 and 2005, middle class Canadians’ incomes were stagnant. Real incomes, after accounting for inflation, grew by 0.1%. Meanwhile, for low-income Canadians – the bottom 20% – real incomes decreased by 20.6% over the same time period. In other words, while it may seem like the minimum wage is higher than in the past, when adjusted for the higher cost of living, they have actually less purchasing power today! What about the rich, the ones who’ve gotten the most generous tax breaks? Not surprisingly, their real incomes have grown by 16.4%.
The rich have gotten richer, the poor have gotten poorer, and the middle class are stuck in a time warp getting nowhere fast. With data this clear, it truly begs the question – why do we continue to support such policy?
This federal election, middle class Canadians are being frightened by the Conservatives who claim that jobs will be lost and the economic recovery will come to a halt if the Liberals are elected and implement their plan to reverse corporate tax cuts, bringing them back to 2010 levels. The corporate tax rate is scheduled to decrease to 16.5% – the Liberals want to take it back up to 18%. Now, without context, this may seem like an asinine decision that will wreak havoc on the economy, when in fact, it isn’t. Relative to other countries in the G7, Canada already has the second lowest corporate tax rate in the West, a competitive edge that would not change if it was brought back up to 18%. Furthermore, one must question the true economic utility of the corporate tax cut, considering the USA, with historically the most productive economy in the modern world, has a corporate tax rate nearly 15% above ours.
Underlying the whole debate are two main premises. The first is the notion that lower taxes are the key to a more productive economy. Second, there is the view that a bustling economy will result in higher wages and improved quality of life for citizens. Let’s begin with number one.
While there is undoubtedly validity to a desire to remain within a reasonable competitive arena with regards to tax rates relative to other jurisdictions, we are confusing our means with our goals. Lower taxes do not create well-paid jobs, nor do they improve our productivity or raise real incomes. As we increasingly engage in a race to the bottom with Asia and other less regulated jurisdictions, we are decidedly lowering our standard of life to match theirs. As we lower taxes to try to compete with nations like China or India, all we end up doing is cutting into the very institutions that create and support our economic advantages – universal healthcare to support a healthy and productive society, public education to develop a knowledgeable and creative population, or essential civic infrastructure such as roads, sewers, water, and electricity that keeps our advanced economy moving forward. As we reduce our investments in these areas in an attempt to match developing nations’ tax advantages, we simply end up neglecting our own assets – strengths that, as of yet, can rarely be matched in such countries.
Additionally, if lower taxes spurred on productivity or investment, our economy should, on a per-capita basis, be on par with America’s, although that is clearly not the cast either. Canadian business leaders have for decades decried our productivity problem and yet lowering corporate taxes and incomes taxes for the rich has done little to reverse that trend. Quite simply, productivity is a measure of labour efficiency, a factor that cannot improve unless corporations re-invest their profits in their employees and industries. Canadian corporations have a knack for neglecting to invest in these critical resources, leaving our companies less competitive internationally and prone to takeovers from global investors. Recent analysis by the Globe and Mail has revealed that as the corporate tax rates has decreased over the past ten years, companies have decreased their investment in machinery and production – the complete opposite of what they’ve been demanding businesses do to improve productivity!
The second premise is the myth that the economic growth that we long for will result in an improved quality of life. For many, that means higher real incomes, as it is the basis upon which the luxuries of the now-globally-sought “America dream” can be purchased: the house, the car, the plasma TV, the vacations, and so on. As was already noted however, the “trickle down” economic policy of the past thirty years hasn’t improved real incomes for the middle class, while simultaneously decreasing real incomes for low-income Canadians, making the cycle of poverty even more ingrained than before. The only ones who have profited have been the rich. Unfortunately for the majority of Canadians, the so-called “dream” remains just that.
There was only one era in recent history where real incomes grew, quality of life improved, and wage disparities decreased. This time period, between the Great Depression and the end of World War II, launched the West into an era of vast prosperity for all – it was in fact during this time that the middle class was created. According to Paul Krugman, Nobel prize winning economist, the era he calls the Great Compression – as income disparity compressed – was precipitated on very different policies of the day: more income tax brackets with much higher rates for the rich, higher corporate tax rates, the minimum wage, employment insurance, social security, and the expansion of unionization. All part of the “New Deal” politics of the era, the development of the middle class in Western society took just eight years, according to Krugman. It has been slowly and steadily eroded ever since.
This lesson from history has much to teach us. First off, clearly our economic policy for the past several decades is not resulting in either the raising of real incomes for ordinary Canadians, nor is it lifting low income Canadians out of poverty. Our just society is more elusive than ever and obviously cannot come about as a result of our current economic philosophy.
Secondly, rather than tearing down unions, non-unionized workers ought to be organizing. When construction workers or service employees complain about their taxes paying for wage increases for public sector nurses or teachers, they are expressing frustration at their own lack of income improvement. Instead of trying to limit union workers demands, they need to start pressing their own employers for better wages, benefits, and working conditions. The companies that will succeed in the twenty first century are those that allow every employee the opportunity to earn a decent wage in a safe, respectable, and fulfilling work environment.
Thirdly, we must stop this race to the bottom. Canada is not China, nor is it Mexico, Thailand, or Bangladesh. We must recognize our own assets and continue to develop and market them on the world stage. We cannot play their game because we will not win. We need to keep the bar high, not just for safety, health, or environmental reasons, but for the very fact that these standards are what have come to define Canadian values and a Canadian lifestyle. We should never sacrifice these ideals to chase increasingly elusive, unstable, and low paying jobs that are being gambled off by transnational corporations to the lowest bidder. Instead, we must develop our own home grown talent, help instill a sense of socially-responsible entrepreneurialism in every Canadian, so that we can build the cutting edge companies and business models of tomorrow. The developing nations ought to be playing our game, striving to achieve our business standards and quality of life.
We have the potential to end the war on the middle class and to truly eradicate poverty in Canada, but it will only come about when we change our economic policies and begin to embrace and develop our unique assets in the West. The “trickle down” theories of the 80′s have clearly not worked – it is beyond time that we shifted gears into a new paradigm. Undoubtedly, the policies that created our modern society in the mid 20th century cannot simply be adopted wholesale to the global world of today. However, with some creativity, ingenuity, and innovation, I have no doubt that we will find a way to break out of our economic inertia, change course, and develop a “new New Deal” that will rise the tides across Canada and lift all boats into a new era of prosperity for all.
