As extreme inequality has increased across the world, so too has the prevalence of calls for an annual tax on the wealth of the superrich. New analysis shows that a robust wealth tax in Canada could raise well over a quarter of a trillion dollars in revenue over the next decade. None of the parties currently vying for power in the upcoming general election are proposing a tax radical enough to raise these funds, though one offers a decent start.
Billionaire wealth skyrocketed in Canada and the rest of the world during the pandemic. COVID-19 also exposed major gaps in the social safety nets in place in many countries. In response to the crisis, nations, predominately in the Global North, embarked on a series of large-scale emergency measures to provide a critical lifeline to people affected by the pandemic. These extraordinary initiatives have raised the question of how the state could tap into concentrated wealth might to raise more public revenue going forward.
Eighty-nine percent of Canadians support a wealth tax. Even amongst Conservative voters the policy is incredibly popular; 83 percent of Tories are in favor of the tax, proving that it is an issue that unifies voters across the political spectrum. It is striking that a near-consensus among the public has translated so unevenly to the platforms of Canada’s major parties.
The federal NDP is proposing a modest 1 percent annual tax on net wealth over $10 million in its 2021 election platform. For a contrast, in the United States, Elizabeth Warren and Bernie Sanders have proposed wealth taxes of 6 percent and 8 percent respectively. Back in Canada, the Green Party is backing an even smaller wealth tax in its newly released platform. The Greens’ proposal is to apply the 1 percent rate to net family wealth over $20 million. The Liberals, Conservatives, and Bloc Québécois all opposed a parliamentary motion for a wealth tax last year. The Bloc now claims to support a tax, however the party has provided no details on its rate or the levels of wealth that would be affected.
Admittedly, the NDP, the Greens, the Bloc, and the Liberals each propose additional taxes on the well to do in their manifestos. None of these policies directly target the superrich or raise as much revenue as a wealth tax. In order to tackle extreme inequality we need to raise public revenue; to do so we need be willing to use every possible tool we have at our disposal.
Prior to the pandemic, wealth inequality in Canada had already reached new extremes. Research from the Canadian Centre for Policy Alternatives showed that in 2016, Canada’s eighty-seven richest families each held, on average, 4,448 times more wealth than the average family. Together these eighty-seven families held more wealth than the bottom 12 million Canadians combined.
The richest 1 percent controlled 26 percent of Canada’s wealth in 2016, according to a Parliamentary Budget Office (PBO) report. Recent academic research suggests that figure may be even higher at 29 percent of wealth.
Despite the increasing affluence of Canada’s richest families, the country’s 1 percent would not necessarily be rich enough to be subject to the wealth taxes proposed by the major parties. A tax on wealth over $10 million would only apply to the richest 0.5 percent — seventy-five thousand families in total. In other words, these wealth tax proposals apply only to the richest of the rich. Nevertheless, even a relatively moderate wealth tax could still raise significant sums.
How much revenue could a more ambitious wealth tax that is closer to the proposals made by Sanders and Warren raise? I created a model for a three-tiered wealth tax to answer this question. My model proposes a tax of 1 percent on net wealth over $10 million; 2 percent over $50 million; and 3 percent over $100 million. My revenue projection uses the High Net Worth Family Database from the Parliamentary Budget Office (PBO) and is informed by the latest research from academic economists specializing in wealth taxes.
This wealth tax would go further than the NDP’s proposal, which is the most ambitious plan on offer. Their plan is to apply a single tax rate of 1 percent on wealth over $10 million. But it remains much lower than the rates of up to 6 percent and 8 percent in Warren’s and Sanders’s recent policy proposals and draft legislation.
To make a dent in the enormous fortunes of the superrich, more aggressive rates than those currently on offer in Canada are needed. Implementing these policies will allow us to combat unequal concentrations of extreme wealth, rather than simply slowing its growth as lower rates would do. For a small country like Canada imposing more moderate rates rising to 3 percent is a sensible place to start.
Based on conservative assumptions, I estimate that the three-tiered wealth tax I have proposed would raise more than a quarter of a trillion dollars in net public revenue over ten years. Around $363 billion in total. If the tax were in place today, it would raise an estimated $28 billion in its first year, with revenues rising annually to $46 billion by its tenth year.
To put this in perspective, $28 billion is approximately what it would cost to pay for universal pharmacare, $10-a-day child care and eliminating tuition fees for post-secondary education. This would of course have knock-on benefits for the economy and household budgets.
The NDP’s modest 1 percent tax on wealth over $10 million would raise less revenue, but still a very substantial amount. If the tax were in place today, it would raise $17 billion in its first year, and $26 billion in its tenth. Over the course of a ten-year budgetary window, the NDP’s tax would raise a total of $218 billion. In contrast, the Green Party’s smaller wealth tax would raise $12 billion in its first year and $157 billion over the ten-year window.
Building a Wealth Tax That Works
By relying on more up-to-date research from academic economists specializing in wealth taxation, I was able to arrive at a higher revenue estimate than put forward by Yves Giroux, the current Parliamentary Budget Officer. Giroux’s current estimate for year one of the NDP proposal is $10.9 billion. Giroux’s calculations assume a very high level of tax avoidance and evasion that is not consistent with the most recent academic research on wealth taxes. This includes key work by economists Gabriel Zucman and Emmanuel Saez, who analyzed the revenue potential of Warren and Sanders’s wealth taxes, and the UK Wealth Tax Commission based out of the London School of Economics.
One of the key questions raised by conservative estimates of possible tax revenue is whether Canada’s superrich would flee the country to avoid a wealth tax. Some may, but a well-designed wealth tax will not allow them to dodge their tax obligations in this way. For example, we could levy an “exit tax” on ultrarich citizens attempting to avoid taxes. This is one of the suggestions made by Warren and Sanders in their respective proposals.
In the Warren and Sanders plans, they set exit tax rates at 40 percent, but in practice they could be set even higher. The UK Wealth Tax Commission suggests a similar policy option in which wealth tax obligations continue to apply to the superrich for a set number of years after emigration.
As Saez and Zucman emphasize, levels of tax avoidance and evasion can be managed through the policy choices that countries make. Ramping up tax enforcement and cracking down on avoidance and evasion is not only possible, they are essential to making a wealth tax work. The good news is that we already largely know how to do it.
Key measures include increasing funding for enforcement efforts focused on the rich, steeper penalties for tax cheats, enforcement against financial services providers that help enable evasion, and imposing stronger transparency and third-party reporting requirements on financial institutions doing business with Canada. Focusing a wealth tax on a narrow band of the richest 0.5 percent also helps facilitate a high rate of compliance audits. The growing body of research on wealth taxes outlines the practicalities of enforcement in more detail. The key barriers to wealth taxes are not technical or economic, but political.
Analysis from the PBO shows the effectiveness of stepping up enforcement efforts in the existing tax system. It estimates that the admittedly far too modest recent federal investments in business tax enforcement have brought in nearly six dollars for each dollar spent on enforcement. This is on top of the boon that the enforcement program has given to provincial revenues.
Taking Back Wealth to Fund the Public Good
Currently social services in Canada are in desperate need of public investment. Childcare and housing are unaffordable for most, millions live below the poverty line, senior care is seriously inadequate, and wildfires and other climate change–related destruction has wreaked havoc across the country. Responding to any of these crises will require the state to have access to additional sources of revenue.
Canada is more than rich enough to meet these challenges. But we need to harness our national wealth, which all of us have a hand in creating, and direct more of it into investments for the common good. A wealth tax on the superrich could play a major role in financing sustained social and environmental investments after the pandemic, which would enhance economic growth and strengthen the foundations of a healthy economy and society for the long term.
Of course, the wealthy in this country are influential and will fight to block such a policy from being enacted. It is, however, not inevitable that they will succeed. The question of whether we can work together to constrain their power over government policy and make them pay their fair share is political, not technocratic. We can build the class and social movement forces we need to make the wealthy contribute to the public good, and ultimately work to dismantle their control over economic life. The wealth they hoard — created by the working class — must be reclaimed.