The Curse of Being Rich

The times never change for people who want more government intervention in the economy. The Canadian Centre for Policy Alternatives (CCPA) has published a report[ref]http://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2011/01/Recession%20Proof.pdf[/ref]denouncing –yet again– that CEOs are making a lot. The report says that the latter are recession-proof, as they are making about 150 times more than the average Canadian worker in 2011; that is, $6.64 million compared to $42,988 per year.

But are they really recession-proof? Another report[ref]http://www.policyalternatives.ca/sites/default/files/uploads/publications/National_Office_Pubs/2008/Banner_Year_For_CEOs.pdf[/ref] that came out exactly two years ago clearly shows that CEOs are very vulnerable in a recession. Indeed, the 100 best paid CEOs in Canada were making $10.41 million on average in 2009. That’s a whooping decrease of 37% before inflation when compared to the 2011 report. Furthermore, it was shown in the 2009 report that the average Canadian was making $40,237. In 2011 this average Canadian was making 7% more before inflation. In summary, CEOs have been greatly affected, and quite honestly, more harshly than the average worker.

Meanwhile in 2009, CEOs were making on average 259 times the average salary. Interestingly, the CCPA doesn’t make a reference to previous years in the 2011 report. Why? What a mystery!

The “Sharing” Of Wealth

Notwithstanding this “minor” detail, I must ask myself one question: How pertinent are such statistics? I have never obtained a satisfactory answer in this subject, just that “I am crazy in defending such indecent salaries.” Of course, I was not told where this indecency begins or what difference in salary would be satisfactory.

As a matter of fact, the only “response” that I found on the Internet was that the high salaries of CEOs kept workers from obtaining their fair share of the created wealth. In other words, it said that if bosses were to make less (or were taxed more), the other workers would be richer.

The Equalization of Poverty

Is taxing your income more, and therefore better “distributing” wealth, a way of measuring the success of a society?

Before Deng Xiaoping’s economic reforms in 1981, during a period when the Chinese state controlled almost all of the economy, China’s Gini coefficient[ref] http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2009/11/30/000158349_20091130085835/Rendered/PDF/WPS5080.pdf , p.31[/ref] (a measure of the unequal distribution of wealth) was 0.291, which happens to represent a relatively egalitarian society. However, the poverty rate (people living with less than $2 per day) in the People’s Republic was almost 98%. In other words, Winston Churchill was right, “Socialism is the equal distribution of poverty.”

A generation later in 2005, the Gini coefficient rose 42.6% to 0.415…but the poverty rate decreased to 37%. I wonder which year the Chinese prefer, 1981 or 2005?

China represents an extreme example of the uselessness of the Gini coefficient. What about Canada? In 1981 the Gini coefficient was at 0.348 after taxes and social transfers[ref]http://www.stat.gouv.qc.ca/publications/conditions/pdf2008/inegalite_faible_revenu.pdf , p.102-103[/ref]; it increased to 0.395 in 2005, that is, 13.5%. However, the low income rate remained exactly the same[ref]p.140-141[/ref], that is, 15.4% of the population. In other words, even in light of a more unequal distribution of income, poverty remained relatively stable.

Even Manitoba was affected. In 1981, its Gini coefficient was 0.357, and it rose 4.5 % to 0.373 in 2005. However, the low income level rose 9.5 %, from 16.8 % to 18.4 %. At first glance, it would be worse than Quebec, the paradise of high taxes in North America. For the above mentioned period, the Gini coefficient in Quebec went from 0.345 to 0.382 in 2005, which represents a 10.7% increase, and its low income rate decreased from 18.7% to 17.2%.

But on closer look we realize that Quebec is not richer than Manitoba. Indeed, despite suffering from bracket-creep[ref]http://taxpayer.com/issues/manitoba/mb-end-bracket-creep[/ref], Manitoba’s net income after tax and transfers rose 7 % before inflation from 1981 to 2005, whereas in Quebec, it only rose 1.3 %. And since the Quebec government has decided to pay its deficit by raising taxes, Louis Riel’s province will keep being richer than La Belle Province.

Create rather than steal

In spite of what the CCPA and Ed Broadbent[ref]http://www.theglobeandmail.com/news/opinions/how-to-end-child-poverty-tax-the-rich/article1374806/[/ref]may think, taxing “the rich” in order to help “the poor” is completely futile. On the contrary, when we tax “the rich” less they have more money in their pockets, which encourages them to save part of it and invest the rest, which in turn creates more jobs. Let’s not forget that the richest 20% of people contribute to 60.6% of the income tax revenues”

Long live the rich!

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