Of all the things you could read that might induce the urge to wedgie a billionaire, a brief history of Canada’s highest marginal tax rate is a worthy choice.
I came across these figures while researching what would happen if Canada used World War II as a model to address climate change. The country was facing a global emergency that required every corner of the economy to work together in a short time. Canada needed to retrofit all kinds of private and government-held companies to build billions of dollars worth of stuff and train millions of people for new jobs.
In 1940, the Liberal finance minister took the unprecedented step of hiking the top marginal tax rate to 75 percent, and then raising it again to 85 percent the following year. Some provinces weren’t happy about it. Along with a five-to-seven percent “defence tax,” a one percenter from the so-called greatest generation could have ended up handing over 92 percent of their income during a politically fraught and apocalyptic period of history.
Of course, the rich weren’t the only ones who were leveraged for tax revenue during (and after) WWII. Low and middle- income earners were also required to pitch in to fund this terrifying global military project—many of them taxed for the first time.
But it’s worth noting tax on top earners stayed north of 80 percent for decades on both sides of the U.S.-Canada border. It wasn’t until the 1960s and 70s that the top bracket in both countries began a winding slide down to the 30-something percent range. Yes, there are various loopholes, exceptions and other economic caveats to account for, but the trend is a clear one. We used to tax the ultra rich way more than we do now, and it worked. (Cue the pitchforks?)
Now that scientific consensus says Canada is facing another terrifying global emergency, ie. climate change, there are experts who say we need more than a carbon tax to bring down emissions on an urgent schedule. Dennis Bartels, one of the first-ever researchers to look at the WWII model for climate change mobilization, believes a wealth tax absolutely needs to be part of Canada’s plan to decarbonize its economy.
Bartels and his daughter Natasha, who teaches high school history, reached out to me earlier this month with more lessons from Canada’s most radical economic experiment. They reminded me that the war effort also included providing housing and childcare for workers in new industries, and a focus on local food production.
But the biggest takeaway was that turning an economy on its head required the rich to pitch in more than the rest of us. This is how the country launched 28 new Crown corporations, including resource and energy companies, and remade our education and food systems to fit a new reality.
In the United States, where climate change and wealth taxation are more readily linked by mainstream politicians, multiple candidates are talking about a tax on billionaires. But here in Canada, where we’ve already got a carbon tax on the go, the climate discussion has mostly shied away from bold progressive income tax.
“What’s going on here is a carbon tax discussion,” Natasha said by phone. “I’m not hearing about just straight-up making the wealthy pay the money.”
Maybe this sounds like backwards thinking. Maybe it sounds like a bad idea to put the government in charge of innovating an economy, when private companies are theoretically faster and more adaptable. The Bartels’ ideas certainly sounded this way to UBC political science professor Kathryn Harrison, who studies carbon pricing.
“I am a big fan of carbon pricing as a policy tool,” she said. “It creates incentives for people to conserve energy, to switch to cleaner fuels, and especially in the case of large industrial sources, it gives them incentive to innovate and come up with new technologies that help us get around, design our buildings differently, manufacture differently.”
Carbon pricing is seen as a particularly elegant approach because much of it can be refunded to taxpayers, leaving the pressure to find renewable solutions to big companies.
“The potential to do those things at the lowest cost, I think is very important,” Harrison said. “I don’t think we can buy ourselves out of this one with tax dollars paying.”
In general Harrison is skeptical about leaving too much up to the government. She said that government subsidy programs that give a credit towards home retrofits, for example, often end up subsidizing the wrong people.
“The Conservatives in the last election were proposing very generous homeowner subsidies for retrofits,” she said. “My guess is that money wouldn’t pay for the full retrofit—it would be helping. And what that means is the money would typically go to people who can already afford to buy a new home, and can already afford to undertake renovations. So what we’re doing is taking money from taxpayers as a whole and then disproportionately funnelling it towards those who least need it.”
To be fair, the Bartels don’t seem to be interested in writing cheques for white middle class homeowners, either. The main thrust of ambitious plans like the U.S. Green New Deal is to redirect resources to historically underserved front-line communities—to invest in people who need it first.
Climate change disproportionately affects Indigenous people and people of colour, especially in Canada’s north. One of the examples Bartels gives for projects to reproduce across the country is the Kiashke Zaaging Anishinaabek/Gull Bay First Nation’s solar-powered electricity micro-grid, which replaced the community’s carbon-intensive diesel generators this year.
On a much larger scale, U.S. Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez want to use a $172 billion Green New Deal stimulus to upgrade low-income public housing so it’s carbon neutral. Worldwide there’s a projected $7 trillion that needs to be spent on climate infrastructure, it’s more a matter of who pays and when.
Harrison agrees that big government spends are necessary for things like zero-carbon public transit, but adds that ending fossil fuel subsidies should happen first before we talk about a wealth tax.
“The private sector can be very innovative,” she said. “The problem is we’re giving them the wrong incentives. And so they’re innovating how to get more oil, heavy oil, out of the ground at a lower cost.”
“What we need to do is set them loose with new incentives, rather than take them over,” she said.
Does everyone agree a wealth tax is needed to fight climate change? Of course not. What doesn’t seem to be in dispute is the enormous, nearly unfathomable scale of the problem. Humans have 11 years to basically halve our global carbon output, and 31 years to get to zero emissions. Anything less than that will cause irreversible “catastrophic” damage.
Harrison actually sees war as a helpful analogy for the challenge posed by fossil fuel-enabled climate crisis—it’s just not a template for how to fund a transition, she said.
“I do think that the war analogy is useful. Because in a bunch of respects it indicates the scale of the challenge we face—the level of emergency,” Harrison said. “It underscores that this is a collective effort. It's a reminder that we really can do big things in a short period of time.”
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