From time to time it’s important to return to first principles when trying to understand what’s happening in the world. Inflation is out of control and consumers are getting gouged as the COVID-19 pandemic approaches the two and a half year mark. Why are things so tough? Yes, there are supply chain issues and a war that has driven up energy prices. But there’s more to it than that. Price gouging is driving up the cost of living, too.
What is the goal of a private firm in capitalism? To make a profit. Or, more precisely, to maximize profit. Every other consideration — worker well-being, consumer interests, environmental sustainability — is secondary, if considered at all. Indeed, to the extent that secondary interests are factored into the business model at all, they’re also viewed through the lens of maximizing profit.
It’s no surprise, then, that Canadian corporate giants have been making out like bandits throughout the pandemic. In the Breach, Dan Darrah notes that, while food bank use is surging and 20 percent of Canadians are reducing food intake to save money, grocery giants have more than doubled their profits. That finding comes courtesy of Canadian Centre for Policy Alternatives economist David Macdonald.
What is to be done? The New Democratic Party (NDP) has been suggesting an excess profits tax for years. In the fall of 2020, the party reminded the country that “Canada’s top twenty richest people are close to $40 billion richer than they were before the pandemic hit.” Since then, things have only gotten worse. At the time, NDP leader Jagmeet Singh proposed a 1 percent tax on families “with fortunes over $20 million” alongside higher taxes for web giants and “a temporary COVID-19 Excess Profit Tax.” The rate of this tax would have been hefty: double, at least, what the Liberals levied in their partial measure.
The goal of an excess profit tax is to combat profiteering during a crisis. Such a tax can serve to help limit inflation by keeping prices unrelated to supply chain issues down. As Darrah writes, “Historically, these taxes have been used during wartime to discourage war profiteering. They target companies whose profits have grown well in excess of what they would normally grow during a crisis — like a war or pandemic.” The revenue collected could then be redistributed. According to the Parliamentary Budget Office, the 2020 haul would have been roughly $8 billion. More recently, Singh has asked for an immediate redistribution of $500 to $1,000 to folks to help with rising costs.
In the spring, the Liberal government, pressured by the NDP, introduced its own temporary excess profits measure on banks and insurance companies. But that tax, at 15 percent, doesn’t go nearly far enough — it fails both because of its low rate and its limited sectoral scope. It wasn’t sufficient at budget time in April and it certainly isn’t now. The NDP has it right: there should be a widespread and high Excess Profit Tax. And the revenue it generates ought to go back to the people being gouged — even more than usual — by the oligopolies who dictate consumer life in Canada during good times and bad. It is, as always, regular working people who are struggling the most.
The idea of an extraordinary tax to meet an extraordinary moment isn’t unique to Canada. The United Kingdom, governed by conservatives, launched a one-off windfall tax in May. The 25 percent tax applies to oil and gas companies; the revenue it raises is targeted for redistribution to low-income households. The measure is expected to pay out roughly CAD$1,000 to recipients.
As expected, corporate interests have raised a stink, trotting out the tired old threat of lower investment in the sector. The whining comes as household energy costs in the UK are soaring at double-digit rates and firms make a killing. According to the BBC, British Petroleum’s profits “more than doubled in the first three months of the year while Shell’s profits nearly tripled.” Canada has experienced the same push back from capital, with banks and their typical toadies complaining about big finance paying their fair share.
You’d think opposition to price gouging during multiple crises — a pandemic, a war, climate change — would be a no-brainer. Yet we are so conditioned to believe in the “meritocracy” of the market and “natural” prices, so cowed by the threat of a capital strike should we ask fabulously wealthy corporations to contribute a shred of their profits so that people don’t starve, and so captured by the logic of unrestrained profit that the idea of a broad, high-rate excess profit tax has yet to be adopted.
These extraordinary policy measures serve to highlight how bad things actually are during ordinary times. In the light of this exceptional moment, we can clearly see the workaday grotesqueries resulting from capitalism: wealth and income inequality, housing crises, routine market crashes that help the wealthy and harm the poor, an imbalance of power between worker and employer, food insecurity, and far more. Many of these phenomena are accepted as “normal,” yet they are anything but. Not only are excess profit taxes necessary during atypical moments like the pandemic — they are also the spear tip of the change we need in the world.
If Justin Trudeau’s government passes on the NDP proposal, it will be a loss for the country and those struggling to get by. It will also be a defeat for Singh’s party, which has entered in a confidence and supply agreement designed to keep the Liberals in power until 2025. The New Democrats should go all in on the tax nonetheless. Not only is it a good idea that will help people, it will also distinguish the party from the Liberals and their inadequate plan — or lack thereof — to address the affordability crisis. It is a small prelude to the actions that we must undertake to ensure a livable world for everyone.