Extreme Inequality Damages the Economy and Social Fabric

Wealth inequality in Canada is sky high.

Analysis from the Parliamentary Budget Office (PBO) shows the richest 1 percent control 24 percent of the country’s wealth, amounting to $3.5 trillion in 2021. Research from academic economists puts that figure even higher, finding that the top 1 percent control 29 percent of net wealth.

Research published by the Canadian Centre for Policy Alternatives in 2018 found that the eighty-seven richest families in Canada held as much wealth as the bottom 12 million Canadians combined. The 2025 Forbes Real-Time Billionaires list finds that seventy-eight Canadian billionaires hold $520 billion in wealth.

Canada is not alone experiencing extreme wealth concentration. In the United States, wealth inequality is even higher, with the top 1 percent holding approximately 35 percent of total wealth. At a global level, a recent Oxfam report estimates that the richest 1 percent now “own more wealth than 95 percent of humanity.”

This extreme inequality is corrosive, damaging economies, societies, and democracy.

A wide range of research, including from economists at conservative institutions like the International Monetary Fund and the Organisation for Economic Co-operation and Development (OECD), finds that inequality lowers economic growth and productivity. Inequality can lead to less investment in areas like education, meaning poorer people are unable to flourish and realize their productive potential. As one report puts it, “When those at the bottom of the income distribution are at high risk of not living up to their potential, the economy pays a price.” Inequality can also reduce economic growth by making it more volatile and less enduring and by lowering aggregate demand since poorer households are more likely than richer ones to spend most of their income.

In turn, failing to tax the rich means governments are forgoing revenue that could be put toward badly needed, highly productive public investments in infrastructure, housing, and childcare.

Investment in infrastructure like public transit boosts growth, productivity, and incomes. Investment in affordable housing, which eases housing shortages and contributes to lower rents, is not only good for renters but also for businesses that struggle to recruit workers who can’t find affordable homes close to work. The benefits of universal public childcare to women’s labor force participation are widely recognized.

Epidemiological evidence from across rich societies also shows that higher inequality worsens a wide range of health and social outcomes, including life expectancy, infant mortality, rates of mental illness, and social trust. The effects of high inequality on health appear to extend even to the affluent within a country, such that “living in a more equal place benefit[s] everybody, not just the poor.” Extreme inequality is also corrosive to democracy, with a growing body of political science research showing that income and wealth concentration has a distorting influence on politics and policy outcomes.

Despite this evidence, both federal and provincial governments are signaling their intention to squeeze social spending in the face of deficits, which would be devastating to Canadian society and economy.

Strengthening the public sector is essential to rebuilding Canada’s social fabric and withstanding external threats, including US protectionism and annexation rhetoric. A wealth tax could help create the fiscal space for urgently needed public investment.

A Wealth Tax on the Superrich Has Public Support and Global Momentum

A striking fact about a wealth tax is that 80 to 90 percent of Canadians across party lines back the idea in public opinion polling. Even many socially minded wealthy Canadians are on board, with groups such as Patriotic Millionaires and Resource Movement advocating for higher taxes on the wealthy — i.e., themselves. The same is true internationally, with polling showing strong global public support for taxing the rich across a wide range of countries, including in polling of millionaires in G20 countries.

Last year, the Brazilian presidency of the G20 commissioned a report from University of California, Berkeley, economist Gabriel Zucman, which lays out a proposal for a minimum tax on billionaires’ wealth. The G20 report is part of a rapidly growing body of economic research showing that wealth taxes on the superrich are technically feasible and can be economically beneficial.

Brazil, Germany, Spain, and South Africa have been at the forefront of the push for a wealth tax within the G20, with their finance ministers penning a joint statement of support last year. While there is momentum, there are holdouts such as the United States — despite strong public support in polling and with prominent wealth tax proposals from senators Elizabeth Warren and Bernie Sanders.

The good news is that individual countries can take effective action both unilaterally and as part of an emerging coalition of the willing. Canada should join the effort to push the G20 wealth tax agenda forward and help lead that coalition of the willing by implementing a robust, modern wealth tax.

What a Wealth Tax Could Raise

Consider an annual tax on the net wealth of families with rates of 1 percent above $10 million, 2 percent above $50 million, and 3 percent above $100 million. This means the first $10 million of any family’s wealth is entirely unaffected by the wealth tax. Based on modeling of the first year of this wealth tax, the bottom 99.4 percent of Canadians would pay nothing, while only the richest 0.6 percent would pay any amount. This means that only roughly one hundred thousand families across the country would pay any amount under the wealth tax, with ten thousand wealthy enough to fall into the second-highest bracket and 3,700 in the highest bracket.

This narrow tax on the wealthiest few would raise an estimated $39 billion in its first year, $62 billion by its tenth year, and $495 billion cumulatively over a ten-year window. These are net revenue estimates after deducting a generous $795 million in the first year (and rising) for enforcement, while accounting for levels of tax avoidance and evasion at the high end of estimates from recent economic research on wealth taxes. Revenue estimates use the Parliamentary Budget Officer’s High-net-worth Family Database model of the wealth distribution, along with Statistics Canada and PBO data to project for future years.

Notably, these tax rates would be expected to only slow the accumulation of the fortunes of the superrich, rather than erode them. Indeed, the estimated revenues continue to rise over the ten-year window. But given the threat that extreme concentrations of wealth pose to our democracy and economy, additional brackets and higher rates — capable of putting a lasting dent in those fortunes — should also be considered. For example, the US wealth tax proposals of senators Elizabeth Warren and Bernie Sanders included rates as high as 6 percent and 8 percent on billionaires. Still, the more modest rates proposed here may be a sensible place to start for Canada, particularly if acting as a first mover.

Making a Wealth Tax Work

A key question that arises when considering a wealth tax is whether it can be effectively enforced. There is no doubt that corporations and the wealthy have proved adept at avoiding and evading their tax obligations in recent decades. But leading experts on tax havens emphasize that this is “not a law of nature but results from policy choices” — and better policy choices can be made if there is political will.

Key design features for an effective wealth tax:

The growing body of economic research on wealth taxes finds that they can be effective and enforceable if they are well-designed. Unlike some older experiments with wealth taxes, modern wealth tax proposals have a few key and well-understood design features that minimize avoidance and evasion.

First, a well-designed wealth tax must have a comprehensive base, applying to all types of assets equally (rather than exempting certain types of assets such as real estate, which would make tax avoidance by shifting between asset classes easy and likely). Second, a wealth tax should be narrowly targeted on the superrich, excluding upper-middle-class households that may find it more onerous to make payments if their largest assets are illiquid. This also ensures that enforcement efforts and resources can be focused on the richest few. Some older European wealth taxes had poorer designs on both of these fronts, with too many exemptions for certain asset types and applying too broadly into the upper-middle class.

Third, an effective wealth tax must make use of extensive third-party reporting of assets particularly from financial institutions, rather than relying too heavily on self-reporting as in the case of some older wealth taxes. Fortunately in Canada, the key infrastructure for third-party reporting is in place because financial institutions must already report to the Canada Revenue Agency (CRA) about their account holders’ incomes, including capital gains income generated from assets. Employers, businesses, and other institutions similarly have obligations to report key information to the CRA. The recent expansion of beneficial ownership registries at the federal and provincial level will also help track asset ownership.

Third-party reporting should be complemented by the credible threat to the superrich of a lifestyle audit by the CRA. Those found to be engaging in tax evasion, as well as financial services providers that facilitate that evasion, should be subject to significant penalties. My modeling of wealth tax revenues already deducts a generous $10 billion over ten years for use in enforcement and administration.

But will the wealthy move their investments — or themselves — abroad?

One concern is that a wealth tax might lead to people shifting investments abroad, but the design of the tax avoids this concern. For Canadian residents, the tax applies to their total net worth above the threshold, regardless of where those assets are invested, so shifting investment abroad offers no tax advantage. For foreign investors not in the jurisdiction of the tax, incentives to invest in Canada remain unchanged (though the incentive of the very wealthy to move to Canada would be affected). Moreover, because it targets (very large) existing stocks of wealth, rather than the flow of income or the act of investment, a wealth tax avoids disincentive effects associated with taxes on productive activities.

What about (illegal) attempts to hide assets abroad specifically to evade the tax? Fortunately, international tax cooperation and information sharing have taken major strides in recent years. Under the Common Reporting Standard developed by the OECD and enacted in 2017, “more than 100 countries have agreed to automatically exchange financial account information,” including jurisdictions long recognized as tax havens such as Switzerland, Luxembourg, the Cayman Islands, and Bermuda. And it’s working. The Global Tax Evasion Report 2024 finds that “offshore tax evasion has declined by a factor of about three in less than 10 years.” The Common Reporting Standard continues to evolve and improve each year, and though the United States remains outside this system — while having its own reporting requirements — the ability to track offshore assets has become significantly stronger.

Another concern is that the wealthy themselves may move abroad in response to a wealth tax. Even if some do, that does not mean they can avoid the wealth tax. To reduce the incentive, either a substantial exit tax can be imposed (e.g., at 40 percent as in Elizabeth Warren’s proposal) or annual wealth tax obligations can continue to be applied after expatriation for a set number of years, as proposed in analysis for the UK Wealth Tax Commission. This would be a fair recognition of the broader society’s contribution to creating and enabling these fortunes.

Research suggests that this type of flight of the superrich is less common than one might expect and modest in its economic effects. After all, a household’s connection to a country is driven by many factors other than tax policy such as family, social ties, and even patriotism. As mentioned above, there are now many wealthy households in Canada and around the world publicly campaigning for taxing the rich. As for those among the extremely wealthy who remain intensely resistant to chipping in to build a stronger and more just society, we might be better off if they choose to leave. We can focus instead on unleashing the talents and productive potential of Canadians who care about building the country.

If there is progress among a coalition of the willing of the G20 countries toward creating an internationally coordinated wealth tax, the prospects for effective enforcement will be even stronger. Last year, G20 finance ministers pledged to “engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed,” and there is a push to make further progress this year. The progress to date in reducing tax evasion through the Common Reporting Standard shows that international cooperation is not only possible but can yield results quite rapidly.

Nevertheless, to add a layer of conservatism to my revenue estimates, I reduce the wealth tax base by 16 percent to account for any behavioral responses to the introduction of the tax including avoidance and evasion. This behavioral response factor is on the high end of the estimates in the economic literature, aligning with estimates by economists Gabriel Zucman and Emmanuel Saez for Warren and Sanders’s wealth tax proposals. These economists observe that avoidance and evasion levels could be even lower with a well-designed wealth tax and effective enforcement measures, noting that “evasion depends on the design of the wealth tax and the strength of enforcement.” Other research suggests a lower range for behavioral responses, such as the estimate of 7 to 17 percent in analysis for the UK Wealth Tax Commission. A proposal by economists for a Europe-wide wealth tax also suggests a lower behavioral response rate.

Tax the Superrich, Build the Future

A wealth tax on the superrich would be a strong step toward reinvesting in Canada. It could both raise funds to help reverse decades of underinvestment in our physical and social infrastructure and begin to tackle the extreme concentration of wealth that’s fraying the country’s social fabric and distorting its democracy.

At nearly half a trillion dollars over ten years — the revenue from a wealth tax alone could fund a suite of transformative national projects, including:

• Capital grants to enable 100,000 new nonmarket homes per year.
• Major new investments in public transit infrastructure and operations.
• A multibillion-dollar expansion of public childcare spaces.
• Universal public pharmacare.
• Large income transfers to reduce poverty and prevent homelessness.

These types of investments would not only help create a stronger society where far more Canadians have a decent, secure life, but also have significant long-term benefits for growth and productivity.

Creating affordable homes for hundreds of thousands of workers would allow them to access higher-wage jobs in cities that have long excluded them, helping workers and businesses alike. Transit investment would reduce costly traffic congestion and increase mobility and job matching between workers and employers. Public childcare investment would help ensure parents of young children are free to stay in the labor force if they choose. Universal public pharmacare would be far more efficient than fragmented privatized drug insurance with its huge administrative duplication across corporate insurers. Ensuring Canadians enjoy a basic standard of security and income would help unleash the potential of millions of people to make the contributions they want to their communities and economies.

Of course, a wealth tax is not a panacea.

To reduce inequality and create a fairer tax system, more policy action is needed to make large corporations pay their share, as well as to end the preferential treatment of capital gains income, which is taxed at half the rate of the wages and salaries earned by most Canadians. A more just and resilient economy would require strengthening workers’ ability to organize in unions and expanding opportunities to create democratic employee-owned firms. Solving the housing crisis would require ending the apartment ban imposed by big cities on most of their land so that we can actually build nonmarket homes at scale and end the overall shortage of housing supply.

A wealth tax can help Canada set its own course distinct from the colossus to the south.

It provides the opportunity to ensure that working-class people who create this country’s wealth actually share in it. Given its popularity across party lines, a wealth tax also has the potential to bring the vast majority of Canadians together at a time when our society is at risk of falling into the type of deep polarization that exists in the United States.

If Canada instead pursues austerity and underinvestment in the public good — and there are worrying signs of this from federal and provincial governments — the result will be a diminished society and a weakened ability to withstand external threats.

A wealth tax makes it clear: the country is not facing a bare cupboard. Canada possesses the resources and the choice to collectively invest in this country’s future. It also has the opportunity to lead — by designing a modern, best-in-class wealth tax and joining the growing international coalition committed to taxing the ultrarich. It is a moment worth seizing.