Kevin Milligan

I’m honoured to be awarded the 2015 Doug Purvis Memorial Prize, given annually to significant writing on Canadian economic policy over the previous year.  The award recognized my C.D. Howe  Institute Benefactors’ Lecture “Tax Policy for a New Era: Promoting Economic Growth and Fairness” given in Toronto in November. I thank the selection committee for its work and I recognize the competition must have been fierce given the other high-quality articles I’ve read over the past year.

I’m glad the award will bring more attention to the main theme of the lecture: that our tax system both should and can strive to achieve greater fairness while at the same time encouraging economic growth.

I thank everyone at the C.D. Howe Institute for their support and encouragement throughout this project, along with the Chartered Professional Accountants of Canada who co-sponsored the Lecture.

In particular, from C.D. Howe I’d like to thank Daniel Schwanen who spearheaded the project, the top-notch expert committee which gave insightful and critical feedback that improved the lecture immensely, and finally C.D. Howe President Bill Robson who has maintained and deepened the Institute’s reputation for the highest standards  combined with an intellectual curiosity and openness to different approaches. From the CPAs, I thank Kevin Dancey for furthering the involvement of Canada’s accountants in supporting and contributing to policy discussions in Canada.

I’d also like to thank my colleagues at UBC’s Vancouver School of Economics. Recently, some have lamented the decline of policy-focused research in Canadian economic departments. In my experience, our School has leaned against these trends and made the VSE into a powerhouse for empirically-grounded economic and policy research.

Finally, I thank my family for their continued support of my efforts to contribute what I’m able. They make my work possible and worthwhile.

Synopsis of the Work

(The full lecture can be found here.)

The lecture is centered on a call to recast discussions of our tax system to consider both fairness and efficiency.

Over the past 30 years, the concentration of income among high earners (as noted by Piketty, Saez, Veall, and others) has increased across many countries, including Canada. A key feature of this trend is that employment income, rather than capital income is the main driver.

Moreover, our income tax system has not responded to these trends at the federal level, with no marginal progressivity at all within the income range of the top 1% of earners who have seen the most growth. This lack of progressivity may reflect concerns about the efficiency of taxing high earners, whether from tax avoidance or from displacement of real economic activity.

The lecture offers a proposed solution, borrowed from the Nordic countries: a dual income tax. Under this system, earned income would be taxed on a progressive schedule, perhaps more progressive than observed today. Investment income in contrast, would be taxed at a simple flat rate. (The C.D. Howe Institute made a fun animation to illustrate the idea.) This reform aims to increase confidence that economic outcomes are fair while at the same time ensuring the tax system encourages investment, in order to grow the economy of the future.

For some, this wouldn’t go far enough to address inequality; for others the consequences of taxing high earners more heavily might seem too severe. But I hope the lecture has, at the least, encouraged deeper discussion of how to achieve both greater fairness and efficiency in our tax system.