A individual’s income. However, when incorporating this kind

A tax
system is fundamental for a government to incorporate into society in order to
redistribute wealth and act as an important drive in economic development.

However, the problem lies in that present taxes in our society are becoming
increasingly biased. According to Piketty’s book ‘Capital’ it is feared that
without enough government intervention the 21st century will allow
for ‘patrimonial capitalism’ to return. The 20th century encompassed
bankruptcies, inflation and higher tax rates which led to income and wealth tax
having to be distributed equally. However, entering the 21st century
and leaving behind the years of economical crisis, income and wealth tax is
again giving way to income inequality. 1There
is an inevitable growing gap between the rich and the poor, and in order to
create a balanced and ethical market based economy this gap must be narrowed.2 As
governments and populations continue to grow so does the tax burden, for those
of a low income gap a higher tax is sufferable, and can lead to anti tax
movements of not paying taxes. However, tax is required in order to uphold a
country’s economy. The problem however, lies in that there is no regard for
differentiated incomes, political alignments differ between individuals and
there is no assurance that the government spends the tax money efficiently.

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            As aforementioned government
intervention is vital to stop this growing gap, governments should resort to
progressive tax systems, where the middle class is differentiated from that of
the upper class, and where tax is relative to an individual’s income. However,
when incorporating this kind of tax system governments need to consider how
they will simultaneously come up with certain revenue to cover demographic challenges,
and only taxing those of a certain social class. Essentially by only taxing
those at the top of the income scale not enough revenue is generated. Scandinavian
countries such as Denmark have found a way to incorporate a progressive tax,
which will be conveyed throughout the essay.

            This essay will explore tax
development and the extent to which income inequality is dispersed throughout
Canada. It will be conveyed in terms of income and wealth tax and how these two
tax factors have changed in the 21st century and are creating a
wealth gap in Canada. The aim is to distinguish the factors, which Canada must
incorporate in order to successfully reduce this wealth gap and control the
rising income inequality. The following research question will be the focal
point; if Canada were to incorporate structural progressivity into its tax
system and society, would this more likely create a balanced and future proof
tax system for the country?

            Income tax is defined as the tax an
individual or entities pay relative to their income or profit. This tax can
vary depending on a country’s tax system. As a result it contributes to
redistributing wealth into society and being used by the government for
demographic challenges. Wealth tax, on the other hand, is the tax on a person’s
total value; this means an individual’s personal assets.

           

Do we need to amend current tax systems to make
them more ’21st century-proof ‘?

            Income tax is defined as the tax an
individual or entities pay relative to their income or profit. This tax can
vary depending on a country’s tax system. As a result it contributes to
redistributing wealth into society and being used by the government for
demographic challenges, and social assistance. Wealth tax, on the other hand,
is the tax on a person’s total value; this means an individual’s personal
assets.     

            A tax system is one of the core
fundamentals in a country’s economy. It is vital to society in order to support
government and public spending, raising revenue for the government and for
implementing policies. However, the idea of a tax system being beneficial
towards a population has changed. The world is changing, governments and
populations are growing, domestic economies and world trade has significantly
grown, and because of this tax systems are constantly modified. Tax however, is
no longer identified as a beneficiary in creating welfare, its seen more as a burden.

            Tax systems need to be amended and
updated, in order to comply with the rapid developments in the 21st
century economy. As these developments occur, global inequality can arise, more
than ever before. To prevent these factors from occurring governments should
turn to implementing neutrality, stability and simplicity in their systems in
order to pursue these developments. Simplicity should be acquired in a tax
system since all the policies and tax legislations need to be straightforward
and understandable to those paying taxes. If there is lack in simplicity and
clarity, a system can be too complex which will lead to rule breaking; mistakes
and can misrepresent an entire economy. In addition it can distort a
governments image since it can lead to a non-productive administration. If
individuals are confused by their taxing systems then they may be more
negligent towards paying. Stability is fundamental in a tax system, since
society depends on a stable foundation. A population is more attracted to a
system they can trust and is seen effective. If a tax system encounters too
much turmoil and is being portrayed as one not aiding projects, which can
socially benefit society, then it has failed to comply. In addition, taxpayers
need the assurance of stability in order to plan their investments accordingly,
long-term planning and for on-going agreements. Furthermore, the objective of tax
neutrality is so a government does not favour any kind of individual, economic
entity, or activity over another. 
Neutrality in a tax system does not entirely support income inequality
as it leans towards a government being unbiased and not favouring an individual’s
economic behaviour. In contrast progressivity is the principle of
differentiating income classes. 3

            Although these tax principles are
the way to a good tax policy, and help create a more reliable tax system, they
can also be undesirable. Capitalists, big corporations as well as small wealthy
businesses, prefer an imperfect system, one where they can ‘cheat’ the system,
and pay less tax, for example; Canadian business owners using private
corporations in order to pay a less tax. Tax systems are mostly set up in order
to control and monitor economic activity, hence they are not desired by the
rich and corporations. By modifying these systems and making them ‘stable’ and
‘simple’, those in the high-income gap are less likely to find a way out of
paying more taxes, since the system is more fraudulent proof.  

Rise of Income Inequality in Canada

            Governments such as the Canadian,
led by Prime Minister Justin Trudeau, needs to acquire appropriate leadership and
acknowledgment towards solving the growing issue of income inequality in Canada.

According to the Organization for Economic Co-operation and Development4
(OECD)5, Canada
is categorized amongst 34 industrialized countries to be experiencing income
inequality. It has continually increased, ranking Canada no. 21. Canada is a
nation, which struggles with an unbalanced structure in terms of the income and
wealth taxation. According to The Conference Board of Canada, the
country’s income inequality rose in the early 2000s with
the 1 percent of high-income earners taking a third of the nations income. This
economic inequality is due to market forces creating less job opportunities for
the low skilled workers since the world has experienced great technical change
as therefore in need of more qualified and high skilled workers. Institutional
forces have also acted as a conduit to this problem, due to the population’s
political alignment, national policies supporting the high income earners more
than those in the lower income bracket, and in addition, the decrease in
minimum wage rates.6

 Canada is in dire need of proper leadership in order to regulate this
unequal income by fully supporting the middle class and incorporating a system
where minimal taxes are payed, and in order to do so structural progressivity
must be endorsed. 7

            A progressive tax has the objective
of taking proportionately more tax from those in the higher income level
bracket than those of the ‘middle class’. Furthermore, when doing so it will
create a system in order to redistribute this wealth into welfare benefits for
those in lower income level bracket. When adding or adjusting the tax system to
one with progressivity, it will mostly target those of major wealth, which is
undesirable to those in that category. In addition, policy makers must also take
into account how they will generate enough revenue, by adding this tax system
due to that the majority of Canada’s population is middle class. If Canada
chooses to apply a progressive tax system it would acquire many beneficial
aspects. It will narrow the recent growing wealth gap between the rich and the
poor, effectively aid in boosting economical development, due introducing a
more balanced and morally appropriate market-based economy.8

            Denmark can be regarded a successful
example of adjusting a country to a progressive tax system. The Danish society
and government form part of an egalitarian system meaning the Danish welfare
system aims on its citizens have equal access to the services, which are
essentially paid through taxes. Those of a high-income level have accepted
their responsibility towards the country and societal needs and hence agreed to
pay a high tax amount relative to their income. The middle class also pays tax
but it is proportionate to their income. Even though Denmark arguably has an
excessive tax on high earners, its system of redistributing wealth is exceptional.

The government manages to balance the economy and society by taking these tax
funds to cover its expenses by investing in welfare benefits for all. These
include; public institutions, free healthcare, hospitals, child benefits, state
pension and the police, which many countries do not offer. Policy makers use
this to incentivize those of a higher income level to pay a large amount of
tax.

            Progressivity in Denmark has its
downfalls for those with a high income yet it has managed to take these
undesirable amends and created a plethora of perks for its citizens. It is safe
to say that this nation has managed to create a balanced system politically
economically and socially; hence this system has shown its eligibility for the
future.

 

The undesired structural progressivity

            Progressive tax systems are
challenging to advocate for. It is undesired by capitalists, high-income
earners, and large corporations because it targets them, and taxes more of
their money. Furthermore, progressivity is a principle that needs to be amended
into a tax system, especially in the 21st century, where the economy
is growing rapidly and social gaps are widening. Governments must secure
themselves from global oligarchy, which results in the wealthy taking political
and economical power, and their public image. These adjustments will create
turmoil and will clash with heads of government and companies. Trudeau is
already facing huge backlash due to closing loopholes which allowed the wealthy
to pay less tax by using private corporations and stand by the middle class
paying minimal taxes. The prime minister of Canada will jeopardize his image to
the 10% of wealthy Canadians, and his public image will alter. Individuals and
multinationals for altering the norm will blame Trudeau, but at this rate
modern society must comply in order to prevent inequality.

 

Opinion

            A tax system can improve with the
right leadership and an appropriate strategy, which is ultimately approved by
all stakeholders. It is difficult for a government to implement a tax system,
which satisfies all due factors such as; political alignment. For a country
like Canada, with a very large population and many different social classes,
Trudeau will face hardship when wanting to alter the system, which has been in
place for so long. Those of the upper class will not want to consent; hence he
will face a lot of critique. However, with the right leadership Trudeau could
improve the tax system to a more equal one. He could integrate values like
those of Scandinavian countries, using a more egalitarian approach. It is a
lengthy process and it takes a long time for a country to trust change, but I
do believe improvements can be made for the sake of equal payment of taxes.

            As aforementioned, stakeholders such
as the individuals, companies, and the general public play an important role in
the change of a tax system since they are at the receiving end, as do governments
since they are incorporating the change and having to deal with the outcome. In
addition, when changing or implementing any new system, it is important that
those involved adjust their behaviour.

            Governments should adapt their
behaviour in order to identify with all of the general public, finding a good
balance with both the upper and the lower class. It may be that in times of
inequality the ‘underdog’ is favoured, thus the government should also behave
appropriately towards the upper class. As for individuals and companies of a
higher income level, understanding that those of a lower income level do not
have the means to pay as much tax as them, is important. This category
especially, is the one which is most targeted when making a more equal tax
system since they will end up paying more tax. The Danish are aware that if
their income level rises they will be paying more taxes, since they are earning
more than others. However it is a general understanding, that their tax money
will serve them greater utility since it is invested in the system for social
benefits. In comparison most wealthy Canadians, try and find all possible ways
to pay less tax. In terms of behaviour, Canadians of the upper class need to
adjust and accept the situation. A point to reflect on is, Denmark invests all
of the money earned off tax, into social benefits for its population, hence in
my opinion, when changing towards structural progressivity, Canada or any tax
system should look into what kind of incentives to offer its population. To
conclude the above points, a progressive tax system can massively encourage and
improve economic growth and a balanced welfare system if a country makes the
appropriate steps.

Research

            This essay focuses primarily on how
to make a tax system more future proof for a country, since changes in income
and wealth tax has allowed income inequality to arise. This has been explored by
researching and reflecting Canada and Denmark’s tax system. A point which must
be touched upon, is that Denmark has a population of approximately 5 million people,
which beneficial to the government is easy to manage, also it has a fruitful
economy to its advantage. Canada on the other hand has a larger population to
manage, but the key to solving its tax inequality is to differentiate its
population’s income.

            If the economic situation in Canada
were to change, would individuals of a lower income gap be more willing to pay
taxes? And if Canada were to lower the tax rate for the aforementioned category
and increase it for the higher income gap, what incentive could they offer in
order to have all the above individuals comply with this system?

A plausible
reason behind the income inequality can be due to political alignments. Not all
individuals agree on where tax money should be spent, hence it is important the
Canadian government implements social benefits with tax money, which positively
affect the majority. 9

            Hypothesis
1: By incorporating structural progressivity in their tax system, can
essentially lower income inequality in Canada.

x

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