The Watson family inequality crisis

In our family, inequality has reached levels the CBC and Toronto Star would consider outright scandalous. There are four of us in the family and we are now, all of us, tax-filers—even if some of us file mainly to register for various refundable tax credits rather than to actually pay taxes.

The top 25 per cent of tax-filers in our family make 48.7 per cent of the income. Even more lopsidedly, the top 50 per cent make fully 97.4 per cent of total income. As that implies, the bottom 50 per cent make only 2.6 per cent of income. We’re basically like a Third World country. All the income (the wealth, too—though that would require a separate compilation) goes to the top half of the distribution. We have a sky-high Gini coefficient, almost certainly higher than South Africa’s (0.634), which the World Bank says is the world’s very highest (though not all countries have one. Yes, we’re talking about you Kim Jong-un).

The bottom 50 per cent of earners in our family are not hopeless cases (at least, we top 50 per cent sincerely believe not). Rather, they’re just finishing their formal educations. I and the other 25 per cent senior partner therefore fully expect the bottom’s income contribution to start rising. Once it does, the guaranteed annual incomes the two junior partners so far have been provided with will be withdrawn.

Mind you, the bottom half’s share will start rising anyway even if they don’t get jobs right away. One of the senior partners is about to retire from his main job. Family income will go down as a result. But because of this contraction of a top income the bottom incomes will increase as a share, up to at least 3.8 per cent in a first instance and then way up (we hope!) as they gain traction in the job market.

Eventually, we favour a complete reversal of roles, where the junior partners take over completely and earn the bulk of total family income. We senior partners hope to bring in our own small-but-steady stream each year but intend to rely on the new senior partners to provide the main family flow. By then family operations presumably will be divested into separate units. But if we did calculate a family distribution and if this happy inversion of roles had taken place, there might well be no change at all in the distribution of family income. The formerly senior partners would be contributing tiny shares while the formerly junior partners would be doing all the heavy lifting. People reading the data would see only that the Watson family inequality scandal—after improving somewhat—was raging again. If things went very well, our Gini coefficient would be back to exactly where it is now, displaying outrageous inequality.

What’s all this about?

Statistics Canada this week released its annual accounting of “High-income trends among Canadian tax filers,” which I’ve referred to elsewhere as its “annual contribution to class warfare in Canada.” The agency lines up all the country’s taxpayers and divides them into percentiles, i.e., one-hundredths. Of all these hundredths, it naturally focuses on the topmost. It turns out that for the first time in 10 years—yes, FOR THE FIRST TIME IN 10 YEARS!—the top one per cent’s share rose in 2015, the latest year of available data.

That’s good? That’s bad? Most people assume bad. But in fact how are we supposed to say? My own family’s income distribution is, as you see, extremely unequal. But I doubt if I revealed even more of the details, anyone would find it unnatural or unfair. Yet many tens of thousands, maybe even hundreds of thousands, of families pretty much like us make up StatsCan’s distribution of tax-filers. Some of us are making a lot of money because we’re at that stage of life. Others of us aren’t. Yet we’re all tax-filers. The four of us are in there. Your family is, too.

Income distributions can change for all sorts of reasons. I’ve got a chapter elaborating on that under-appreciated fact in my 2015 book The Inequality Trap: Fighting Capitalism Instead of Poverty. (You could change our family’s Gini by buying a copy!) The quote I put at the top of the chapter was from the late ’50s, early ’60s cop show, The Naked City. “There are eight million stories in the Naked City.” My point was: what’s behind changes in national income distributions is complicated. In presenting the data, StatsCan quite properly follows the advice of Detective Sergeant Joe Friday from Dragnet, another popular show of that era. “Just the facts, ma’am.” That’s exactly what it should do.

But to try to figure out what the facts mean and whether we should be worried about them, we need to know more of those millions of stories. Many different changes in the distribution could be perfectly benign and not require any form of offsetting policies.

My family's income distribution is no scandal. Really. But the simple inequality statistics of it are downright scary.