Canadian Income, Taxes, and Lottery Odds

• Lecture 5 focuses on social class and economic inequality

House Keeping

• The midterm is in the following week during lecture time (6:10–8 pm)
• Lectures 1-5 and textbook chapters 1-4 are testable
• This lecture is included on the test which contains 10 questions from this week's textbook and lecture
• The midterm accounts for 20% of the final grade
• Midterm format is 50 multiple-choice and true/false questions
• Dates, specialized statistics, and tutorial-specific information are excluded unless they are explicitly addressed in the lecture or textbook
• Student or government photo ID is required for entry
• Only hard copies of English to other language dictionaries will be allowed; English-only dictionaries are not permitted

Midterm Location

• The midterm is sorted alphabetically according to the first initial of your last name
• EX100: Abalos to Huang
• EX200: Huidor to Ryu
• EX310: Sabijon to Vanderstraeten
• EX320: Vandusen to Yu
• HA401: Yuan to Zuwirai
• EX stands for Exam Centre and is located at 255 McCaul St
• HA stands for the Haultain Building and is located at 170 College St., rear

Economic Inequality

• Refers to disparities in income distribution across individuals, groups, populations, social classes, or countries
• Studying economic inequality involves identifying the rich and the poor and evaluating disparities

Operationalizing Economic Inequality

• The first step in determining how to measure something
• Allows for regional comparison and comparison over time
• "Operationalizing" is turning an abstract concept into measurable observations

Key Questions for Income Understanding

• A major factor in inequality is that the means for measuring income and determining who is wealthy or impoverished
• Analysis of how current socioeconomic status compares to the past is a key factor

Adjusting for Inflation

• Inflation, over time, affects the value of income
• The Consumer Price Index (CPI) is prepared by Statistics Canada monthly as a means to measure inflation
• Inflation is determined using a typical basket of goods' fluctuating prices, which includes expenses like food, shelter, household operations, and clothing

Consumer Price Index

• The Consumer Price Index (CPI) from 1915 to 2022 is graphed
• In 2002, 1wasequivalentto1 was equivalent to 1wasequivalentto1
• In 1915 one dollar in 2002 was worth approximately $0.06
• In 2023, the CPI was recorded at 157 or approximately $1.57

Average Income Over Time

• Average income since 1976 looks like it has increased without accounting for inflation
• In 1976, average Canadian employment income was 14,119,comparedto14,119, compared to 14,119,comparedto81,703 in 2021
• By factoring for inflation, income rose 12,300from12,300 from 12,300from45,400 in 1976 to $57,700 in 2021

Income Measurement

• Inflation is not the only element that should be considered
• Two types of income measures are used to determine typical income
• Average Income which adds all incomes and divides by the total number of scores, however it may be skewed by outlier incomes

Median Incomes

• Ranking all scores from highest to lowest and recording the middle number is how the median is calculated
• Median is preferrable as it is seen as typically indicative because Bill Gates and Jeff Bezos who make millions per year pull the average up and as a result, skew the data

Income Example

• Consider a small group of 5 people with these respective incomes: 33,000,33,000, 33,000,36,000, 39,000,39,000, 39,000,42,000, and $5,000,000
• The average reported income for this group is $1,030,000, creating the picture of a wildly successful group
• A more accurate representation of the group's income would be the median income, in which case the middle number of $39,000 will be taken

Canadian Household Income

• The average income in Canada from 45,400in1976to45,400 in 1976 to 45,400in1976to57,700 in 2021
• Median income rose from 37,600to37,600 to 37,600to39,700 (+2,100), indicating the typical income had barely shifted at all
• The story a government is trying to tell affects how statistics are reported such as emphasizing average over median, accurate numbers

Income Types

• Further distinction between active and passive income can be made
• Active income involves exchanging time for money
• Compensation through a job self employment is concidered active income
• Passive income is income that is not tied to active labor
• Passive income does not exchange time for income, and often requires very little to no work.
• Investing in the stock or real estate markets, and other avenues is how passive income is typically earned

Stock Market

• In the stock market, companies raise money to grow business by selling shares
• Value of shares goes up and down based on company value and reputation

Bonds

• Buying a bond is equal to giving a company or business a loan that agrees to pay interest over some time
• They can also buy shares of commodities such as gold and silver, and real estate

Knowledge of Stock Market & Bonds

• Most people invest through retirement plans and should know how the basics work
• There should be a knowledge of how stocks work when retirement money is invested so that knowledge of how it works does not seem so scary or technical

Passive Income & Inequality

• Most think of income inequality tied to active/employment income
• Passive income is the major method through which the rich stay rich

Individual Activity

• Thinking about whether or not one thinks they will potentially be a millionaire someday is a key thing to consider on ones journey

Passive Income & The Rich

• Bill Gates has 3 children, the oldest being Jennifer Gates
• Wealth can be created passively through investing funds and accumulating interest over an extended period of time
• Generational wealth, or a lack thereof, significantly impacts opportunity

Matthew Effect

• Advantage accumulates in ways that allow the rich to get richer
• When one comes from advantage, loans and paying interest aren't a burden
• A net worth of 20 million in spite of attending a medical school indicates long-term financial benefits
• Kylie Jenner only entered the show at 9 years old yet is called a self-made billionaire by Forbes

Millionaires Percentages

• Less than 0.8% of people born to the lowest income quintiles become millionaires.
• 99.2% of people in this group do not get there
• On the other hand, 98% of multi-millionaire parents' children turn into millionaires due to inheritance
• 54% of millenials believe they will be millionaires
• Only 2% of people in the US turn into millionaires turning 40
• Real US millionaires are at 14% for those over 40
• 0.1% of Canadians earn a million or more per year
• 99.9% are likely to never earn a million a year

Taxing the Wealthy

• Amount of tax paid per year by those in the highest tax bracket
• Canada is in the 20th percentile of wealthiest countries for average tax rate for OECD countries
• Sweden's tax is 76% for those earning the most and Canada is 55% in comparison

Tax

• The majority of income from the wealthy is made through passive income like the stock market
• Tax is a force toward equality
• Wealth and income are suggested to not just be determined by one's effort as well
• Progressive taxation, increasing the amount of tax paid with a higher income, is justified through it being a form of wealth redistribution

Canadian Inequality

• The lecture pivots to examining how inequality has shifted since 1980
• The lecture examines changes in income over the last few decades
• The lecture considers whether or not taxation does a good job of keeping inequality in check

Average & median income

• When looking at average over median, it is indicitive of inequality as the median remains flat compared to the rising average
• It is only possible to measure income differently for different groups when the average or middle income are analyzed as a whole
• Quintiles are one way to determine how income has changed over the years for people on the spectrum

Quintiles

• Quintiles divide the population into 5 groups
• Top 20% of earners (80-100% group)
• Above average 20% (60-80% group)
• Middle or average 20% (40-60% group)
• Below average 20% (20-40% group)
• Bottom 20% of earners (0-20% group)
• It can be used to see for the top, bottom and middle earners how income changes

Quintiles Rankings

• When making quintiles, the numbers are only ordered and divided into the relevant income group
• $30,000 income is bottom 20% of earners
• $36,000 is Q1
• $40,000 is below average 20%
• $44,000 is Q2
• $48,000 is middle income
• $49,000 is Q3
• $51,000 is above average 20%
• $56,000 is Q4
• $68,000 is top 20% of earners
• $89,000 is Q5

Quintiles & Income Changes

• Income changes over time are broken down by quintile
• From 1976 to 2001 change in income:
• Lowest quintile rose +$600
• Below average quintile rose +$1,200
• Average quintile rose +$6,100
• Above average quintile +$13,100
• Top quintile = $32,600

Canadian Income

• From 1976 to 2001 change to income:
• Middle class earners have little change compared to top earners
• The top 20% make 54.3x more than bottom earners and 5.3x the middle

Income Measures

• Before-tax income is defined the way most have so far in the lecture, all income from home after taxes and transfers

After-Tax Income

• The more someone earns, the more someone pays in taxes
• After-tax income and tranfers are measure of changes to inequality
• Payments to the poor and Canada's pension plan make this an improvement
• As the lecture adjust for both taxes and transfers, there is an examinition of individual, by quintile, economic changes

Taxed Quintiles

• Adjusted for tax and transfer income changes (1976 to 2011):
• Lowest quintile rose +$4,000
• Below average quintile rose +$5,900
• Average quintile rose +$9,100
• Above average quintile +$12,800
• Top quintile +$24,700

Bottom and Top Income

• The bottom three quintiles made more gains than initially thought
• Inequality still grew, with the most wealthy accumulating even more income

Gini Coefficient

• Also known as the Corrado Gini who popularized it in 1912 is used to measure inequality
• Gini scores range from 0 or 0% perfect equality to 1 or 100% a perfect state of inequality
• Canada's gini coefficient without taxes was.36 in 1976 compared to .43 in 2021
• Gini grew less when accounting for taxes and transfers but still increased .28 to .31
• Sweden is the most equal at 100 compared to the US at .40
• Canada is in the mid range for wealth amongst countries like Australia canada, uk Germany and france

Canada As It Compares

• Canada has a higher amount of inequality than many other European countries including:
• Sweden which is at 29.8%
• France which is at 31.5%
• Canada is at 31.7%

Canadian Wage Inequity

• Canada since 1980 has been heavily impacted by reasons mainly:
• The rich have become much richer
• Worker’s have lost bargaining power
• Corporate consolidation as small businesses have largely disappeared

Very Rich

• Top revenue earners had 13% of income comapred to 8% in 1980
• Because companies can move workers overseas and play countries against each other for low rates, the rich have gained from rising CEO pay

Workers

• It increases company profits and decreases worker profit
• A worker’s power has ties to how they will be replaced
• A union declines leads to decrease in bargaining power
• Unions are also largely in the public sector meaning there is very little in any of the private sectors for this

Consolidation

• Multi-National Corporations are able to thrive due to globalization which allows them to edge out any more local competition for business
• Luxotica, for example, owning almost all stores forced other brands to sell out such as Oakley who had there supply cut off

Canadian Market

• The ability to move companies has meant more profits as well as means more profit for the CEO and also increases consumer rates
• Walmart, for example, can sell products a lot cheaper than a regular main street store does leading them to sell a lot of small stores out of business

Final Main Points

• Wealth has grown greatly since 1980 as we've seen wealth become more and more unequal among all nations
• Because of the Matthew Effect, young millionaires are born to wealth and inheritance, the rest of us have a 14% chance versus 98 percent
• Corporations tend to try to reduce worker pay as that gives better overall profits
• Wealth continues to rise as is largely for the reason among the CEO and high end people versus average pay

Household Income

• Households that gain 2 incomes makes the household wealth look better
• These numbers don't calculate and include inequality very well

Extra Incomes Effect

• Stagnate increase that is not seen as unequal to social standards
• Loan access has grown tremendously which allows the goods needed to still be within access

General Comparison

• You technically get better in accessing things but technically you get poorer at saving
• This affects loan interests as well as payment processes as the cost of living overall goes up
• 1960 you used to be able to live with just one income versus now you need 2 to live
• As there are more workers needed that means that individual incomes go lower and the amount needed goes up
• This masks the higher number of people needed and makes income very low

Wealth

• Made people accept stagnant wages
• But 2 parts come to how much debt Canada has
• And how much someone needs
• Wealth refers to a persons networth as a whole and possessions
• 3 parts including assets liabilities and net worth
• Assests mean Real estate value, jewelry value, retirement, electronics
• Liabilities include debit car mortgages etc
• Networth is assets vs liabilities

Current Standard

• Its all so common in Canada. It's all about comparing numbers
• Invisible inequality is that people do not tell everyone how much their expenses and debts all cost leaving this number rather discreet and unable to identify where an inequality could form over time
• Because of low costs most feel rich but often is not a fair way to calculate a wealth of their status

Examples

• 2 families can be identical in income but they may have vastly different situations such as one who doesn’t pay loans to others and one with an investment
• All is not what is seems
• A rich family won’t use loans as they have it as a net positive where they might have 150,000 dollars as a number but a poor one has loans that all subtract each one

Invisibility

• It’s extremely hard to see these inequalities as they are invisible
• Most Canadians are accepting to live with an amount of debt
• This is a newly established phenomenon
• The average house in Canada used to cost $45000 in 1976. And now it is many many multiples of the income
• As all the debt increases it becomes very important to know these points as if we go on this status wealth is not likely to become too apparent amongst individual cases

More In Depth Analysis

• $250 dollars compared to two wealthy families can vary in the types of spending that each has.
• This overall affects which family saves and which family spends

Conclusions

• In Canada wealth has simply become far more inequitable and higher compared to previous years
• Also Stagnant wealth has gained a lot due to households as one main worker would work during any stage in family development
• In addition canadiazn families have used wealth better and all this has lead to more payment and such
• This is extremely impactful as high payment and wealth leads to a massive crisis.
• The level has high levels which is only maintained by workers and owners.
• Based on currents it'll always stay higher