Bank report suggests reducing income inequality good for economy

A recent report from the TD Bank calls for measures to reduce income inequality as a way to encourage economic growth.

The recommendations of the report are based on research by the Organisation for Economic Co-operation and Development (OECD) that found that a 1% increase in income inequality reduces GDP growth by between 0.6% and 1.1%.

Public services key to reducing income inequality

The report recognized the role expanded public services play in reducing income inequality. Health care, education, skills development and social programs were all identified by the authors as ways to make it easier for people with low incomes to reach their full potential.

Affordable housing and child care were identified as other areas where improved services would help reduce income inequality. Making post-secondary education more accessible for people from low-income families was also considered a significant factor in reducing income inequality.

Recommendations on universality could increase income inequality

Ironically, the recommendations the authors make for how to fund programs to reduce income inequality would likely make things worse.

The authors acknowledge the situation here is not as bad as in the United States, but the middle class is under pressure in Canada. Eliminating universal programs and replacing them with means-tested ones will penalize middle-income families who make too much to qualify for means-tested programs and not enough to afford the services they need.

In contrast, the authors don't recommend increasing income taxes or closing loopholes for those with high incomes. Both of these measures would mean those most able to afford it would pay for measures to reduce inequality.

Report assumes government must play role in building successful economy

While it wasn't stated explicitly, the idea that governments should intervene in the economy to reduce income inequality assumes that governments have a role to play in building a successful economy. As too many governments still believe that their only option is handing out tax breaks and hoping for the best, this point cannot be repeated often enough.