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Our upper middle class has a lot of political clout

Canada’s upper-middle class is not without political clout. The “donor class” in the United States consists of a small number of very wealthy people willing and able to donate millions of dollars to causes and candidates they support. In Canada, restrictions on political contributions at the federal level (and in most provinces) impose caps on contributions, so the only way for political parties to raise large amounts of money is to persuade a large number of people to contribute. This means courting the upper middle class: the only group that combines both large numbers and (relatively) high incomes.

According to 2014 federal tax file data, the average political tax credit claimed by those with incomes above $250,000 was $317, the largest of all the income classes. But this accounted for only 12 per cent of the total: half of the total value of the political contribution tax credit was claimed by those with incomes between $70,000 and $250,000. This doesn’t translate exactly into the shares of the political contributions made (the tax credit rate declines with the amount contributed), but it does show the limits of appealing to the top one per cent for political donations. The upper middle class is a much larger market.

Remarkably, the Middle Class Tax Cut does not help people with median incomes

Since the upper-middle class is no more altruistic than anyone else, and better able to defend its interests than most, it is well-placed to push itself to the front of the line when income is being redistributed. The best example is perhaps the Liberal government’s “Middle-Class Tax Cut,” based on a narrative in which the middle class had been left behind. Setting aside the question of whether or not this story fits the data (I have my quibbles), the most remarkable—and yet still generally unremarked—feature of the tax cut is that it doesn’t help people with median incomes. (Defining the “middle class” has become something of an art form, but any reasonable definition should include the middle of the income distribution.) The people who benefit most are those with taxable incomes of around $90,000—that is, people near the 90thpercentile and almost exactly in the middle of the upper middle class.

The risk of investing too heavily into the idea that income inequality is about high earners is that it blinds you to what is happening in the part of the income distribution just below the top one per cent.There’s more to this story, especially its implications for social mobility. But that can wait until next week.

National Post

Stephen Gordon is a professor of economics at Université Laval.