Fat tax

What are the fairest taxes? Dumb question. The ones other people pay, of course.

As we cruise towards a federal election in exactly four months and as the Americans wade into a presidential campaign, taxes are a big deal. In the last four years the Libs have gutted the contribution limit on the most popular tax shelter (the TFSA), raised taxes bigly with a new bracket for upper-income earners, assaulted the self-employed, eliminated small-business income-splitting and jacked taxes on stock options. If re-elected, the agenda may include higher capital gains taxes and lower dividend breaks. All in the name of fairness, of course.

The reason?

Simple. It’s the Gap. The income gap. The wealth gap. The 99% and the 1%. In a democracy nobody wins office promoting policies to assist the affluent, even if these are the folks forming companies and creating jobs. You gain power with ‘us’ vs ‘them’. In this case, you know who ‘them’ is. The more someone earns or has, the bigger the tax target they are.

The latest barrage comes, unsurprisingly, from Jagmeet Singh and his NDP. The “New Deal for People” platform, released days ago, says this:

To make our tax system fairer and ensure that the wealthiest individuals are paying their fair share, we will increase the capital gains inclusion rate to 75 percent. A New Democrat government will also boost the top marginal tax rate and ask the very richest multi-millionaires to pay a bit more towards our shared services with a new 1 percent wealth tax on wealth over $20 million.

Hmm. Increasing the cap gains inclusion rate would be a major change in tax policy and hit capital markets with a thud. As for the top marginal rate, it’s already over 50% in a majority of provinces, topping out as high as 54%. Should the state really take more than half what successful people earn? And then add a 1% wealth tax? (At least $200,000 more annually for the ten thousand people in Canada impacted.)

In fact, Jag’s got a whole video about tax ‘fairness’. Ensure you’re sitting down as you watch it.

In Canada, the lefties (which now embraces the Trudeau Liberals) and in the US, the Dems (AOC, Warren, Sanders et al) are out to exploit the Gap. The fiction is that there are so many rich people all government need do is prick them a bit more and, presto, money will flow for services and redistribution. Our political leaders portray upper-income dudes as coupon-clippers, trust fund kids, fat cat business owners, avaricious rentiers, slack-off professionals or privileged financial bloggers. In contrast, everyone else is a “hard-working Canadian”. Vote for me. You’ll get more. The other guy pays. How can you lose?

The experience so far?

The Trudeau eat-the-rich tax bracket was supposed to yield $2 billion in new revenue and pay for a teensy middle-class tax cut. But, whoops, didn’t happen. Seems rich people are like everyone else (who knew?). When you change the rules, they change with them. Because income morphed into other forms of compensation, the tax take has been pitiful. Meanwhile this erosion of the tax base has meant provincial coffers are also. The net impact of a tax increase has therefore been a reduction in overall government revenue. Obviously things are not so easy. Or voters have been lied to.

Well, as we lurch towards the election a poll finds 70% of Canadians support the idea of a wealth tax. If implemented, it might click in with assets at $20 million. Over time you can be sure the threshold would drop. Since ‘wealth’ includes the assessed value of a house as well as investments and the market worth of a business, the net would widen.

But it turns out that wealth taxes may be a bad idea, which is why only four countries in the developed world still have them. Now a study by the CD Howe Institute (yeah, I know – right wingers) concludes the Gap could be narrowed better by reforming existing taxes on capital, plus bringing in an inheritance tax. The study points out that real estate is already taxed according to its value by local governments, plus there are lots of people who have wealth but not much income. So how would a pensioner living in a house that the market pushed up in value pay? Is it fair to force them to sell?

Taxes in Canada have never been higher nor so pervasive. And yet the federal government spends far more than it takes in, adding the rest to the debt on which taxpayers pay gobs of interest. After giving billions to people to have kids, politicians are now peddling free pharmacare and hinting at a guaranteed income for all.

Telling voters the rich will finance this is fiction. It’s fraud. But it works.