The wealthy are expert at hanging on to their wealth, often through concealing its existence in tax shelters, offshore, and in private corporations. It’s part of the reason our wealth inequality is now growing very fast.
The Trudeau government is fond of bragging about how much its tax changes have done to bring tax fairness to families. Their increases in child benefit payments and changes in pensions have been helpful. But this government has done almost nothing to ensure that the wealthy pay a fair share of tax.
Thomas Piketty, the French economist, pointed out in Capital in the 21st Century that progressive income taxes without parallel taxation of inherited wealth cannot narrow the widening gap between rich and poor. Year over year investment income grows faster than wages. In the five years up to 2016 Canada’s wealthiest got richer by more than a third. Middle class Canadians wealth grew by less than half that. Canada’s richest 87 families are today richer than the bottom third of Canadian families — 12 million Canadians.
Surely, if we set a reasonable exemption level — perhaps $1 million for a house, family business or other investments — it would be fair to tax the remaining capital gains at inheritance. Most G7 countries do. As our last tax fairness inquiry, the Carter Commission, declared, “a buck is a buck!” Accepting the argument that some dividend payments and capital gains have had tax already paid by the corporation that paid you, we should allow some exemption, to avoid double taxation. But we currently allow half of all capital gains to escape taxation.
The argument that it will kill investment can be dealt with — grant tax writeoffs on capital investment losses at the same rate, against any other income. Then even the riskiest investments are worth making. Technical studies by many senior economists have endorsed such an approach. Many wealthy Canadians make big contributions to charity, many more do not. As Warren Buffett put it so pithily, should he not pay tax at least at the same rate as his secretary?
The argument against taxing wealth are eerily similar to those used against decent minimum wages: jobs will be killed, job creating corporations will leave, the most vulnerable people will be victims. Most recent economic studies debunk this, pointing to little evidence of any impact on employment, but transformational changes in the lives of poor families.
Jagmeet Singh outlined one approach to a better wealth tax at the Broadbent Progress Summit recently, suggesting reducing the capital gains exemption to 25 per cent, or as economists say taking the capital gains “inclusion rate” up to 75 per cent, raising $3 billion dollars annually.
Alternatively, we know that investment income grows faster than wages. We know that corporations rarely pay anything like the statutory rate of tax. With big data tools we can now know precisely what a corporation paid in tax. So we could say, “That is the amount, not 50 per cent, that you get to escape tax on your capital gains from selling an investment in that company.” The “don’t scare away capital” arguments against trying to ensure greater fairness taxing wealth are no longer credible, defensible or necessary.
It is in this widening gap between what your children will start their adult lives with, versus the poorest 12 million Canadians, that is the source of much of the anger, racism, and right-wing populism. Fair taxes on the accumulated wealth of the richest Canadians could fund a national child care system, could dramatically cut post-secondary tuition, could go a long way toward eliminating child poverty. Would that be painful for the wealthy? Hardly. Would it be transformative of the lives of most Canadians. Absolutely.
The proposal to decrease the capital exemption rate is a good one and would certainly increase the progressivity of the income tax system. However, it is not a substitute for a tax on inheritances. Ideally, one would want to both reduce the capital gains exemption (at least to 25 per cent) and introduce an inheritance tax. The two are complementary.
Robin V. Sears is a principal at Earnscliffe Strategy Group and was an NDP strategist for 20 years. He is a freelance contributor for the Star.
https://www.thestar.com/opinion/star-columnists/2019/04/21/isnt-it-time-the-wealthy-paid-fair-taxes.html
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