The federal NDP has proposed a 1 per cent tax on wealth above $20 million. Economist Sheila Block of the Canadian Centre for Policy Alternatives, argues this is a good idea, while Aaron Wudrick, the federal director of the Canadian Taxpayers Federation, says it is not.
Our total economic activity per person — what economists call “real GDP per capita” — is at a record level.
So why do so many of us feel broke?
Many of us are: the benefits of our economy aren’t being shared fairly. While unemployment rates today are low, many Canadians don’t have decent work. They struggle to get by on part-time or temporary jobs with low wages, few benefits, and no job security to speak of.
Our politicians have done too little to make bad jobs better. And they haven’t done enough to strengthen the public services we all depend on. That’s why parents are struggling to pay for child care; students are burdened with too much debt; and housing costs are through the roof. Meanwhile, our response to the climate crisis has been lukewarm at best. We need to invest more.
But if Canada is richer than ever, where’s the money?
Look up. Look way, way up.
In 2016, the 87 richest families in Canada had a total net worth of $259 billion. According to a report by the CCPA’s David Macdonald, that’s nearly the net worth of every person living in Prince Edward Island, New Brunswick, and Newfoundland and Labrador put together.
Put another way, those 87 families own the same wealth as the 12 million poorest Canadians. Those 87 families have more than 4,400 times the wealth of the average Canadian family.
The corrosive effects of inequality on society are well known. High levels of inequality lead to reduced life expectancy, lower economic growth, and other social ills. And when people work hard but never seem to get ahead, it’s fertile ground for populist politicians who blame it all on immigrants or taxes.
There is no surer way to reduce inequality and boost our economy than to fund the public programs people need. Why can’t child care be affordable, post-secondary tuition free and decent housing within reach? Why can’t we find a place for every senior who needs the care and attention of a well-staffed nursing home? Why can’t we be a leader on the climate crisis?
The answer is, we can. But to do so, we need to direct the wealth of this country to where it will do the most good. And a wealth tax would help us do it.
The idea that those who have more should pay more is a well-established principle of Canadian taxation. A wealth tax would make our current tax system more progressive — and fairer.
Wealth is very lightly taxed in Canada, with loopholes throughout the tax system. If you make money selling stock or real estate, you get a half-off coupon on your taxes. If you make much of your income from corporate dividends, there’s a tax break for you too.
Individual wealth is built on the wealth of our nation as a whole. None of the individual investments that made the rich richer could have happened without the vast public investments in infrastructure, education, and the institutions (like our courts) that make a modern economy possible. Millions of Canadians, past and present, have worked hard to make Canada a place where investments pay off.
We all deserve a fair share of the wealth we have created together.
Will some individuals try to avoid paying a wealth tax? Undoubtedly. Any government that taxes wealth must be vigilant in tracking — and adapting to — the strategies high-priced accountants will use to help their clients minimize their taxes paid.
But even taking possible tax avoidance into account, the Parliamentary Budget Office estimates that the New Democratic Party’s current proposal for a one per cent wealth tax on wealth above $20 million would raise almost $70 billion over 10 years.
One per cent of net worth is a very modest level of taxation. With a wealth tax at that level, the fewer than 10,000 Canadian families who would pay it wouldn’t be forced to change their lifestyles in any way. But Canada wide, the money raised could do a lot of good.
It’s time to mobilize the resources of this incredible country. It’s time for a wealth tax in Canada.
It’s a timeless principle of electioneering: there will never be a more politically appealing group to put in the taxman’s crosshairs than the “superrich.”
It’s no surprise that NDP Leader Jagmeet Singh recently targeted the wealthy in his party’s major campaign planks and proposed a new one per cent wealth tax on families with more than $20 million in assets. According to an analysis by the Parliamentary Budget Officer (PBO), this new tax could raise billions of dollars annually.
Money for the government kitty with millionaires and billionaires paying all the freight? Sounds like a slam dunk — until you start reading the fine print in the PBO’s analysis.
First of all, the PBO notes that the “estimate has high uncertainty.” Why is that? Among other things, “a large behavioural response is expected.” That’s economist-speak for “rich people will hire as many lawyers, accountants and tax planners as they need to minimize their tax burden.”
Why does this matter? For starters, it undermines one of the intuitive reasons to go after the rich in the first place: that they’re so flush with cash they’ll barely even notice they’re being asked to pay more.
Inconveniently, there’s plenty of evidence to the contrary: the richer you are, the more sensitive you are to tax increases, and the greater the likelihood you’ll take steps to adjust your affairs accordingly to (legally) avoid them.
But let’s set that aside. Nobody’s shedding too many tears for the super rich. Surely it’s still worth doing, even if it doesn’t bring in as much cash as initially projected, right?
That’s not the conclusion many European countries have reached. Nine out of 12 countries that had a wealth tax in 1990, including France, Germany and social democratic stalwarts, such as Sweden, Iceland and Denmark, have ditched them. The reasons include low revenues, high administrative costs, and — surprise surprise — an exodus of high net worth individuals.
A tax that yields little revenue (in the European cases, around 0.2 per cent of GDP) while having other negative impacts on the economy, makes for poor policy. This is especially true where it carries a high administrative cost to enforce, another inevitable feature of tax that relies on such a vast array of different assets. In Canada, an additional wrinkle is that our tax system is currently designed to tax individuals, not families, meaning that applying a family-based wealth tax would not be compatible with the overall tax system.
Finally, when rich people actually do pull up stakes and leave over taxes, it may be easy to simply wave goodbye while thinking “good riddance.” But once we get past blowing off that emotional steam, we’re still left with a problem. When the wealthy leave a jurisdiction, they’re not paying any taxes there any more. Trying to squeeze a little more comes with the risk of getting nothing.
It’s also worth noting that in many respects, we already have a wealth tax for at least one very common asset — real estate — in the form of municipal property taxes. That means imposing an additional wealth tax would simply be inviting the federal government to dip into what has long been understood to be a municipal revenue pool by hitting up the same taxpayers twice for the same asset.
Defenders of Singh’s plan will point out this tax would only apply to those with more than $20 million in assets so most people shouldn’t be too fussed. And while this may be politically shrewd — the richer the targets, the less sympathy they generate — from a policy perspective it is unwise to put so many eggs into such a small and mobile basket.
Leaving the government’s future revenue stream exposed to the behavioural responses of a very small group of people is risky, especially in contrast to alternative tax approaches that rely on a broader tax base.
Wealth taxes might sound like low hanging fruit, but don’t be fooled. They can trigger problematic responses from the people they target. They’re an administrative nightmare. And they just plain don’t bring in as much revenue as their proponents hope.
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