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Tax the rich? It would be far better to improve the whole taxation system
Canada should be trying to attract more high-income earners and wealthy people
Author of the article:Kim Moody
Published Oct 18, 2023
“Tax the rich” has been a popular rallying cry for many people who feel victimized, entitled or have a weak understanding of how Canada and other countries tax their residents and redistribute income.
The phrase has for decades been good politics for many left-leaning politicians and political parties who use it, or something similar, to capitalize on the above group of people for their votes. Such a phrase is intellectually lazy despite its political appeal.
Given Canada’s progressive taxation system, the so-called “rich” already pay a disproportionate share of their income in taxation. For example, in 2020, the top 0.01 per cent of income tax filers represented a group of people who earned $2,829,000 or more. There were only 2,885 of those taxpayers for that year, but they paid 2.6 per cent of all the federal and provincial income taxes collected during 2020.
The top one per cent (representing the 288,400 taxpayers earning $253,900 or more) paid 21.1 per cent of the federal and provincial income taxes collected that year. The top five per cent (representing the more than 1.4 million taxpayers earning $132,300 or more) paid 40.1 per cent. The top 10 per cent (representing the almost 2.9 million taxpayers earning $102,400 or more) paid 53 per cent.
The bottom 50 per cent (representing the more than 14.4 million taxpayers who earned $40,700 or less) paid 6.5 per cent, which clearly shows the top 50 per cent of income earners paid 93.5 per cent of all federal and provincial income taxes paid. All this information is available from Statistics Canada.
Absorb that for a moment. The top income earners are obviously paying a disproportionate amount of the collected income tax. And, again, that is what you expect from a progressive income tax system like Canada has.
But how much is too much? Is there room to “tax the rich” more when the top five per cent, for example, are already paying 40.1 per cent of overall tax revenues?
Combine the above information with some left-leaning think-tanks and political parties that have been calling for Canada to introduce a wealth tax (apparently to solve “income/wealth inequality” with the Prime Minister’s Office also recently reviewing this possibility) and the possibility for behavioural responses amongst those people that contribute the most to Canada’s finances is high. I see it in my practice, particularly in the past six or so years.
My two cents is that the federal government has put itself in a tricky spot. Deficits have been ongoing and massive. Cost control is certainly not on the agenda. In order to fund continued out-of-control spending, there will need to be tax-rate increases, continued attacks on high-income earners/wealthy people and/or new forms of taxation introduced. The trick is to do this without having too many rich people leave Canada or exit the taxing system.
Some of my friends who don’t appreciate the disproportionate share that high-income earners already contribute respond by continuing to say “tax the rich,” or “just go get the money that the rich are hiding offshore” (this is a really misinformed comment), or “the rich have all the tax loopholes whereas the average person doesn’t” (again this is very misinformed and not accurate).
It’s disheartening to hear such responses since constructive dialogue on how Canada’s taxation system could be improved overall is badly needed. Bringing strongly held and flawed ideologies to the dialogue table is not helpful.
Overall, Canada should be trying to attract more high-income earners and wealthy people. They contribute greatly to our country’s overall taxation receipts that help fund social programs and infrastructure.
Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is www.linkedin.com/in/kimmoody.