Rich the Rich may be fun, but it's not profitable.

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With the capital gains tax increase in the budget, the federal Liberals have launched another missile at Canada's wealthy. Although this is nothing compared to Iran's devastating attack on Israel, tax increase after tax increase over the past decade has taken its toll as impatient taxpayers seek options to protect themselves from a relentless taxing and spending government. It became. .

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To be fair, the federal Liberal Party is not the only party targeting high-income earners. Provinces have increased personal income tax rates since 2013, particularly in British Columbia, Ontario, and the Atlantic Coast. Even Alberta raised its top provincial tax rate from 10% to 15% in 2015, but the Smith government has so far shown little intention of reversing this growth constraint.

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Not only has the top marginal tax rate been increased, but so have other punitive taxes focused on the wealthier. The salvo includes increased taxes on many private businesses, progressive property and land transfer taxes, luxury taxes, means-tested benefits, and most recently, increased capital gains taxes.

Soak the Rich is always fun. In the federal budget, a nurse who earns $70,000 and pays taxes at a rate of 29.7% and a million others who pay just 26.8% on capital gains (half of Ontario's top personal income tax rate of 53.53%) Comparing dollar investors. But this argument is embarrassingly misleading. Capital gains arise from reinvested profits that have been taxed once at the business level. In Ontario, the combined corporate and personal income tax rate is 46% on every dollar of capital gains, much higher than the personal income tax rate paid by nurses.

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Because capital gains taxes are deferred until the investor disposes of the asset, corporate income tax effectively acts as a withholding tax. Because the profits are already taxed as profits, investors will have to pay less tax than on salary income. The same point applies to dividends, but they are also subject to both corporate and personal tax, so they should be taxed more than salary income. However, dividends and capital gains are not equivalent. Capital gains are not indexed to inflation and are a much riskier source of income.

You wouldn't know it from Finance Minister Chrystia Freeland's talk of “fair share,” but the rich already pay too much in taxes. In 2021, the last year for which data is available, the bottom 90 per cent of Canadian taxpayers paid income tax at an average rate of just 12.6 per cent, generating less than half of all income taxes (45.6 per cent, to be exact). income. And if we subtract children, elderly and other social benefits, the proportion and share will be even lower.

In contrast, the top 10 percent of taxpayers paid an average of 29.3 percent and accounted for nearly 55 percent of personal income tax receipts. These numbers are worth highlighting. Her 90 percent of taxpayers pay less than half of all income taxes. 10% of people pay more than half.

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Focusing on the top of the income distribution, or the “wealthy,” the top 1 percent of taxpayers pay an average of 39.9 percent and account for more than 20 percent of all income tax receipts. (In case you're wondering, if your taxable income is more than $271,000, you're in that group.) As for the ultra-wealthy, or the 0.1 percent and 0.01 percent, there are only 27,000 of them; I'm paying a percentage. income tax. And when you add in the corporate taxes paid on profits before they are distributed as dividends or capital gains, their share could be even larger.

The “pay as you go” principle of taxation states that tax rates should rise with income, and indeed they should. However, in reality there are limits. If we tax the wealthy too much, they might spend more time on the golf course, move their businesses elsewhere, or become tax refugees themselves and leave Canada. there is.

“Asking the wealthy to pay their fair share'' will at some stage lead to opposition from those who already bear the heaviest tax burden. Even the Treasury Department showed in a 2010 study that for every point increase in marginal tax rates, 1 percent of people pay 6 to 7 percent less in taxes. This is almost three times the response of the top 10% of taxpayers. It is not surprising that the top marginal interest rate has increased from 46% in 2013 to 53% now (average across Canada), less than half of the expected return.

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Recent analysis suggests that the brain drain may be returning. Several studies in Europe and the United States show that high-income taxpayers are typically less jurisdiction-bound and more likely to migrate than other people. Given the close cultural ties between Canada and the United States, there's a good chance that a decade of US wealth dipping policies will lead doctors, business leaders and others to head south. That would hurt all of Canada, not just the wealthy.

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