(French version here)
The wealthiest people are not paying their fair share of taxes, meaning the government is missing out on revenue that could help the vast majority of Canadians.
Housing prices are out of control, our health care system is underfunded, and we need investment to meet our climate goals. Unless we address this long-standing contradiction, wealth will continue to accumulate in the hands of the few while ordinary people struggle, and governments will lack sufficient resources to fund important programs.
In the 2024 federal budget, the Trudeau government proposed measures that would help equalize tax rates between the wealthiest Canadians, who earn their income primarily from passive sources, and those who earn a salary. These proposed changes to the way capital gains are taxed would address the rising cost of housing and require only a tax increase for the wealthiest 0.13 per cent of Canadians.
Despite the narrow scope of this change, it (predictably) sparked outrage among some of my wealthier colleagues and others who seem ready to fight to ensure that the ultra-rich continue to pay less tax than working people as a percentage of their income.
Full disclosure: I am the beneficiary of preferential tax rates on capital gains. So, what is the complaint?
My life story illustrates the absurd contrast between how capital gains and employment income should be treated, and I am here to tell you that I believe money generated from capital should be taxed at the same rate as money earned from labor.
It is important to understand that the inherent unfairness of this system is a result of wealth inequality: to make money primarily from capital gains rather than a salary, you must first have access to capital.
This is not an option for most people, but while workers are taxed on their entire salary, capital gains are currently taxed at only 50 percent. I may pay more than some workers, but I pay a much lower tax rate than high-income doctors, lawyers, and engineers.
Why should I pay a lower interest rate just because I am fortunate enough to have money to invest, and why should someone who actually works and earns a living pay a higher interest rate?
When I worked as a professor of microbiology and immunology, I earned my income from a salary just like any other Canadian worker. Every dollar I earned in actual work was considered taxable. I left that job in 2021 and have since been living partly off capital gains from personal and family assets that I helped manage and benefit from.
First of all, you wouldn't be in a position to receive this passive income without access to capital, and somehow our tax code values capital more than working for a living.
As you move up the wealth and income ladder, it becomes increasingly rare to find someone who gets most or even part of their income from a paycheck. Instead, the wealthy continue to grow their assets in the stock market, real estate, and other ways that have allowed them to enjoy low tax rates for decades.
Counterattack by Unearned Income Earners
Since the modest measures announced in the Budget, I have heard a number of absurd arguments from those who have benefited from this undeserved tax cut, seeking to rally the public in support of continuing to pay a lower tax rate than workers.
Some argue the changes will have a negative impact on working- and middle-class Canadians.
Let's try to reason this out: First, 28.5 million Canadians don't earn any capital gains, and second, only 0.13% of Canadians earn over $250,000, the threshold at which the tax increase would apply under this change.
In fact, the new tax would only apply to people earning an average of $1.4 million per year. When you add in the tax exemption on primary residences and the $1.25 million exemption on small business shares and farm and fishing land, the tax changes ultimately debated would only affect Canadians who are significantly better off financially than the majority of Canadians.
Another absurd argument is that the super-rich account for most of Canada's productivity.
Productivity comes in many forms, from grocery store clerks struggling to pay rising food prices, to construction workers building homes people can't afford, to consumers who are actually driving economic growth but are seeing huge chunks of their budgets eaten up by housing costs that have more than doubled since 2011.
Moreover, for entrepreneurs who are often engaged in economically productive activities, such as job creation, the proposal actually increases the exemption limits.
We have seen recent examples that show that shareholder and investor happiness has little to do with productive activity.
Meta recently announced 11,000 job cuts, which caused the company's stock price to rise 20% and paid dividends to shareholders. I own Meta stock, and if I sell it for capital gains, I will be directly benefiting from an already profitable company that has just negatively impacted the lives of thousands of people.
At the very least, I should pay the same percentage of tax on those benefits that my ex-employee paid on his salary.
Fairness benefits everyone
Those opposed to this capital gains tax hike do not want to acknowledge one simple truth: the unequal treatment of capital gains and earned income is a driving force behind growing inequality in Canada.
The changes introduced in Budget 2024 are a step towards addressing long-standing inequities, but they are tightly tailored to only affect those who benefit most.
The wealthy are the biggest beneficiaries of what our taxes pay for: a stable economy and a strong consumer base, a workforce educated in quality schools, infrastructure that gets workers and customers moving safely and efficiently, a public health care system that keeps workers healthy and doesn't require employers to shoulder the financial burden of insurance like in the United States, and housing policies that keep people housed and leave money in their pockets to spend on goods and services.
The bare minimum they can expect is to pay income tax at the same rate as millions of other Canadian workers.
I and my wealthy peers should be proud to contribute more — not only because it's the right thing to do, but because it helps build a stronger, more stable economy that benefits everyone.
At a time when ideological camps are weakening social cohesion, we can come together to support the society we all want to live in, not a stratified Canada where the wealthy enjoy ease and luxury while everyone else struggles to get by.
This article originally appeared on Policy Options and is republished here under a Creative Commons license.
