Taxing the wealthy is not a magic trick to helping Canada's youth

Article content

I have always been fascinated by magicians and their amazing tricks. A few years ago, my youngest son also got hooked. He actively worked on this technique and taught me some of the sleight of hand and distraction skills needed to perform effective tricks.

With this in mind, regarding the Government of Canada's 2024 Budget and its proposal to increase the capital gains deduction rate from 50 per cent to 66.7 per cent for companies, trusts and individuals with assets over 2024, I am a magician. I couldn't help but think about it. The annual capital gain realized after June 25, 2024 is $250,000.

Article content

Article content

The government plans to raise about $5 billion from companies (which could intentionally induce, or “crystallize”, capital gains) by June 25 to cover some of the overspending. It's quite a magic trick.

To introduce this proposal, the government has pulled an old trick with a new attack on the wealthy and the so-called rich. Apparently, this proposal would only affect 0.13 per cent of individuals and 12.6 per cent of businesses in Canada. This message is clearly dishonest and manipulative. The actual impact will be even greater.

To cover their tracks, the prime minister and his government began to vigorously defend the budget. Last week, Prime Minister Justin Trudeau said the current system is unfair to young people who can't afford to buy their first home, and that it's time for wealthier and older people to pay more to buy a home. He continued to argue that it was necessary to raise the capital gains inclusion rate. “Intergenerational equity.”

He added: “It is not true that students, electricians and teachers pay tax on 100 per cent of their income, while others, using accountants, only pay tax on 50 per cent of their income. I think so.'' That's the income. ”

Article content

Article content

These comments are typically manipulative responses (obviously orchestrated by Downing Street or the Communications Crisis Management Team) to distract us from the real issue.

It is quite a leap of logic to advocate intergenerational equity and require the so-called wealthy to pay more taxes through higher capital gains tax deductions. I and millions of others certainly don't know how pulling policy levers will support intergenerational equity.

If Prime Minister Trudeau really wants to take positive steps toward intergenerational equity, the most important thing he will do is cut spending and get our country's debt burden back on track. The 2024 budget projects that next year's public debt costs will be $54.1 billion (more than $1 billion per week), about the same amount the federal government is expected to collect in his GST. please think about it. All GST payments are a contribution to the public debt.

Bond payments provide no social benefits (no hospitals, roads, social benefits, etc.), but instead benefit bondholders. It is never in the interest of intergenerational equity to burden our children and grandchildren with the growing national debt and associated debt burdens.

Article content

The attack on accountants, one of the most important professions in our country, is also extremely noteworthy. The current Prime Minister says that if he could afford to hire accountants, evil accountants could cut his taxes in half. Not only are accountants very aggressive towards this profession, they are now clearly magicians. Abracadabra…hehe…taxes will be cut in half.

Such a fuss. So much so that the Canadian Certified Public Accountants issued a strong statement defending the honor of accountants. Accountants rarely matter. Frankly, without accountants, the entire Canadian tax system would cease to function. That's not an exaggeration. That's the simple truth.

Although some economists have voiced strong defenses of capital gains inclusion rates (such arguments typically include “money is money” or “the best of bad options”) , stocks, etc.), they ignore the real world. About investment. Investors put their money where they feel the garden has fertile growing conditions. If their assessment determines that the garden is not fertile enough, they will direct their investment funds elsewhere.

Article content

To be fair, many entrepreneurs, economists, and tax enthusiasts would argue that taxes would increase even more if steps were taken to counter the negative effects mentioned above, such as significantly lower corporate and personal tax rates. I would have accepted it. These measures, combined with spending cuts, would have helped make the economic garden a little more fertile and would have been a positive step in addressing our nation's serious productivity problems.

Instead, the capital gains tax increase was accompanied by aggressive rhetoric, misleading and dishonest statistics, and a clever trick (“intergenerational equity”) to distract attention from the measure’s true meaning. . It was a simple political attack in hopes of increasing votes. From the younger generation.

For many successful Canadians, this tax hike is the final test. They have spent the past nine years raising personal tax rates, harsh amendments to the alternative minimum tax, illogical and ideological windfall taxes on the financial sector (which sector will be next?), and attacks on short-term rentals. It has withstood countless attacks. Ownership, attacks on small businesses with anti-income splitting rules, stricter small business deductions for those with too much passive income, threats of wealth taxes, etc. are too many.

Article content

My phone calls, emails, and text messages are filled with requests from people seeking help to leave Canada once and for all. Unfortunately, withdrawals like this have happened all too often over the past few years, but this last straw took it to a new level.

Thankfully, many Canadians are aware that the magic show is almost over. Most of the time they would have you believe that widespread tax increases and poor policies are good for all Canadians. Magic simply isn't real.

Kim Moody, FCPA, FCA, TEP, is the founder of Moody's Tax/Moody's Private Client, past president of the Canadian Tax Foundation, past president of the Association of Real Estate Practitioners (Canada), and a member of the Canadian tax administration. and has held numerous other leadership positions. tax community. You can contact him at: kgcm@kimgcmoody.com His LinkedIn profile is https://www.linkedin.com/in/kimmoody.

_________________________________________________________________________________

If you like this story, Apply FP Investor Newsletter.

_________________________________________________________________________________

Please support our journalism by bookmarking our website: Don't miss out on the business news you need to know. Add financialpost.com to your bookmarks and sign up for our newsletter here.

Article content