By COLIN ROSS
The recent capital gains tax increase from 50 to 66 per cent by the Liberal government in Ottawa has been accepted by most Canadians with remarkable equanimity.
It is always politically popular to increase taxes on the “rich,” whether or not a particular change makes sense. To better understand the issue of tax fairness, it is essential to know how much of the total tax revenue collected by governments in Canada is paid by high-income earners.
Canada Revenue Agency statistics published in 2011 still provide a reasonable guide to how our system operates. That year, 25.1 million Canadians filed tax returns. Of that number:
1. 8.4 million, or one third of them, paid no income tax;
2. The top one per cent who reported income over $250,000 (203,000 people) paid 20 per cent of federal and provincial income tax;
3. The top 6.6 per cent with income over $100,000 paid 47 per cent of all federal and provincial income tax.
This may seem reasonable to many of us: the wealthy should pay a greater share of the total tax burden. It is one of the reasons why social democracies work.
Why is there any tax exemption for capital gains in the first place? Why not tax all gain as ordinary income? It is obvious when we understand how our free enterprise system works. The 7.6 per cent of our tax filers, who pay 67 per cent of total federal and provincial taxes, are the same people who invest in the businesses and corporations that drive our economy. They therefore create much of the wealth that funds our social programs, our military and all other government expenditures, as well as most of our jobs. Previous federal governments in Canada understood the vital importance of capital investment in our country, and set up the partial capital gains exemption to encourage it. It is difficult to estimate how great the negative effect this recent change will be, but in a country already plagued by low productivity, it is certainly the last thing we need.
To illustrate how ill-conceived this policy change is, there is one immediate sad effect, which could have been avoided. Part of the capital gains tax change removes private corporations from any benefit under the exemption rules. Most Canadian doctors will suffer immediate negative financial impact because they operate their practices by forming a company, and will lose all exemptions under the new rules. You can be sure that many will choose to leave for greener pastures. So at a time when our medical care system is in crisis, when many Canadians do not even have a family physician, the Trudeau Liberal government, backed by the NDP, brings in a tax change that makes it more difficult for doctors to make a living in Canada. How could they fail to anticipate this unintended consequence of their tax change? Unfortunately, it is another example of the incompetence that Canadians have come to expect from our federal government.
No doubt when the Canada Revenue Agency provides current figures, we will see that high-income earners in Canada are paying an even bigger percentage of total tax revenues than they were in 2011. The “tax and spend” policies of the Liberal government during the last eight years make this a virtual certainty, and raises the question of what percentage is fair and reasonable in our modern social democracy. How much is enough?