Less investment, less entrepreneurship, lower incomes, and higher taxes affect many more than just ‘the rich.’
Less investment, less entrepreneurship, lower incomes, and higher taxes affect many more than just 'the rich.'
L et us examine the Trudeau government’s statements in defense of its increase in Canada’s capital-gains tax, which raises the tax inclusion rate from one-half to two-thirds on corporate capital-gains income and individual income above a $250,000 threshold in a given year. (Capital-gains income is taxed at one-half the income-tax rate; the change raises it to two-thirds on individual capital gains over $250,000.)
Here is the relevant section of federal finance minister Chrystia Freeland’s budget speech in April:
I know there will be many voices raised in protest. No one likes paying more tax, even — or perhaps particularly — those who can afford it the most.
But before they complain too bitterly, I would like Canada’s 1 percent — Canada’s 0.1 percent — to consider this: What kind of Canada do you want to live in?
Do you want to live in a country where you can tell the size of someone’s paycheck by their smile?
Do you want to live in a country where kids go to school hungry?
Do you want to live in a country where a teenage girl gets pregnant because she doesn’t have the money to buy birth control?
The last two sentences are references to the Liberals’ national school-lunch program and taxpayer-funded contraceptives, which supposedly require a capital-gains tax to fund. These are red herrings. Both programs are a drop in the bloated federal-budget bucket: The Liberals could easily fund both by finding small savings in existing spending if they wanted to. A reasonable person might therefore wonder what either has to do with a capital-gains tax.
A reasonable person might wonder, too, why the Liberals are suggesting that after they have been in power for nearly nine years, the country is turning into a place where only the rich smile, children starve, and teenage girls are becoming pregnant. It is a question worth asking, but one that has not been answered. Instead, Freeland continued:
Do you want to live in a country where the only young Canadians who can buy their own homes are those with parents who can help with the downpayment?
Do you want to live in a country where we make the investments we need — in health care, in housing, in old-age pensions — but we lack the political will to pay for them and choose instead to pass a ballooning debt onto our children?
Do you want to live in a country where those at the very top live lives of luxury — but must do so in gated communities, behind ever higher fences, using private health care and airplanes, because the public sphere is so degraded and the wrath of the vast majority of their less privileged compatriots burns so hot?
A country where the wealthy few live in gated communities and fly private airplanes while the rest of the country burns with anger because they cannot buy homes is, again, a strange description for the Liberals to give of the country’s trajectory after they have governed for almost nine years. Nor would a capital-gains-tax hike improve health-care and housing affordability for Canadians any more than it would save children from going hungry and prevent unwanted teenage pregnancies.
Beyond the fantastical predictions of the destruction that will befall Canada if the capital-gains tax is not raised, the Liberals’ claims that the tax will only affect the super-rich, or the top 0.13 percent of Canadians, is inaccurate.
In the first place, the 0.13 percent figure is misleading because taxpayers who are part of this 0.13 percent in one year are different from the taxpayers who are part of this group in other years (as the government concedes by saying the 0.13 percent is in “any given year”). Many Canadians report an annual capital gain of $250,000 or more only once in their lifetime — such as on the sale of a property other than their primary residence. Therefore, even if only 0.13 percent pay the higher capital-gains tax every year, many more — in fact, about 4.3 percent, according to economist Jack Mintz — will pay it at least once in their lifetime.
Next, the 0.13 percent only accounts for individual capital gains and not corporate capital gains. Even excluding the fact that almost all Canadians have investments exposed to corporations that make capital gains (even if only through their interests in public pension plans), Mintz estimates 15.8 percent of tax filers will be affected through their ownership in private corporations — or about 120 times the Liberals’ 0.13 percent figure.
In fact, many of those affected are doctors whose medical practices are incorporated, which means, contrary to the Liberals’ repeated claims that the capital-gains-tax hike will improve health care by increasing government revenue, the tax hike will worsen Canada’s doctor shortage by increasing the degree to which doctors are underpaid (in lieu of increasing fees, provincial governments encouraged doctors to incorporate for decades for better tax treatment, as Robyn Urback notes in the Globe and Mail) and overburdened by Canada’s “universal” health-care system.
“The Canadian Medical Association (CMA) is disappointed and frustrated with the federal tax proposal tabled on June 11 that offered no consideration for physicians who rely on their professional corporations to provide much-needed health care services,” the association said in a press release after the capital-gains-tax hike, introduced in the April budget, was tabled in early June. The tax has since come into effect on June 25.
Similarly, the Ontario Medical Association warned of “significant impact” on patient care: “The impact of the capital gains increase is particularly alarming for physicians and their medical professional corporations, in which every dollar of realized capital gains will be subject to this higher inclusion rate. This increase will undoubtedly add additional undue pressure and financial strain to physicians, threatening the well-being of our health-care system.”
Finally, all Canadians will be negatively affected by the capital-gains-tax hike even if they do not pay it directly or have interests in corporations, because the tax hike will negatively impact the economy as a whole. As Erica York summarizes in a Tax Foundation report on capital-gains taxes: “Capital gains taxes create a bias against saving, which encourages present consumption over saving and leads to a lower level of national income.” Capital-gains taxes, as York notes, discourage investment and entrepreneurship, reducing productivity and incomes.
Less investment, less entrepreneurship, lower incomes, and higher taxes affect many more than just “the rich.” This is what the evidence shows will be the impact of the Trudeau government’s capital-gains-tax hike. What the evidence does not show the capital-gains tax hike will achieve are reductions in the number of unwanted teenage pregnancies and hungry children. Teenage pregnancies are the result of teenagers having sex. It has nothing to do with the capital-gains-tax rate.