February 10, 2019 | Milk the Rich

How much tax is too much? How much is too little? What’s fair?

Rumour has it a certain orange-topped US president will try to win re-election by proposing a big personal tax cut for the middle class. Some of his wild-eyed opponents go the opposite route. The top personal rate, they cry, should be 70%.

Makes you wonder how we compare. Are taxes in Canada just?

Our prime minister caught a lot of grief last week for saying, “Low income Canadians don’t benefit from tax breaks because they don’t pay taxes.” The NDP flipped out. After all, low-income earners are oppressed. The wealth divide in Canada proves it. The lefties among us believe rich people generally evade and escape their fair share of tax because they’re crafty, can afford good accountants, are greedy and take advantage of tax breaks, dodges and shelters, especially if they’re investors or self-employed professionals. That was the justification last year for the T2 assault on small business owners, income-sprinkling and passive investments.

But, wait. What’s the actual story? Do wealthy folks stay that way because they screw the system?

Hmm. Let’s review some stats.

In the States the top 1% of citizens have an average income of $422,000. These people pay 37% of all income tax and have a tax rate seven times that of the bottom 50%. In fact the top half of income-earners pay 97% of the taxes, with the other half of the population funding just 3%. And the top 20% finance 70% of government revenues.

But that States is the land of Buffett, Gates, Bezos, Zuckerberg, Elliston, Trump and Bloomberg. The net worth of the richest 400 Americans is an average of $2.1 billion. That’s probably why the top few carry such a tax burden. They can afford it.

How do we compare?

In Canada you need to make $190,000 to be a 1%er, and the average income in the group is $381,300. Taxes for them jumped substantially under the current Lib regime, with the addition of a new tax bracket clocking in at roughly $220,000. That was a 24% increase, and takes $1.2 billion more from these people yearly. At the same time taxes on $45,000 to $90,000 folks were reduced by 11%. Claiming only the wealthy could benefit from it, the T2 administration also gutted TFSA contributions by almost half.

Concurrent with that, the Libs boosted benefits for the ‘middle class’ (ie – not the 1%ers) by billions with the Canada Child Benefit. This tax-free handout of roughly $6,000 per family costs the nation $22 billion this year, is geared to income and in an astounding number of cases actually wipes out the tax families pay.

So the result is this: Trudeau’s right.

Turns out 40% of Canadian families now pay no net income tax. They don’t therefore directly support the health care system, schools, the military, social services, cops or firefighters. The changes that have taken place mean the top 20% of income-earners now foot 70% of the country’s bills. Yes, just like in the US. Our small number of 1%ers (272,600) pays a hefty 18% of all taxes.

And how about the oppressed middle class?

If you believe the Fraser Institute, most members of this favoured group (making up 40% of the population) get a free ride – benefiting fully from all government services, but paying nothing for them on a net basis. For example a couple with three kids earning $60,000 pays about $7,500 in income tax but receives almost twice that in tax-free benefits. Two parents making eighty grand between them pay only a thousand in tax, after benefits of ten times that amount.

How does the country function when 40% hand over no tax and we pay people to have children?

Writing in the Financial Post, financial dude Ted Rechtshaffen made this observation: “Taxes are meaningfully rising for higher-income Canadians. In Alberta, the top tax bracket was 39 per cent in 2014. Today, it is 48 per cent, a 23 per cent increase. In Ontario, the top tax bracket was 46.4 per cent in 2013. Today, it is 53.5 per cent, an increase of 15 per cent. The prime minister is absolutely right: tax cuts do not help 40 per cent of Canadians because they do not pay any effective income tax. How do you like them apples?”

Of course, there are not enough rich people to milk in cold Canada. So for each year it has been in office, the current government has spent more than it raises in taxes. The total in new debt will be about $100 billion by the next election.

Another fact of life: once the government gives people money, it can never take it back.

Higher taxes. Big deficits. Entitled voters. Oh, boy.

Garth Turner February 10th, 2019

Posted In: The Greater Fool

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