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March 19, 2019 | The Gap

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Budget day. Hardly a surprise. More spending. Deficits stretching far into the future. The Moister Homebuying Strategy (yes, shared-equity mortgages, bigger RRSP withdrawals. More debt). And a major attempt to change the channel from the Lavalin mess.

It’s an election year, of course. The Libs have been rocked by defections – the latest coming this week as the top bureaucrat, Michael Wernick, put his tail between his legs and scat. But will voters overlook it all, sopping up the government goodies, such as the Canada Child Benefit and the real estate relief?

Meanwhile every Trudeau budget gets us a little closer to an historic tax imbalance. Already 40% of families pay no net tax. The TFSA shelter was gutted. Private corporations used by entrepreneurs and professionals have been whacked. A new tax bracket was created to sponge higher income-earners. More is being taken from fewer. And yet the wealth divide grows. Maybe more tax and more spending ain’t the answer.

More on that in a minute. First read this letter from Cam. Partially in response to yesterday’s blog.

On the morning of my 49th birthday, I thought I might share a personal anecdote on a different perspective on 1%’ers (of which I am one).  By no means is this meant as a bitch/whine session, I am very grateful for the position in life I am at, but I will emphatically state that I have earned it, it did not fall into my lap.  I grew up in a one-income family where my father was a civil servant.   I did not know what university was until I was 16 years old, and all of my high school peers were talking about where they were applying after they finished high school.  I was fortunate to be opportunistic in nature, and climbed aboard when this thing called the Internet arrived while I was trying to figure out career paths.

People seem to have this impression of 1%’ers who are millionaires, or billionaires: out-of-touch elites smirking smugly from the comfort of their chauffeured Bentleys.  What they may not realize is that those of us who are just on the high cusp of the top tax bracket are very likely your next door neighbors, struggling with the same life decisions, but bringing home the same or less income than you, because of taxes.

I make 300K a year.  My self-employed wife makes about a third of that.  We live in a modest house just outside the GTA.  1700 square feet.  Nice deck (that I built myself).  Charcoal barbecue.  Leased F150 in the driveway, and the wife drives a Ford Focus.  We have two kids of University age, and two sets of aging parents, one set of which is ill and ailing, and didn’t plan for their retirement.   Hearing aids and dentures are hugely expensive, as is time lost when one of us has to take a day off to drive two hours each way to take them to a specialist appointment in the city.  But it’s family, it’s what you do.  No gripes, just life.

I’ve enclosed my most recent pay stub summary to show people that even though it SOUNDS like a make a lot of money, I really don’t.  This is my gross and net after the first quarter of 2019.  It’s somewhat inflated, because I got my Q4 bonus from last year paid out, and Q4 is always the biggest quarter of the year for revenue in my business.  That was a $33K bonus, of which about $13K actually went into my bank account, after taxes.  Which, by the way, covered not quite 2/3 of the cost to replace the 25 year old windows in my house.

But regardless, the differences between gross and net continues to stagger me.  Are we living high on the hog?  No way.    Yes, I would say we are living a comfortable middle-class existence, where I have a decent retirement savings strategy such that I’m not that worried about retirement.  There is a HUGE difference between somebody who makes 5 million a year, and has to cough up 53% tax, because they still have $2.4 million a year to live on.  But when you have someone who is making a salary that just edges them into the top tax bracket, I’ll bet they are hard pressed to actually bring home $100k per year.  In the GTA, that’s not an excessive lifestyle.

I know there will be lots of people who will complain about this note, about how they can’t afford groceries, or how even having two cars is a luxury.  I am a liftetime left-winger politically, and I was there too once, clearly recalling standing in a Shopper’s Drug Mart in 1996 trying to decide between diapers and eggs (diapers won).   I also decided (at that time, right then and there) that that would never happen again, and I got busy.   I know I am in a privileged position.  I know I have to pay my fair share, and I’m happy to do so.   But with every federal budget that comes down, it feels more and more unfair.

I never expected the government to pay for my existence, and I don’t berate them for it.  But every dollar of income that they tax is one less dollar I have to spend in our economy.  And it’s getting out of control.

Cam’s quarterly stub summary is this: Gross pay $91,803. Net pay $38,309.

At this point it might be worthwhile to define what a Canadian 1%er is. Yes, Cam and his wife qualify with a household income of about $400,000. In fact earning $280,000 or above gives more cash flow than 99% of the population. By this definition, there are 271,000 Canadians who are 1%ers. But there’s another measure, which is net worth. To be in the top group by virtue of wealth means having $1.27 million or greater in investible assets (liquid, not tied up in real estate equity). In a population of 37.6 million, there are 298,000 people in this position (or 0.8%).

Why do so few make it into the latter category? They stick all their net worth into a single thing, at one address in one city, taking on considerable leverage to do so. No diversification. No income. Recurring costs. More risk. High transaction charges. Yes, the potential of tax-free gains, but in most markets at far lower historic averages than financial assets.

The other reason is tax. The Fraser Institute (yeah, I know, right-wing blah blah) has found that of 61 jurisdictions in North America – 51 states and 10 provinces – the ten highest tax rates are here. Earn more than $210,000 and (in seven provinces) face a marginal rate of 54% or so. The top US rate, by the way, clicks in at US$510,300. Of the 34 top industrialized nations, 27 have lower taxes than we do. It’s also a truism the more you tax people, the greater is legal tax avoidance, diminishing returns (this constitutes a big part of what financial advisors do, sadly). Meanwhile high tax renders us uncompetitive, dampens the economy and makes people think twice about doing stuff. A typical statement now heard among doctors: ‘why not work part-time and make the same after-tax income?’ So, people have less health care available. Who wins?


As stated, four in ten families pay nothing. But everyone wants more. So added spending comes from deficits/debt or tax on the remaining citizens. These days almost two-thirds of all income taxes are paid by just 20% of us – who earn less than half the money. So much for fair.

Anyway, it’s budget day. Higher taxes on stock options. Endless deficits. More spending. Where do I get one of those yellow vests?

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March 19th, 2019

Posted In: The Greater Fool

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