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October 1, 2019 | The Big Fix

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.

Lizzie May would fight climate change by taxing financial transactions. A lot. Seventeen billion a year, collecting money every time you bought an ETF. Jag & the Dippers would bring in a wealth tax to pay for their promises, including pharmacare for all and billions to build cheap houses. This week J said his party would ‘gut’ CEO compensation.

The Libs have already created a high-end tax bracket, announced a new luxury tax, will limit the ability of businesses to deduct debt payments and ask the CRA to target high-income-earners. The Tories say they’ll restore entrepreneurs’ ability to pay family members and keep retirement savings inside a corp. Both the Libs and Cons will cut middle-class taxes. Trudeau will finance that with debt. Scheer will cut foreign aid by 25% to find the dough.

For average voters, it’s a minefield. My old boss, Kim Campbell, once mused that elections are no time to discuss serious policies. She was right. And she was crushed for saying it. Most people haven’t a clue what the implications are of a wealth tax, making money via dividends or a financial transactions levy. Yet here we are. Voting on it.

Well, time for a reality check. Average beavers will cast ballots based on what they get out if it personally. Few grasp or care about the national interest. And as stated  yesterday, the role of government has morphed into covering over people’s personal financial failures.

Here’s fresh evidence. Accounting firm BDO did a big survey. The results suck.

Half of people (more than half – 53%) have no savings, no disposable income and live paycheque-to-paycheque. Almost 60% carry credit card debt. A third can’t pay what they owe. Most indebted is the GenXer cohort. Close to 40% have no retirement savings and half say they can’t put aside anything – and these are people in their 40s and 50s. Yikes. The number who say they’ll run out of savings before they croak is 69%. Women are a mess. Almost 60% have no disposable income and 43% no retirement savings. And, yes, females live longer and need more.

Add to this record household debt of over $2.3 trillion, billions in HELOCs not being paid off and average incomes which are barely crawling ahead and it’s not hard to find the lowest common political denominator. Give them stuff. They’ll pick you.

This should alarm people with wealth – paid-for houses, good incomes, savings, cashflow-generating assets, businesses and portfolios. It is a short leap from a luxury tax, a hit on stock options or special tax brackets (as now) to a change in the treatment of dividends, restrictions on tax-free real estate gains or (ultimately) a wealth tax. The growing divide between the 1% and the 99% more of less guarantees this eventuality.

Remember, if you earn above $200,000 a year you’re a 1%er. Only 280,000 people are in this category. In terms of assets, at least $1 million (houses don’t count) is required to be in the club. There are fewer than 300,000 Canadians with net worth between one and five million. Only a few thousand families exceed that threshold – and they are the 0.01%.

As you know, a majority of provinces now have top marginal tax rates of 50% or more. High-income earners overcontribute to the system yet are means-tested out of receiving ‘universal’ benefits like the kiddie and wrinklie pogey. If the Trudeau-Morneau tag team decides to whack the self-employed more, up the cap gains inclusion rate or erode the benefit of dividends, it’ll be this group affected the most.

The lefties who huddle for warmth in the corners of this blog, burning old posts, will think that’s just fine. They reflect the common political wisdom today of justified income redistribution. We’ve all read the dollar-is-a-dollar arguments claiming people collecting investment income should be taxed like the schmucks on the factory floor – even when they own the factory. But the danger in that is immense.

There aren’t enough rich people to gut. Second, they’re already paying a ton. Third, they don’t need to stay here. Fourth, they’re usually employers, not employees – creating income for others. Fifth, investing means risk, whether it’s starting or running a business or buying stock in a company that could stumble. Showing up for a paycheque, selling your time, is inherently safer than being an entrepreneur. Sixth, most employees have pension plans, whether a gold-plated DB or a group RRSP. Most self-employed have none. Seven, it’s all about ambition, enterprise and drive. Society should be encouraging and rewarding those silly enough to employ others, not whacking them once they succeed.

The problem today is not that a few people don’t pay enough. It’s that most people spend too much, save too little and expect a lot. And they all get a vote. So keep your knees together.

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October 1st, 2019

Posted In: The Greater Fool

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