A policy issue that permeated political debates around the world in 2012 was the idea of raising taxes on high-income earners. In the U.S., it stood front and centre in President Obama's re-election. Several governments in Europe went beyond debate and introduced higher tax rates. Here at home, higher taxes on upper-income earners have been proposed at the federal and many provincial levels; Ontario's government recently instituted a new tax on those earning more than $500,000.
Unfortunately, the debates have been almost exclusively about the need to raise new revenues to reduce deficits rather than the broader issue of whether such taxes make good economic sense. The reality is that raising taxes on upper-income earners comes at a large economic cost.
It's true that polls consistently show majority support for increasing taxes on the wealthy. But so what? Populism is hardly a sufficient yardstick for good policy.
And consider what these polls measure. They essentially ask respondents if they want someone else to pay for their public services. So it's actually surprising that a recent poll found only 57 per cent of British Columbians support higher taxes on those making $100,000 or more.
Think of it this way: How many people would you expect to say yes if asked in a store whether they'd like to be given products at no charge because the store will charge only high-income shoppers? Wouldn't all but high earners favour such a plan?
The surprise in such polls is that support is not closer to 80 per cent. Why 80 per cent? Because only the top 20 per cent of earners pay more in taxes proportionately than they earn in income. Specifically, the top 20 per cent pay 54 per cent of all taxes (federal, provincial, and local) while earning 47 per cent of income. The remaining 80 per cent pay less in taxes than they earn in income.
Once we discard the populism of polls, we can better discern the real costs and benefits from imposing higher taxes on upper-income Canadians. A key policy objective of such taxes is the collection of more revenues. In reality, however, the amount of revenues flowing to the government is almost always less than expected. Part of the reason is that high-income earners can afford lawyers, accountants, and other tax specialists to arrange their affairs in a way that minimizes their tax burden.
A more vexing problem for those advocating higher income taxes is the economic costs of such taxes. Although economists disagree on many issues, there's a general consensus on the economic costs of various taxes. Research shows that income taxes generally impose higher costs compared to consumption taxes because income taxes more adversely affect people's decisions to work, save, invest, and be entrepreneurial. Because income taxes tend to discourage these growth-enhancing activities, relying on consumption taxes to raise the same amount of revenues would lead to a more productive and thriving economy.
Another cost to consider is competitiveness. Canada is simply not competitive when it comes to personal income taxes. Our tax rates are high compared to other G-7 countries and particularly the United States, with whom we compete most in trying to attract and retain skilled workers and entrepreneurs. Consider that the average highest combined federal-provincial income tax rate in Canada is roughly 45 per cent. In 2012, that combined average federal-provincial top rate was higher than the comparable rate in every U.S. state except three. Indeed, the top federal-provincial income tax rates in most provinces exceeded those in competing U.S. states.
In addition to high tax rates, Canada has relatively low income thresholds at which the rates apply. In other words, our personal income tax rates are high and kick in at low levels of income compared to those of our competitors. For example, in 2012 our top federal rate kicked in at $132,406 (Cdn) while the top federal rate in the U.S. started at $388,350 (US).
While raising taxes on high earners might generate popular support, doing so will have a modest impact on government revenues and will only make Canada less competitive and less attractive for investment, entrepreneurship, and business development. Canada has done much right in the past 15 years to get tax policy correct. Backsliding now will undo some of those gains.
A popular policy isn't necessarily the right policy. In this case, it's the wrong one.
Follow Charles Lammam on Twitter: www.twitter.com/CharlesLammam
Chris Weigant: If We're Going to Tax the Rich, Then Let's Tax the Rich
Steven Akehurst: The Myth of the Millionaires' Exodus
Statscan's former chief statistician Munir Sheikh http://www.theglobeandmail.com/news/opinions/opinion/a-canada-us-tax-gap-means-a-canada-us-tax-transfer/article1991567/
"Under Article XXIV of the Canada-U.S. tax treaty, any U.S. citizen, resident or company earning income in Canada is subject to U.S. tax, with a credit for Canadian tax paid or accrued."
This means that our lower corporate tax rate is not an incentive for American companies to invest in Canada, because there is no net benefit. Any savings here are paid there.The notion of corporate taxes having a trickle down affect is not new.There is no trickle down, only a gusher upward to the wealthiest citizens.And corporations do not reinvest the money to create jobs. They hoard it.
And in the case of Canada, the money not hoarded or used to manipulate public opinion, is flowing South.A rough estimate concludes that there is a "$500-million annual tax transfer from Canada to the U.S. for every point reduction in the Canadian tax rate." Their corporate tax rate is 34.2% and Harper and Flaherty are attempting to reduce ours to 15%, roughly half. And under the current agreement, the difference goes directly to the American treasury. $500 million annually for every point difference.
Fist of all, the profits to be made in business activities are not on a level playing field. Anyone who fills in an income tax form quickly appreciates that the PAYE worker is in a very different game. No deferred stock payments in lieu of income, salary packages in a form that renders the profits non taxable or taxable at a much lower rate. So stop trying to fool us with a slick piece of writing.
As for the nonsense about not reinvesting consider this. Where do you put your profits if not into further investments? In a bank? Under the bed? Of course not. Where you invest is in a country that gives you the greatest tax break. "making Canada less competitive" is the mantra. Garbage! What you are really saying is that Canada should race to the bottom in order to tax the least. This statement of the writers is more explanatory than they realize. Invest your profits where you can pay the least tax. You know, the taxes that fund health care, schools, universities, roads, police and firemen, and so on, through all the activities that making earning high profits possible. These men have such a greedy vision of how an economy should function.
As it was once explained to me by a University economist academic, tax systems are about redistributing wealth. These two writers are arguing the opposite case.
Look at this country. Every major city is crying out for major infrastructure investment to efficiently move people from one area to another. We are falling behind so many other countries when it comes to mass public transportation. Do you really think we are going to be at all competitive if we have people stuck in traffic for hours on end? When people don't want to work in industrial areas because traffic is so horrendous and the public transit is almost nonexistence should you not invest in infrastructure to become more competitive? Also look at the where the distribution of income has gone in the last 30 years. It sure has not gone to the struggling middle class. It has gone almost exclusively to the rich. So stop your whining and pay your taxes for a system that allows you to live in country like Canada.
There is no 'free market' in an idealistic sense, as any institution chooses how to distribute wealth, whether that means paying more taxes and paying its employees better, or increasing the profits of CEOs and the company at the expense of everyone else. Your labor is worth more than what you are paid for it, and while I don't have a problem with others making more than I do, it's gone far, far too much in the wrong direction.
A question I would ask is who is it making high wages? They are the ones who make these decisions and manage these corporations skimming every last penny, sorry- make that nickle, out of their employees. They will rarely give raises and have a very high turn over rate knowing people will come and go at minimum wage. The come as they are desperate, they go because they are disrespected.
Over 75% of Canadians make $30k or less. So another question is... Who the hell else you going to tax? Once every tax, toll, fee, etc is included, more than 60% goes to the Government. With all the loopholes for the rich, they can either close these loopholes or pay higher taxes, either way, they need to pay their share.
And tax the rich, it doesn't hurt them. Really it doesn't.
Starting with the Reagan years, income inequality started soaring in the U.S. From 1980 to today, income for the top 1% soared by 275% while the middle 60% gained about 40% and the poorest quintile actually lost ground. And it's not some leftist "share the wealth" organization saying that: it's the Congressional Budget Office. Compare this to the previous period where the increase in wealth was shared about equally by all levels of society.
You could also compare the U.S. statistics for job growth vs taxation levels: since the second World War, periods of high job growth have coincided with higher, not lower, taxes on corporations and high income earners.
But Lammam and Clemens keep dishing out the same old "trickle down" thinking that we can see has not worked in the last 30 years. Why on earth would we want to repeat in Canada policies that have been shown to be disastrous in the U.S.?
by Paul Buchheit
http://www.commondreams.org/view/2012/07/23-1
This is why real democracy scares the pants off these guys. They know if the poor ever wake up & vote then the gravy train is over for the rich & their hangers-on, like the shills at the Fraser Institute.
There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth.
However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced."
The same society can thrive only if the rich pay a higher percent of taxes than the people who have not earned that much. If the rich were not that short-sighted , they would see that a more equitable tax system is also indirectly contributing significantly to the benefit of the rich. Higher taxes on middle classes will reduce their income and thereby they will not be able to buy the same products/ services that the rich sell to create their wealth.
It seems hypocritical to take advantages of the benefits of living in a certain society and then to pick and choose the costs of living in the same society If the high earners do not like the idea, they should give back all the benefits of living in the same society and can try to "earn" the same amount of money in another society, say Rwanda, Chad, or Bangladesh and then see how much they "earn" over there.
We, the people created the real assets in the world. We need to recover our ownership from this tiny bunch of thieves who have bribed our politicians to bend the rules in their favour.
The rich are people. Some will stay and some will bail, and frankly maybe that's for the better, because those who bail have no loyalty to their country, or care for those around them. Either way our economy isn't going to tank because you raise taxes on the wealthy to rates they were when our economy was doing great. Or did you forget that when they started cutting taxes was when the deficit increased and the economy tanked?