Did you pay your “Fair Share” of tax last year?

 Our Federal Government defends the recent increase in the Capital Gains Tax inclusion rate by calling it “Intergenerational Fairness.” Its opinion is that it is not fair that a young nurse or teacher might pay a higher marginal tax rate than a multi-millionaire and that people use accountants to skew their earnings more toward capital gains which are taxed less than regular income.

Bill Morneau is a former Finance Minister, former Chairperson of the CD Howe Institute and has an MBA from INSEAD as well as a master’s in economics from the London School of Economics. Bill has a different view of the new Federal Budget. He thinks it is “clearly a negative to our long-term goal, which is growth in the economy, productive growth and investment.”

Which view is more evidence based?

Do the wealthy use their accountants to pay less tax than working folks (as if wealthy people never worked)? Do the highest income earners pay their “Fair Share “? Let us not guess about this. Let us look at the facts.

In a paper produced by the Fraser Institute and written by Lammam, MacIntyre, Palacios entitled “Measuring the Distribution of Taxes in Canada: Do the Rich Pay Their Fair Share”?” * 1 the facts speak loud and clear. Not only do the top earners pay most of the taxes collected they pay more tax as a percentage of their collective income than the lower income groups pay.

The top 20% of income-earning families in Canada earn 49.1% of the nation’s income but pay 55.9% of total taxes. The much maligned top 1% of income earners paid 14.7% of all taxes paid which is, again, more than their share of the total income earned,10.7%.

Canada’s top income earners pay a disproportionate share of taxes relative to the share of income they earn. Those who advocate higher taxes on the top earners are not arguing for them to pay their fair share they are arguing that they pay an even greater disproportionate share.

It is important to recognize that taxes cannot be continually raised on top earners without economic consequences. Bill Morneau knows that higher taxes will further erode Canada’s tax competitiveness, discourage productive activity (hard work, savings, investment, entrepreneurship) and hurt the country’s ability to attract top talent. Taking more and more from our highest income earners also discourages income mobility, the desire to work harder to improve our personal economic position.

So please do me a favour. The next time someone moans about high income earners using accounting magic to pay less tax than the average worker quote this study from the Fraser Institute. I know data is not as compelling as emotion, but it is the truth.

*1. “Measuring the Distribution of Taxes in Canada: Do the Rich Pay Their FairShare?”

Charles Lammam, Hugh MacIntyre and Milagros Palacios

 

2024 Federal Budget