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Tax the wealthy? It could be higher to enhance the entire taxation system

Kim Moody: Canada ought to be making an attempt to draw extra high-income earners and rich individuals

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“Tax the wealthy” has been a well-liked rallying cry for many individuals who really feel victimized, entitled or have a weak understanding of how Canada and different international locations tax their residents and redistribute revenue.

The phrase has for many years been good politics for a lot of left-leaning politicians and political events who use it, or one thing comparable, to capitalize on the above group of individuals for his or her votes. Such a phrase is intellectually lazy regardless of its political enchantment.

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Given Canada’s progressive taxation system, the so-called “wealthy” already pay a disproportionate share of their revenue in taxation. For instance, in 2020, the highest 0.01 per cent of revenue tax filers represented a gaggle of people that earned $2,829,000 or extra. There have been solely 2,885 of these taxpayers for that 12 months, however they paid 2.6 per cent of all of the federal and provincial revenue taxes collected throughout 2020.

The highest one per cent (representing the 288,400 taxpayers incomes $253,900 or extra) paid 21.1 per cent of the federal and provincial revenue taxes collected that 12 months. The highest 5 per cent (representing the greater than 1.4 million taxpayers incomes $132,300 or extra) paid 40.1 per cent. The highest 10 per cent (representing the virtually 2.9 million taxpayers incomes $102,400 or extra) paid 53 per cent.

The underside 50 per cent (representing the greater than 14.4 million taxpayers who earned $40,700 or much less) paid 6.5 per cent, which clearly reveals the highest 50 per cent of revenue earners paid 93.5 per cent of all federal and provincial revenue taxes paid. All this data is out there from Statistics Canada.

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Take in that for a second. The highest revenue earners are clearly paying a disproportionate quantity of the collected revenue tax. And, once more, that’s what you anticipate from a progressive revenue tax system like Canada has.

However how a lot is an excessive amount of? Is there room to “tax the wealthy” extra when the highest 5 per cent, for instance, are already paying 40.1 per cent of general tax revenues?

Mix the above data with some left-leaning think-tanks and political events which were calling for Canada to introduce a wealth tax (apparently to resolve “revenue/wealth inequality” with the Prime Minister’s Workplace additionally lately reviewing this chance) and the chance for behavioural responses amongst these those that contribute essentially the most to Canada’s funds is excessive. I see it in my apply, significantly up to now six or so years.

My two cents is that the federal authorities has put itself in a tough spot. Deficits have been ongoing and large. Value management is actually not on the agenda. With the intention to fund continued out-of-control spending, there’ll should be tax-rate will increase, continued assaults on high-income earners/rich individuals and/or new types of taxation launched. The trick is to do that with out having too many wealthy individuals depart Canada or exit the taxing system.

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A few of my mates who don’t recognize the disproportionate share that high-income earners already contribute reply by persevering with to say “tax the wealthy,” or “simply go get the cash that the wealthy are hiding offshore” (this can be a actually misinformed remark), or “the wealthy have all of the tax loopholes whereas the common individual doesn’t” (once more that is very misinformed and never correct).

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It’s disheartening to listen to such responses since constructive dialogue on how Canada’s taxation system could possibly be improved general is badly wanted. Bringing strongly held and flawed ideologies to the dialogue desk just isn’t useful.

Total, Canada ought to be making an attempt to draw extra high-income earners and rich individuals. They contribute vastly to our nation’s general taxation receipts that assist fund social applications and infrastructure.

Kim Moody, FCPA, FCA, TEP, is the founding father of Moodys Tax/Moodys Personal Consumer, a former chair of the Canadian Tax Basis, former chair of the Society of Property Practitioners (Canada) and has held many different management positions within the Canadian tax group. He may be reached at kgcm@kimgcmoody.com and his LinkedIn profile is www.linkedin.com/in/kimmoody.

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