Profiting From Experience

Joe Biden will arrive in Ottawa this afternoon. He and Justin Trudeau will have a lot to talk about during his short visit. Linda McQuaig hopes that Biden will offer Justin some good advice on how to tax the wealthy:

Joe Biden is proposing a number of measures, including an ambitious minimum tax on the wealthiest Americans — in the first big tax grab on the wealthy since Ronald Reagan’s election in 1980.

A fierce fight over taxing the wealthy looms in the U.S. The Democrats came close to passing a version of Biden’s minimum tax last year and could succeed if they regain control of Congress in 2024.

This trail-blazing by Biden, a centrist Democrat, should stiffen the spine of Canada’s strikingly timid “progressive” politicians. (While polls show more than 80 per cent of Canadians support a wealth tax, support is particularly strong among progressives.)

A wealth tax, aimed exclusively at Canadians with net assets above $10 million, could raise $28 billion a year — enough to seriously enhance key social welfare programs, according to the Canadian Centre for Policy Alternatives. Those trying to avoid it would face a steep exit tax.

Yet, among major parties, the NDP alone advocates a wealth tax and leader Jagmeet Singh doesn’t talk much about it. Why didn’t he insist it be part of the NDP accord with the Liberals?

The central problem is that the super-rich tie up their wealth in legal tax shelters:

That’s because their wealth is largely held in corporate stock and, unless they sell stock and trigger a capital gain, no income tax applies.

So, rather than sell stock, the superrich can finance their lavish lifestyles by borrowing from banks, which happily lend them ample funds at very low rates — an option not available to those without a fortune to serve as collateral.

Biden's solution is to impose a minimum tax:

Biden’s minimum tax would close this gaping loophole by taxing the superrich on how much their shares appreciate in value, whether cashed in or not. This could add millions — even billions — of dollars a year to the tax bill of an ultra-wealthy American. (By comparison, Canada’s luxury tax might add thousands of dollars to the tax bill of an ultra-wealthy Canadian.)

Our prime minister lacks the boldness of mild-mannered Biden, so does nothing to grab a share of the immense wealth going straight to the top as Canada’s billionaires — and there are dozens of them, including some mega-billionaires — have seen their wealth grow by an astonishing 51 per cent since the pandemic began.

Biden will have a tough time getting his plan through Congress. But he spent decades there. He knows how things work. Justin could profit from Biden's experience.

Image: CTV News

Time For A Wealth Tax

The federal budget will be announced next week. Linda McQuaig writes that it should contain a wealth tax. Unfortunately, the wealthy have been successfully arguing against such a tax for years. In fact, there already is such a tax. It's called the property tax. But McQuaig favours an NDP proposal:

An NDP proposal -- based roughly on proposals by U.S. Senators Bernie Sanders and Elizabeth Warren -- would levy an annual tax of one per cent on net wealth above $20 million. If you don't have $20 million, it's not coming for you.

The NDP plan would raise an estimated $10 billion a year -- or more if the rate rose for bigger fortunes, notes economist Alex Hemingway of the Canadian Centre for Policy Alternatives.

Several arguments have been advanced against such a proposal:

A wealth tax is foreign to the Canadian tax system. In fact, Canada already has such a tax. It's called the property tax. It's imposed on almost all the wealth held by low- and middle-income Canadians -- their homes. A wealth tax would simply extend the property tax to include other forms of property mostly held by the wealthy, such as stocks and bonds (above $20 million).

A wealth tax has not worked in other countries. The wealth taxes adopted in many European countries were badly designed. They had low thresholds, so they taxed many people who were not ultra-rich, just well-off. Today's proposed wealth taxes only target those who are clearly, undeniably wealthy.

The ultra-rich will find ways to evade or avoid the tax. Our tax laws, which permit widespread tax avoidance and evasion, are not laws of nature but policy choices made by legislators. Stopping tax evasion is simply a matter of political choice -- especially with today's technology that makes it easy to digitally trace the movement of money. An increase in Revenue Canada's enforcement budget -- to be used against tax haven trickery -- and tougher penalties for cheaters could be extremely effective. The only thing lacking is political will.

A wealth tax would discourage savings and entrepreneurship. Hardly. The tax would only hit those who have accumulated enormous assets, typically long after their initial entrepreneurial effort (or those who have inherited huge assets through no effort). Does anyone seriously believe that, in the future, creative Canadians would stop being entrepreneurial if they thought they would only end up with a fortune of, say, many hundreds of millions of dollars rather than perhaps a billion dollars?

Some wealthy taxpayers have very low incomes and thus might not have the cash to pay an annual wealth tax. If truly wealthy individuals have small incomes it's because they've arranged their finances this way in order to avoid paying income taxes. They could easily sell some of their assets. There's no reason to sympathize with their plight. After all, if working people lose their jobs, they're forced to sell assets (except their homes) until they're sufficiently poor to qualify for welfare benefits.

Back in the 1950's we had much higher marginal tax rates -- and the wealthy survived quite nicely. The difference between then and now is that now there are many more extremely wealthy people. Is there any reason to believe that they too would not survive nicely?

Image: itep.org