Did you know Canadian taxpayers earning more than $250,000 annually — them’s the “one per cent” to me and thee — paid $6.8-billion less in federal taxes in 2016 than they did in 2015?
But… uh… wait a minute. Didn’t Canada’s shiny new Liberal government create a whole new bracket in its first 2016 federal budget — increasing taxes on the above-the-sky income of our top earners by four per cent, from 29 to 33 per cent — explicitly to make our richest and most powerful contribute something closer to their fair share of the costs of running the country? During the 2015 election campaign, you may recall, Justin Trudeau’s Liberals confidently projected their new tax rate would generate an extra $2.8 billion a year.
Instead, Ottawa ended up with $9.6 billion less in the treasury than it had expected.
How is it even possible our formerly best-to-do taxpayers — who had paid $33.1-billion into federal coffers just one year before — found themselves so impoverished over the course of a single year they could only pony up a paltry-by-comparison $26.3-billion in 2016.
Did the bottom suddenly fall out of the stock market when you weren’t looking? Or did our top CEOs experience a crisis of conscience, and agree to stuff a little less into their own already over-stuffed 2016 goody baskets of salaries, bonuses, and stock options in the interests of fiscal fairness?
What really happened?
We thought you’d never ask.
And what will happen as a result?
Don’t ask.
What happened was that ETI happened. ETI? In economist speak, that apparently translates into “elasticity of taxable income.” If you need to know what it means, well, let’s ask the fine folks at the C.D. Howe Institute.
The C.D. is a think tank that bills itself as “an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies.”
If you want to understand whose living standards it seeks to raise, you could do worse than flip through the paeans of praise to its good work that dozens of former prime ministers, premiers, finance ministers, Bank of Canada Governors, thumb-sucking journalistic pundits, and captains of corporate capitalism offer up on its website.
“The C.D. Howe Institute’s work,” says former Prime Minister Stephen Harper, to cite just one example, “is invaluable to the nation…” You get the picture.
Anyway, in its own boastful words, “the institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.”
We’ll be the judge of that.
Last week, the C.D. Howe Institute released a report — “Unhappy Returns: A Preliminary Estimate of Taxpayers Responsiveness to the 2016 Top Tax Rate Hike” — which also informed us lesser mortals how the rich really respond when governments try to make them pay their fair share of taxes:
Empirical evidence from a number of sources has shown that top earners, when confronted by a tax rate increase, are likely to change their behaviour in various ways… The bottom line is that high tax rates may discourage earning additional income, and may encourage shifting taxable income to different forms, times and jurisdictions, so they may not only negatively affect the economy, but add little to, or even reduce, government revenues.
In plainer English, the rich will employ all the accounting and legal jiggery pokery their riches afford them in order to cut, chop, hack, slice, sliver, hide, camouflage, and otherwise reduce the amount of taxes they would otherwise have to pay.
The more important question: what to do about it?
Although the report offers a faint feint to the quaint notion the federal government could actually tighten its rules and enforcement to make the tax avoiders pay up, it instantly moves on to what it considers a better place:
The intensiveness of the behavioural response in 2016 may also indicate that Canada has some flexibility to improve its personal income tax competitiveness vis-à-vis the US and the world.
Flexibility… Improve competitiveness… You may want to read that paragraph a couple of times because what the C.D. is actually suggesting is that the best way to stop rich tax avoiders from avoiding taxes is to tax them less! That will work, because:
Canada can boost its tax competitiveness by lowering the top tax rate or by increasing the threshold at which the top tax rate kicks in. Either measure would result in more combined federal/provincial government revenue overall, while making Canada a more attractive location for top talent and global head offices. In other words, it’s a win-win.
We did warn you not to ask what will happen as a result.
Because the C.D. is such a “trusted source of essential policy intelligence” to our ruling class (including, it should be noted, our current finance minister, Bill Morneau, who says the C.D. provides “definitive analysis on the issues facing our country”), and because the C.D.’s diagnosis and prescriptions fit neatly within the echo chamber of advice the government gets from all its other corporate-speak friendly think tanks, you can expect Ottawa to eventually, quietly find a way out of its embarrassingly futile if feeble attempt to make the rich pay.
And so it goes.
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I guess fair is relative. Is it fair that the top 10% pay a far greater proportion and amount of their income than the bottom 10%? The top 0.001% will always find a way to restructure so as to avoid as much tax as possible but probably still end up paying more than most towns. With Trudeau’s changes I quit 2 jobs rather than getting taxed more. If you lose 1/3 of a dollar to overhead/expenses and half to taxes and you’re getting by, why would you try to earn another dollar only to take home 15 cents? Better to take the free time. YOLO. Rich or poor, no one’s going to try to earn more when those kind of % are involved. I know this doesn’t fit with the socialist utopian narrative but it’s reality. https://business.financialpost.com/opinion/how-much-of-a-fair-share-do-canadas-top-earners-pay-you-might-be-surprised
Yes. Yes, it IS fair that the top 10% pay a greater proportion in taxes than the bottom 10%. Despite your contention, I don’t believe that most moral people (outside of that top 10%) would support your position.
Adam Smith, widely hailed as ‘The Father of Economics’ did not accept your position (https://www.theatlantic.com/business/archive/2016/06/the-problem-with-inequality-according-to-adam-smith/486071/).
Capitalism, as it is practiced at this time, in this part of the world, is a pyramid scheme, period. You can almost rest assured that anyone who does not believe this fact is, themselves, in the upper half of the pyramid.
Good for you for putting a value on your ‘free’ time; bully for you for having so much wealth. However, if your motivation to do so was that you didn’t want to participate in a just society, you might want to re-consider your choices.
The article you link to doesn’t reference tax strategies, only that Smith believed in supporting the poor and that the author had found evidence Smith wasn’t fond of people’s admiration of the wealthy.
‘Capitalism is a pyramid scheme period, and anyone who disagrees with this must be benefiting from it? ‘ Great. I still don’t see how this changes the fact that those who make their way to the upper half of that pyramid pay far more tax than those in the lower half. By any measure period. It IS the moral and just thing to do but fair is a relative term. Just because someone earns/has more than average it does not mean the system is unfair or broken nor that they should feel culpable. You can argue that it is more ethical and more equitable to take more and more from the upper half to give to the lower half (from 52% to 90% lets say), but eventually it stops working. (See Europe’s recent attempts).
I think it will be interesting to see how the millennials approach the issue. They seem to be less motivated in acquiring material possessions than prior generations and generating the income necessary to pay for them. There appears to be a greater focus on experiences, happiness and health -as there should be. I suspect this will unbalance the sustainability of our current system where chasing a carrot on a stick pays for everything. I can’t imagine how we’ll change as a result but it should be interesting.
“Is it fair that the top 10% pay a far greater proportion and amount of their income than the bottom 10%?”
Yes. Does anyone really think otherwise?
I think you’d be surprised. Even if it doesn’t seem fair, I think all would agree it’s necessary. There’s a difference.
I’ve been trying to figure out the numbers in this piece. How much of the 2016 shortfall was the result of the dreaded ETI? Was it $6.8 billion or $9.6 billion or, as stated in the cited C.D. Howe paper’s Bottom Line, a $1.2 billion increase for the feds and a $1.3 billion loss for the provinces? I have read elsewhere (CBC August 28) that much of the 2016 revenue drop originated in Alberta, likely the result of a reduction in high paying oil industry jobs. I’m as keen as anyone to make the rich pay but overstating the amounts involved does not help the cause.
https://www.nakedcapitalism.com/2017/01/philip-pilkington-extent-economics-ideology-extent-useful-theory.html