As the dust begins to settle after the coronavirus’s rampage across the economic landscape, governments are looking for ways to maybe balance their budgets at some point down the road. With policy-makers searching for new revenues, those at the top of the income distribution make for alluring targets. Some political parties, both provincial and federal, have therefore dug up the not-so-unfamiliar idea of a wealth tax. According to fans of such a tax, the wealthy need to start paying their “fair share.” But when you look at the actual numbers, it’s hard to say that they aren’t already doing so.
Indeed, top earners in Quebec pay a disproportionate share of the province’s income taxes, particularly when compared to their share of total income earned. For instance, the top 1% of earners in Quebec (that is, those earning upwards of $200,000 a year) pay 20% of all personal income taxes, but earn only 12% of total income. Similarly, when looking at Canadian families, the top 1% of earners pay 18% of the country’s personal income taxes while earning 11% of all income.
So the actual distribution of income taxes paid does not match the rhetoric pushed by certain political parties. That rhetoric is particularly harmful given the fact that the wealthy help make the economic pie bigger. Indeed, top earners and their companies benefit society through the efficient and innovative use of their capital. In fact, many billionaires use the wealth from one venture to start another. Just recently, for example, we learned that Jeff Bezos, CEO of Amazon, has sold more than $10 billion worth of shares in the company to fund his rocket start-up, Blue Origin. That’s not to mention the thousands of jobs Amazon created across Canada over the past year alone.
As the Montreal Economic Institute has recently pointed out, there are several other reasons why wealth taxes are counterproductive, most notably their high administrative costs and the capital flight they induce. It’s little wonder so many countries have abandoned them. For the sake of our recovering economy, we too should lay the idea of a wealth tax to rest for good.