Jay Goldberg: Ottawa looking at a wealth tax to pay for soaring spending

A wealth tax would inflict economic pain on rich Canadians, poor Canadians and everyone in between

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Prime Minister Justin Trudeau has been eyeing a wealth tax to pay for his government’s spending spree. Heavily redacted documents obtained by the Canadian Taxpayers Federation under an access to information request show the prime minister asked for analysis of a $60-billion wealth tax. With deficits looming to the far horizon, it must be a tempting cash grab.

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But a wealth tax would inflict economic pain on rich Canadians, poor Canadians and everyone in between. Many other countries have tried and then abandoned wealth taxes, mainly because they cause the ultra-wealthy to leave the country, taking their investments and businesses with them and leaving regular people with fewer jobs and a higher tax load.

The Trudeau government has been dancing around the idea of ​​a wealth tax for years. It has supported policies like luxury taxes on cars, boats, and plans, as well as a “flipping tax” on short-term home-owners. But it has never explicitly come out in favor of a direct tax on individual wealth.

Behind the scenes, however, documents show the prime minister has been eyeing a wealth tax quite closely. The Parliamentary Budget Officer (PBO) released a report early last year looking at the revenue implications of implementing a one-time wealth levy on Canadians. According to the report, which was written at the request of a Liberal member of parliament, a one-time three per cent tax on people with more than $10 million in assets, coupled with a one-time five per cent tax on people with more than $20 million in assets, would rake in $60 billion.

The prime minister took a personal interest in the report. According to documents, I have requested an analysis of the report to explore the “merit of the policy.” In a memorandum explicitly addressed to Trudeau, bureaucrats laid out exactly how a wealth tax could be imposed on Canadians. Clearly, a wealth tax is on Trudeau’s mind.

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This should be no surprise. The government is committed to tens of billions of dollars in new spending on programs like subsidized daycare, pharmacare and dental care — though without offering any way to pay for them. It has even struck a deal with the NDP — a deal predicated on soaring spending — to stay in power for another three years. And, even though the prime minister once argued that budgets balance themselves, these new programs are so expensive even he must know the money must come from higher taxes.

But embracing a wealth tax in Canada would be a colossal mistake. Wealth taxes don’t just hurt the rich. They hurt the entire economy. The PM’s own briefing note admits that wealth taxes are “complex” and generate “tremendous uncertainty” — which also means they may not generate as much revenue as the government hopes despite damaging the economy.

Consider the case of France. After 12,000 millionaires fled France within a single year, President Emmanuel Macron, a former socialist finance minister, led a successful push to repeal France’s wealth tax. He saw how detrimental the tax was to the national economy. It had turned France into “Cuba without the sun,” and Macron declared it had to go.

Like it or not, rich people are mobile. Macron realized that wealthy people in France could simply pick up move to Denmark. Wealthy Canadians could do the same. Consider this hypothetical. A wealthy Canadian entrepreneur makes $30 million a year and pays $10 million in income taxes. If that entrepreneur leaves Canada to avoid a wealth tax, it would take one thousand taxpayers earning $50,000 per year to cover that annual bill.

Most Canadians might not take a direct hit from a wealth tax. But its impact on the overall economy means everyone will suffer. When wealthy people flee, they take with them, not just their wealth, but also their income and spending power. Wealth taxes shrink the economic foot. France figured out the dangers of a wealth tax the hard way, losing rich people and income tax revenue as a result. Canada should learn from France’s experience and take a pass on wealth taxes.

Jay Goldberg is Ontario director at the Canadian Taxpayers Federation.

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