Walkom: "These high-income docs want the rich to pay"

[cybercoma]

So what happens if we have people unable to spend as much in restaurants or retail stores or buy cheaper cars and less expensive homes?

That's exactly what has happened with middleclass and lowerclass incomes remaining largely unchanged over the last 30 years.

[TimG]

The impact of taxation should be the same between a low income earner and a high income earner.

There is another principal which is more important IMO: everyone should pay taxes because it reminds them that services are not free. A system where the a large fraction of the population pays no tax is extremely unhealthy and leads to bad policy. For that reason a large portion of the tax revenues should come from consumption taxes and similar measures. If that means the 'impact' of taxes is higher on the people with lower income then so be it - keeping the government accountable for spending choices is more important. Edited March 24, 2012 by TimG

[Guest Derek L]

So what happens if we have people unable to spend as much in restaurants or retail stores or buy cheaper cars and less expensive homes?

I understand your implication, but that’s from a zero sum line of thinking…….I’d be just as happy with that person making 45k a year paying half that ~10k figure…….

As for real estate, I live in Greater Vancouver……..The bubble will burst eventually, and if the value of homes drop, so will my property taxes………….If life gives you lemons……..hey, free lemons.

[Guest Derek L]

There is another principal which is more important IMO: everyone should pay taxes because it reminds them that services are not free. A system where the a large fraction of the population pays no tax is extremely unhealthy and leads to bad policy. For that reason a large portion of the tax revenues should come from consumption taxes and similar measures.

Good point, there’s several other factor’s to add………..What if us “rich folk” decide to just retire early? This last tax year I worked cumulatively about ~40% less than the year prior, saw a reduction in income of about ~60k but due to less taxes paid on that additional income, have hardly noticed a difference financially.

Second point, when the “professionals” with internationally transferable skills feel they’re being gouged too much at tax time, decide to bugger off to a more tax friendly environment, what net effect will that have on the society with the higher tax environment? It happened to South Africa, granted not just for tax reasons…

Edited March 24, 2012 by Derek L

[cybercoma]

I take it you guys are really pissed at the Conservative then, seeing as they reduced consumption tax (GST) by 2%.

[Guest Derek L]

I take it you guys are really pissed at the Conservative then, seeing as they reduced consumption tax (GST) by 2%.

In a sense……..Obviously, if given the chance most would rather pay zero tax, but if cutting the GST, and dropping the HST here in BC, eventually translates into an increase in my households income tax, then yes, I‘m opposed…….A VAT is clearly a “fair tax” for everyone, if the 45k a year fellow spends 50 bucks on taking the family to Denny’s for dinner, and in turn pays 6 bucks tax, that’s as fair me taking my family out to the Keg and spending 100 bucks and paying 12 buck tax…………

[Evening Star]

This isn't obvious to me though. From any figures I've seen, a small percentage of people do hold a majority of the wealth in the country. So taxing that at a higher rate would seem to generate substantial revenue (leaving aside methods of dodging taxes, legal or otherwise - I'm just trying to deal with this model now).

In any case, as cybercoma noted, no one is talking about balancing a tax raise on the rich with a tax cut somewhere else.

Also, it seems fallacious to frame this as a 'head person' vs 'heart person' issue: I have to assume that e.g. Paul Krugman is drawing on actual economics and not just weepy bleeding-heart sentiment when he advocates for progressive taxation.

This argument about the rich not paying their fair share is an old one. It is also totally bogus!

It perfectly illustrates the difference between "head" people and "heart" people or maybe more accurately those who use intuition as a guide rather than cold hard math.

Here's an example with the easiest math in the world, so easy that even arts and poli-sci majors should be able to follow it! It does presuppose you can set up a spreadsheet but the math is just "back of an envelope" level.

Take a guess at the number of working people in Canada. Don't bother looking it up! As I said, the math is so easy that your guesses are good enough!

Now, take a guess at how many of those people make over half a million dollars a year. That's the point where we'll call them rich! Once again, it doesn't matter if you're accurate. When you get to the end you will see why.

Take the number of "rich" folks away from the total and you are left with all the working "non-rich" taxpayers. Let's assume the government dinks them for 25% of their income. We all know it's much more than that, with all the user fees and hidden taxes but to keep things simple, let's go with paying a quarter of your income to the government.

This should give you a number that represents the tax "take" from the "non-rich" folks. Note that it's a BIG number!

Now look at that number you had of all the "rich" Canadians. Figure out how much is 25% of their income.

Get the picture?

THE AMOUNT OF TAX MONEY YOU CAN GET FROM THE NON-RICH WORKERS IS FAR, FAR, FAR GREATER THAN YOU CAN TAKE FROM THE RICH!

I don't care how accurate your guesses were. The enormity of the difference swamps out any arguments. You could take ALL the money from the rich and it still wouldn't matter!

Most working folks are not rich but their combined income is so large that they are the target for the government to skim. The income of the rich is just a drop in the bucket!

To a math-challenged, intuitive thinking person, it is emotionally satisfying to think that the problem is someone is skinning out of paying their fair share. It's easy to think that all our problems would be solved if we could just make the rich pay!

Yeah, and I can regularly fill an inside straight too! The Math doesn't lie! The tax potential of the rich is irrelevant.

Some might want to include the wealth of corporations but that too is irrelevant. Their money eventually comes out as income for all a corporation's workers and to salaries for its managers, plus share dividends to all the old ladies and teachers who rely on their portfolio for their old age income. It winds up included in my original example.

One would be naive to think that every politician doesn't know this. When people mob a politician, crying that they are being squeezed too hard with taxes, all he has to do is point in another direction and say "Hey! There goes a rich guy! You paid more because he didn't pay his share!"

Every time the mob's attention will be diverted towards the rich guy, while the politician saunters away whistling - and laughing!

[Guest Derek L]

This isn't obvious to me though. From any figures I've seen, a small percentage of people do hold a majority of the wealth in the country. So taxing that at a higher rate would seem to generate substantial revenue (leaving aside methods of dodging taxes, legal or otherwise - I'm just trying to deal with this model now).

One question, what do you (and others) in favour of increasing taxes on the higher income earners consider “rich”? Household income of 200k? 500k? 2000k? 10000k? Where does “wealthy” start?

After the “1%” have been gored, who’s next? The “5%”? Then the “10%”? etc

[Evening Star]

One question, what do you (and others) in favour of increasing taxes on the higher income earners consider “rich”? Household income of 200k? 500k? 2000k? 10000k? Where does “wealthy” start?

After the “1%” have been gored, who’s next? The “5%”? Then the “10%”? etc

Well, tbh, I would tend to favour scrapping recent boutique tax breaks and TFSAs first before adding tax brackets. Maybe income splitting too. I think the GST cut was probably unnecessary but it might be political suicide to bring it back up. Things like capital gains taxes and inheritance taxes should perhaps be looked at too.

Having said that, the highest current tax bracket begins at about 132K. I'm guessing we could stand to see another bracket start at around 250K or 300K. That's just throwing numbers out though. It's really a fool's errand for me to try to answer this question without actually looking closely at hard economics. (And even then, I'm no economist!) It might even be the case that adding a tax bracket would be counterproductive. I was, however, questioning the claim that it is self-evident that taxing the rich would fail and that only someone driven by emotion over reason would consider that policy.

Edited March 24, 2012 by Evening Star

[dre]

You missed it completely! If you had actually done the math you would have seen that you could take ALL money the rich have and it would be a drop in the bucket compared to what governments can get by taxing ordinary people.

I actually said that before but I guess you are reading as well as math challenged.

My point still stands. There are FAR more ordinary taxpayers than millionaires! Talk of making the rich pay is all emotion and no sense. Making the rich have no money left at all wouldn't change a damn thing. It's just too small a percentage. So why talk about it?

Listening to a poltician (usually NDP but not always) tell you he will "make the rich pay their share" is just a scam to appeal to your emotions and not your brain.

Well its not just wealthy people... you gotta tax GDP wherever its at. The bottom 50% income earners control almost none of the economy... you cant get much from them at all. So you have to go after the top 50% that controls almost the entire economy.

Raise the rates for every in proportion to the ammount of the economy they control. You will only need to do it temporarily because the only reason spending has gotten so far out of control is because North Americans have had other people paying their bills for the last 30 years. One they finally have to fund their own government and its programs, they will agree on spending reduction pretty damn quick.

[Guest Derek L]

Well, tbh, I would tend to favour scrapping recent boutique tax breaks and TFSAs first before adding tax brackets. Maybe income splitting too. I think the GST cut was probably unnecessary but it might be political suicide to bring it back up. Things like capital gains taxes and inheritance taxes should perhaps be looked at too.

Having said that, the highest current tax bracket begins at about 132K. I'm guessing we could stand to see another bracket start at around 250K or 300K. That's just throwing numbers out though. It's really a fool's errand for me to try to answer this question without actually looking closely at hard economics. (And even then, I'm no economist!) It might even be the case that adding a tax bracket would be counterproductive. I was, however, questioning the claim that it is self-evident that taxing the rich would fail and that only someone driven by emotion over reason would consider that policy.

I know all too well where the highest bracket starts…….But I ask, using my wife and I as an example, do you think it “fair” that a married couple in their late 40s, whom spent combined nearly 19 years in post secondary education (at great personal expense) and only reached their peak earning potential within the last ten years should be targeted? How is that fair?

And inheritance tax? That’s nothing but robbing the dead………If we “did better” than our parents (and they better than theirs) our children and one day grandchildren should be penalized?

I understand that you’re thinking aloud, and I don’t wish to come across as hostile, but some (not necessarily you though) should practice empathy and consider that all “high income earners” weren’t born into it and will become defensive when other people talk about taking what they earned through years of hard work, some financial struggle at times, relying on grandparent daycare inc and eating their share of baked beans, Kraft Dinner and hot dogs.

We didn’t win life’s lotto, we earned it, and I’ll personally burn it all down before giving it to the Government.

[TimG]

I take it you guys are really pissed at the Conservative then, seeing as they reduced consumption tax (GST) by 2%.

Yes.

[msj]

I still don't see how it is a tax break for the acquiring company (which is what we were discussing).

The point is that it is a tremendous advantage for the guy getting rich.

The acquiring person/company then has the higher cost base to apply when he/it sells for its tax free/50% off capital gain (50% off if the company no longer qualifies as a QSB).

As for corporate taxes - once again you neglect the fact that guys like me can earn up to $500,000 per year (after taking wages out) and will pay only 13.5% in corporate taxes on that money (in BC, lower in AB, higher in other Provinces)

The rich, which would likely include me in that mix, get lots of tax breaks - low corporate taxes, RRSP's which leads into RIF's and pension splitting which saves income tax AND the OAS clawback, TFSA's, etc....

It is all these tax breaks that should be curtailed.

[msj]

Good point, there’s several other factor’s to add………..What if us “rich folk” decide to just retire early? This last tax year I worked cumulatively about ~40% less than the year prior, saw a reduction in income of about ~60k but due to less taxes paid on that additional income, have hardly noticed a difference financially.

This is BS.

If you were in the highest tax bracket in BC then that $60,000 you didn't work for would mean that you are out, after taxes, about $33,600.

If you didn't notice that then you would hardly notice the couple thousand dollar the doctors are asking you to pay.

Second point, when the “professionals” with internationally transferable skills feel they’re being gouged too much at tax time, decide to bugger off to a more tax friendly environment, what net effect will that have on the society with the higher tax environment? It happened to South Africa, granted not just for tax reasons…

This is also BS.

We professionals can go anywhere we want based on many factors.

As long as I'm paying a decent amount of tax while living in a civilized country I will take Canada over many other countries.

In fact, I have many clients who work in third world countries (oil and gas) but choose to be residents of Canada and pay tax in Canada because they are smart of enough (and have seen enough of the world) to know this.

[Tilter]

More precisely, the very rich understand this as a question of control.

Bill Gates can spend the money on the charities that he chooses, or he can give the money to Clinton/Bush Jnr/Obama to let them spend his money.

If you were Gates, what would you do?

From Walkom's article:The federal budget is around $120 billion. An extra $3.5 billion would make a difference.

-----

If I were Harper, I would look at ways to fleece certain well-endowed sheep. He should do it in a way that the sheep come back for fleecing next year, and these sheep view the fleecing as a public sign of the luxury of their wool.

That's how income tax was first introduced early in the 20th century.

Quoting the article:

Someone with a taxable income of $170,000 would pay an extra $1,400. But someone earning $7 million would pay an extra $787,400.

While this "drop in the bucket" taxation would make a minuscule difference in a wealthy person's total income we could expect the elite to battle this tooth & nail.

In fact, it would mean that a person in the 170,000 bracket would have to pay the equivalent of a monthly payment on his wife's Escalade SUV and the 7 million earner (can ANYONE "earn" 7 million a year?) could afford 4 inches length less on his new yacht, the amount would still pain either of these examples about the same as one of us less fortunates' broken leg.

Edited March 24, 2012 by Tilter

[madmax]

After the “1%” have been gored, who’s next? The “5%”? Then the “10%”? etc

Well... for one thing.. your taxes would go down and your services would go up

[Guest Derek L]

This is BS.

If you were in the highest tax bracket in BC then that $60,000 you didn't work for would mean that you are out, after taxes, about $33,600.

If you didn't notice that then you would hardly notice the couple thousand dollar the doctors are asking you to pay.

Two years ago when I worked fulltime I also rented a small office and had a person working for me part time………..Too mention, when both my children were younger, we also had daycare/part time nanny, hired a cleaning service and a gardener from April to Sept etc………..Contrasted to working from home now, my children no longer requiring daycare and my Wife and I maintaining our own home…….30-60k can go quick.

This is also BS.

We professionals can go anywhere we want based on many factors.

As long as I'm paying a decent amount of tax while living in a civilized country I will take Canada over many other countries.

In fact, I have many clients who work in third world countries (oil and gas) but choose to be residents of Canada and pay tax in Canada because they are smart of enough (and have seen enough of the world) to know this.

You’d consider the Bahamas or Turks and Caicos uncivilised? Shit even parts of Florida are liveable……….

[msj]

Two years ago when I worked fulltime I also rented a small office and had a person working for me part time………..Too mention, when both my children were younger, we also had daycare/part time nanny, hired a cleaning service and a gardener from April to Sept etc………..Contrasted to working from home now, my children no longer requiring daycare and my Wife and I maintaining our own home…….30-60k can go quick.

Sure it can go quick. All the more reason to earn that $60,000, pay that ~$26,000 in taxes and keep the $34,000 to pay for the nanny.

Any rich people I know (and I know quite a few since I am a tax accountant) understand the value of a buck.

You don't.

Thankfully the intertubes is anonymous so you can carry on with your BS pretend story all you want.

You’d consider the Bahamas or Turks and Caicos uncivilised? Shit even parts of Florida are liveable……….

Florida is great.

Well, maybe not so great if you're black and armed with skittles and an iced tea.

[Evening Star]

Two years ago when I worked fulltime I also rented a small office and had a person working for me part time………..Too mention, when both my children were younger, we also had daycare/part time nanny, hired a cleaning service and a gardener from April to Sept etc………..Contrasted to working from home now, my children no longer requiring daycare and my Wife and I maintaining our own home…….30-60k can go quick.

So the issue is not necessarily the tax rate: your expenses have changed.

[Evening Star]

I understand that you’re thinking aloud, and I don’t wish to come across as hostile, but some (not necessarily you though) should practice empathy and consider that all “high income earners” weren’t born into it and will become defensive when other people talk about taking what they earned through years of hard work, some financial struggle at times, relying on grandparent daycare inc and eating their share of baked beans, Kraft Dinner and hot dogs.

I may not need to practise empathy here since to an extent, I'm living the '(hopefully) initial struggle' part of this (after more than a decade years of post-secondary education). (Caveat: I have had help. Many have it worse. I realize this.)

The thing is: no one wants high income earners to give up the majority of their income. I do think e.g. doctors should live well. But I've seen them and they do. I'm not sure it would be that harsh to ask them to only keep, say, 68% of the portion of their income that is over 300K instead of 71%.

[msj]

The thing is: no one wants high income earners to give up the majority of their income. I do think e.g. doctors should live well. But I've seen them and they do. I'm not sure it would be that harsh to ask them to only keep, say, 68% of the portion of their income that is over 300K instead of 71%.

To be fair, we should be talking about Federal and Provincial taxes since this is what the doctors are talking about.

They are calling for both the Federal and Ontario governments to increase top tax rates by 1% point each (so 2%).

That would go up by 24% points for the highest income earners. This implies about at 70% marginal income tax rate on income earned beyond about $1.85 million.

That is getting too steep for me.

[TimG]

That would go up by 24% points for the highest income earners. This implies about at 70% marginal income tax rate on income earned beyond about $1.85 million.

My opinion is marginal rates should never exceed 50% and that marginal rates in some provinces already exceed that.

[Guest Derek L]

Sure it can go quick. All the more reason to earn that $60,000, pay that ~$26,000 in taxes and keep the $34,000 to pay for the nanny.

Any rich people I know (and I know quite a few since I am a tax accountant) understand the value of a buck.

You don't.

Thankfully the intertubes is anonymous so you can carry on with your BS pretend story all you want.

Florida is great.

Well, maybe not so great if you're black and armed with skittles and an iced tea.

A tax accountant indeed……….And what would be the tax benefits (and legal benefits) of working out of ones home (and being incorporated) as opposed to renting an office space and paying for part time employees? Now include into your equation, turning a legal suite in ones home into said office, than renting to ones business as opposed to regular tenants…….

To say nothing about quality of life and it’s inherent value determined by an individual……….

Perhaps you’re an accountant, but I question your value to your clients.

[Guest Derek L]

So the issue is not necessarily the tax rate: your expenses have changed.

Our rate has been constant for 11 years now, but our income and expenses (cause and effect) has fluctuated, namely by design, but also by nature (children are teens now) and the economic climate.

[msj]

A tax accountant indeed……….And what would be the tax benefits (and legal benefits) of working out of ones home (and being incorporated) as opposed to renting an office space and paying for part time employees? Now include into your equation, turning a legal suite in ones home into said office, than renting to ones business as opposed to regular tenants…….

To say nothing about quality of life and it’s inherent value determined by an individual……….

Perhaps you’re an accountant, but I question your value to your clients.

What are you talking about?

I don't know enough details about whatever imagined situation you are making up for these forums to provide you any kind of tax advice.

If you want tax advice then find a real live person you can pay for it.