Why the Poorest Millionaires Should Stop Worrying About a Wealth Tax

Benjamin Franklin observed that nothing is certain except death and taxes.

Another certainty is that the wealthy will concoct fatuous arguments to justify lower taxes for themselves.

"A wealth tax would be the simplest, fairest and most effective way to collect billions of extra dollars of revenue a year, and to limit the power and political influence of the billionaire class."

The ultra-rich have been so relentless in making their case -- or having hired guns make it for them -- that they've managed to largely shed their tax burden in recent years even as they've grown spectacularly, exorbitantly, astronomically wealthy. (Canada's wealthiest 87 families had wealth of $259 billion in 2016; our top 44 billionaires increased their wealth by more than $50 billion during the pandemic.)

Most Canadians have had enough of this. A recent Abacus poll shows that a striking 79 per cent of Canadians favour a wealth tax.

In fact, a wealth tax would be the simplest, fairest and most effective way to collect billions of extra dollars of revenue a year, and to limit the power and political influence of the billionaire class.

A wealth tax only targets the wealthy. An NDP proposal -- based roughly on proposals by U.S. senators Bernie Sanders and Elizabeth Warren -- would levy an annual tax of 1 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.

Here are some of the facile arguments being trotted out against a wealth tax.

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.

A wealthy family could lose control of a family business if it were obliged to sell shares in order to pay the wealth tax. Highly unlikely, but possible. But so what? There's no evidence that wider corporate ownership would be a bad thing.

Finance Minister Chrystia Freeland's mandate letter from Prime Minister Trudeau called on her to identify "additional ways to tax extreme wealth inequality."

This is not rocket science.