One Comment About Taxation – You Don’t Need to Be All That “Rich” to Be Affected by Bad Taxation Policies

 

Last week, I was having a quick chat with a young friend of mine who is a socialist.  He works in the public sector and leans heavily left so we often get into friendly but lively debates about tax and economic policy.  The topic d’jour was the proposed capital gains inclusion rate increase.  Overly simplified, his comment was that the result of the proposal would be that instead of the rich “eating caviar” that they might have to eat something less expensive.  Another person, who also works in the same public sector industry, chimed in and said that the rich would still be able to sit on their “piles of cash” but they’d have a little bit less.

Comments like those drive me crazy.  I started my rebuttal by asking them if they knew how much the “rich” in Canada paid in overall personal tax revenues. None of them knew so I quickly provided them the following 2021 statistics:

 

–        The top 0.01% of income earners, 2,930 individuals, had an average income of $7,731,400 and paid 3.0% of all federal and provincial taxes collected by the applicable governments;

–        The top 0.1% of income earners, 29,260 individuals, had an average income of $2,086,100 and paid 8.9% of all federal and provincial taxes;

–        The top 1.0% of income earners, 292,560 individuals, had an average income of $579,100 and paid 22.5% of all federal and provincial taxes;

–        The top 5.0% of income earners, 1,462,905 individuals, had an average income of $259,600 and paid 41.7%% of all federal and provincial taxes;

–        The top 10.0% of income earners, 2,925,585 individuals, had an average income of $190,000 and paid 54.4% of all federal and provincial taxes; and

–        The top 50.0% of income earners, 14,627,925 individuals, had an average income of $90,700 and paid 93.8% of all federal and provincial taxes.

 

Note – yes, I’m displaying “average income”, not “median” which is slightly different in each category.  And to be fair, the above statistics do not include capital gains income for each category (which can be quite “lumpy” year to year).

When I list off the above statistics, the reaction is usually consistent.  Most are surprised that the average incomes are that low for certain groups.  In addition, there is often recognition that a very small group of “rich” people pay a large and disproportionate amount of tax.  Yes, that is what happens when you have a progressive taxation system like Canada’s.

I’m in favor of a progressive taxation system but if the “asks” become too much, there will obviously be negative behavioral reactions. Those reactions are seeing a large amount of “rich” – and even not rich – Canadians leaving Canada.  It was recently announced that emigrations of Canadians leaving to the U.S. has reached a 10 year high.  Not surprising since I’ve been ringing this alarm bell for years.

With the above statistics in mind, one should easily be able to appreciate that it doesn’t take many losses in the top 0.01% to 5% to have an extremely negative impact on the remaining population to replace that lost tax revenue. It also certainly doesn’t help improve Canada’s productivity challenges.

Under this federal government, the recent “asks” of the rich have included a 4% increase in personal tax rates, an attack on small businesses and their ability to income split with family members, major amendments to the alternative minimum tax and a host of other “adjustments”.

In addition, it is clear from the above statistics who pays for the Robin Hood programs like PharmaCare, Dental Care, and a whole host of other wasteful spending.  Yep, those damn rich people again.  Again, if the “rich” feel that the money shelled out of their hard-earned monies is not getting good value, then there will be negative reactions.

And that’s where the capital gains inclusion rate increase proposal comes in.  The proposal to increase the inclusion rate from 50% to 2/3’s (with individuals able to maintain the 50% inclusion rate for annual capital gains of $250,000 or less) is not about the vacuous speaking points pumped out by the Prime Minister’s Office and repeated by the PM and others who try to suggest that the increase is good policy (necessary for “fairness”, “equity”, “intergenerational fairness”, the “capital gains advantage”).  Nope, this is a simple tax revenue generating measure since this government has no desire to materially reduce spending and try to appease the “value for money spent” crowd.  Instead, it “needs” the revenue in order to continue to recklessly spend.

Unfortunately, though, the capital gains inclusion rate increase impacts much more than the “rich”.  Average Canadians are waking up to the simple fact that they don’t need to be “rich” to be directly or indirectly impacted in a negative way.   Second properties (like rental or vacation properties), taxation on death (which impacts inheiritances), small business owners who realize capital gains individually or through their corporations, pension holders whose investments include shares of publicly traded corporations that pay dividends, becoming a non-resident of Canada and other implications will all be impacted.

As Morgan Housel has said: “Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works”.  Very much agree.  Accordingly, while my socialist friends’ experiences with money might make them think that the so-called “rich” are all “eating caviar” and sitting on piles of cash, they are definitely not.  They get up in the morning and put their pants on one leg at at time just like we all do.

While the “rich” might make more money than most, many who are classified as “rich” are creating jobs, supporting families, making large charitable donations, supporting their communities in a disproportionate way and trying to make Canada better for all.

The capital gains inclusion rate is simply poor policy introduced at a time when our country needs more successful people.  We need to encourage and support success rather than attack it.  Our country’s future economic success depends on this.

Good taxation policies matter.  The capital gains inclusion rate increase is not good policy and should be scrapped:  bad policy and wrong time.

It likely won’t happen under this federal government but one can hope that 2025 will be the year that common sense returns to Canada.

 

One Comment About Leadership – Leaders Need to Choose How to Deal With Criticism

 

It’s inevitable.  If you’re a leader, you are going to face criticism.  And if you put yourself out there publicly (like I have done with my many writings, social media and speaking engagements), you’ll be criticized even more.  That’s ok.  As I discuss below, the key is to be intentional and methodical on how you handle such criticism.

If you have a “thin skin” – like I used to have – it can be a problem.  I have grown a much thicker skin over the years but in my early years of leadership, I would be easily distracted and rattled by criticism.

How have I dealt with criticism better?  Well, the first thing I do is try to quickly understand what type of criticism I’m receiving.

The first bucket of criticism I often receive comes from a place of anger and envy by the “giver”.  I obviously can’t control that and want nothing to do with it.  That type of criticism I simply ignore.

The second bucket of criticism that is common is personal attacks: “Moody, you’re stupid!” or “You have no idea what you’re talking about!” or “You’re a racist for saying what you did”, etc.  These types of attacks are simple to deal with…especially if they’re received electronically – I simply block such rude people and hopefully never have to deal with them again.

The most useful type of criticism I receive is what is commonly known as “constructive criticism”.  In its most polite form, it can be received as “Moody, I don’t agree with what you’re saying because I think you missed the point on X and Y and perhaps Z”.  Similarly, “Well, I understand your point but I don’t share your views because you didn’t discuss X and Y”.  Such feedback / criticism can be quite helpful and provide me an opportunity to learn and appreciate alternate points of view.  My attitude is if I feel comfortable to “dish it out” then I better be comfortable to appreciate alternate points of view.  I’m not perfect at handling this type of criticism but I do find it very helpful to learn and grow.

Leaders, how do you handle criticism?  Are you intentional in your reactions to it?

 

One Comment About Economics: The 80th Anniversary of D-Day

 

One day after the release of this newsletter, June 6, 2024, will be the 80th anniversary of D-Day – June 6, 1944.  That day will be forever remembered as a key day that turned the tide in World War II and started the liberation of Europe.  The landings by the Allied Forces on the beaches of Normandy, France was long planned but resulted in thousands of Canadians, Americans, British and French forces dying.

I am an avid student of history and that time in history fascinates me.  Without the bravery of tens of thousands of Allied soldiers, our very existence and freedoms may not exist or be as they are.  Yes, our society is far from perfect but there are no shortage of examples of around the world that are far, far worse.  I shudder to think what would have happened if Germany and its allies was successful. Frankly, it is likely we wouldn’t have a free economic system in Canada and elsewhere around the world without the bravery of those soldiers who risked and sacrificed on June 6, 1944.

I recently had the opportunity to visit Juno Beach in Normandy, France.  It was a haunting experience.  I posted about that experience here.

On June 6, 2024, please take a moment to honor the memory and sacrifices of those soldiers’ efforts from 80 years ago.

 

Bonus Comment – Quote From Aristotle – Ancient Greek Philospher – About Criticism

 

“Criticism is something we can avoid easily by saying nothing, doing nothing, and being nothing.”

 

Yep, totally agree!  Leaders, are you being criticized? You most certainly are.  How do you deal with it?

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