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Kim G C Moody’s Musings – 1-1-1 Newsletter For October 18, 2023

One Comment About Taxation – Tax The Rich! 


Tax the rich” has been a popular rallying cry for many people who feel victimized, entitled, or have a weak understanding of how Canada and other countries tax their residents and redistribute income.

The phrase has for decades been good politics for many left-leaning politicians and political parties who use it, or something similar, to capitalize on the above group for their votes. Such a phrase is intellectually lazy, despite its political appeal.

Given Canada’s progressive taxation system, the so-called “rich” already pay a disproportionate share of their income in taxation. For example, in 2020, the top 0.01 per cent of income tax filers represented individuals who earned $2,829,000 or more. There were only 2,885 of those taxpayers for that year, but they paid 2.6 per cent of all the federal and provincial income taxes collected during 2020.

The top one per cent (representing 288,400 taxpayers earning $253,900 or more) paid 21.1 per cent of the federal and provincial income taxes collected that year. The top five per cent (representing more than 1.4 million taxpayers earning $132,300 or more) paid 40.1 per cent. The top 10 per cent (representing almost 2.9 million taxpayers earning $102,400 or more) paid 53 per cent.

The bottom 50 per cent (representing the more than 14.4 million taxpayers who earned $40,700 or less) paid 6.5 per cent, which clearly shows the top 50 per cent of income earners paid 93.5 per cent of all federal and provincial income taxes. All this information is available from Statistics Canada.

Absorb that for a moment. The top income earners are obviously paying a disproportionate amount of the collected income tax. And, again, that is what you expect from a progressive income tax system that Canada has.

But how much is too much? Is there room to “tax the rich” more when the top five per cent, for example, are already paying 40.1 per cent of overall tax revenues?

Combine the above information with some left-leaning think tanks and political parties that have been calling for Canada to introduce a wealth tax (apparently to solve “income/wealth inequality,” with the Prime Minister’s Office recently reviewing this possibility) and the potential for behavioural responses amongst those people that contribute the most to Canada’s finances is high. I see it in my practice, particularly in the past six years.

The federal government has put itself in a tricky spot. Deficits have been ongoing and massive. Cost control is certainly not on the agenda. To fund continued out-of-control spending, there will need to be tax-rate increases, continued attacks on high-income earners/wealthy people and/or new forms of taxation introduced. The trick is to do this without having too many rich people leave Canada or exit the taxing system.

Some of my friends who don’t appreciate the disproportionate share that high-income earners already contribute respond by continuing to say, “Tax the rich,” or “Just go get the money that the rich are hiding offshore” (this is a misinformed comment), or “the rich have all the tax loopholes whereas the average person doesn’t” (again this is very misinformed and not accurate).

Hearing such responses is disheartening since constructive dialogue on how Canada’s overall taxation system could be improved is badly needed. Bringing strongly held and flawed ideologies to the dialogue table is not helpful.

Overall, Canada should try to attract more high-income earners and wealthy people. They contribute significantly to our country’s overall taxation receipts that help fund social programs and infrastructure.


One Comment About Leadership – Top 5 Leadership Lessons Learned


Over my career, I’ve learned much about leadership matters, primarily by trial and error and by studying leadership concepts (via attending conferences, workshops and gobbling up many great authors’ content).  Recently, I was asked to present to a small group of executives on the Top 5 Leadership Lessons Learned.  You can see my presentation here.  I’m sure my Top 5 (well, actually 6, since I provided a bonus lesson) will be different a year from now since I’m still learning and refining my leadership skills.  What’s your Top 5?


One Comment About Economics – PBO Economic Outlook


On October 13, 2023, the Parliamentary Budget Officer (“PBO”) released its Economic and Fiscal Outlook.  It’s a sobering read.  Below is the summary communication released by the PBO:

  • Following the contraction in real GDP in the second quarter, we project the Canadian economy to stagnate in the second half of this year and growth to remain weak through the first half of 2024. We project the unemployment rate to rise to 6% in the middle of next year and to remain elevated through the first half of 2025.
  • Assuming no new measures and existing temporary measures sunset as scheduled, the deficit is projected to increase to $46.5 billion in the current fiscal year, 2023-24, and the federal debt ratio to rise to 42.6% of GDP. Under status quo policy, the deficit is projected to decline over the medium term, falling to $8.2 billion in 2028-29.
  • In terms of downside risks, we judge that the most important risk is a larger-than-expected impact on the Canadian economy, including housing, from the Bank of Canada’s restrictive monetary policy, which would negatively affect the Canadian economy and federal finances. In terms of upside risks, we judge that the most important risk is higher-than-projected spending by provincial governments.

There is a lot to absorb in those summary comments.  One thing that continues to irk me is the disregard for keeping our federal budgets from being in deficit.  Now, the PBO projects the federal deficit will continue to rise.  With projections like this, it is always interesting to read the assumptions and risks of the assumptions.  In this case, the PBO explicitly states that a considerable risk to its assumption is the impact of higher interest rates that have risen because the Bank of Canada’s monetary policy to reduce inflation could have an even larger negative impact than predicted.  That’s worrisome – especially the comment about housing.  Yes, our country has a housing problem.  Higher interest rates are certainly making housing affordability a problem.  But many factors are at play here – including increased immigration numbers.

I’ll be paying close attention to all of this. I hope you will too.


Bonus Comment – Quote From Thomas Sowell Famous American Economist – About Elections and Taxes


“Elections should be held on April 16th – the day after we pay our income taxes.  That is one of the few things that might discourage politicians from being big spenders.”

I love it!  Great idea and totally agree! Of course, in Canada, that Election Day would need to be May 1st since Canada’s general personal tax filing deadline is April 30th and not April 15th.


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