If you live in Canada, it’s hard to go a few days without hearing a discussion of the country’s wealth inequality status. As of late, it has become more and more apparent that people are highly concerned about the future of the nation’s wealth disparities and are looking to take action.
Does Canada Need a Wealth Tax?
To clarify, wealth is not to be confused with income. Income is the amount of money that a singular person or household earns each year before tax. Wealth is different. There are a few general ways to accumulate wealth, the most common being earning it over time or inheriting it from previous generations.
In any case, since Canadian wealth inequality is such a significant concern, the idea of a wealth tax in Canada has garnered a groundbreaking amount of bipartisan support.
So, what is a wealth tax? If a bill were proposed and passed for a wealth tax in Canada, it would mean that annually, a percentage of a household’s total wealth could be taxed if said wealth exceeds a certain level (for example, 1% on 20 million+, 2% on 50 million+, etc).
Do wealth taxes work, and what would one mean for Canada? Read on for more.
A strong middle class
Wealth can be self-sustaining, with nest eggs growing larger and larger through investments and interest. After all, money tends to make money, and it’s easier to generate more if you start out with a sizable sum. Because of this, many have brought up the concern that Canada’s middle class is shrinking and could only stand to benefit from a wealth tax.
But, is this true, and does it warrant a wealth tax in Canada?
There is much speculation about the current state of the middle class in Canada. While numbers would suggest that it is indeed shrinking, most of the contention relates to how the middle class measures up to the rest of the world.
Conflicting Views on Wealth Tax
For example, voters opposing a Canada wealth tax would say that the middle class is actually doing quite well relative to the middle class of the U.S. and other developed countries. Additionally, a popular idea is that a wealth tax might not be the most effective way to reduce the deficit or level the playing field.
Recent reports from Statistics Canada actually show a 2.4% increase in the total share (27.1%–29.5%) held by the least wealthy 3 quintiles of the Canadian population. However, this doesn’t include the fact that only 87 households hold over half the country’s wealth altogether, according to the Canadian Centre for Policy Alternatives (CCPA).
On the other hand, among wealth tax supporters it’s asserted that the tax would ensure that the richest Canadians contribute heavily to reducing the country’s current deficit, something heavily exacerbated by the Covid-19 pandemic.
For those in the middle class (however it’s defined), no matter how they measure up against the middle classes of other countries, they could stand to benefit from a wealth tax if the proceeds are used in the correct ways. The thing is, the idea of a wealth tax brings up concerns from the public, which will be detailed more below.
The mirage of a wealth tax in Canada
There is a ton of debate still surrounding the idea of a Canadian wealth tax. Like many large-scale propositions, it’s natural for many to be skeptical of the grand projections put forth by the government’s wealth tax supporters.
As it turns out though, those dissenting are in the minority. A poll from Abacus Data evidenced this, with 75% of respondents favoring a 1-2% wealth tax on the most affluent Canadian estates. To add to that astounding number, the percentage includes a solid 69% of conservative voters.
With bipartisan support, it’s apparent that more efforts for a wealth tax in Canada could come about and be received well in the future.
While there are a lot of benefits on paper, there are still important points to consider on the other side. It’s highly important to evaluate both the pros and cons surrounding a movement of this caliber. Thus, we’ll now get into a few points supporting the Canadian wealth tax as well as points indicating that the wealth tax could be a mirage.
Here are a few important potential implications that a wealth tax in Canada could have on the government, the economy, and most importantly, the people.
Potential Benefits of a Wealth Tax in Canada
One of the most prominent potential benefits of a Canada wealth tax is that it could help millions of families recover from the Covid-19 pandemic’s effects on the economy. Over the past year, Canada has seen millions of families fall into a financial struggle, relying on Canada Emergency Response Benefit payments and Employment Insurance benefits to sustain themselves.
Conversely, the wealthiest Canadians have actually seen their wealth grow as a collective, so it seems to make sense to many that the rich contribute some of their share to relief efforts.
Doing so could stimulate the economy and expedite the bounce-back from the pandemic, and in theory, it wouldn’t cost the wealthiest estates much in the long run if things continue as they have been.
To put the tax into perspective, imposing a wealth tax of 1% on an amount of $20 million would equate to only $200,000, which supporters argue is likely a small percentage of the annual income for high-net-worth individuals.
Potential Pitfalls of a Wealth Tax in Canada
The first point we’ll get into from the opposing side is that there is definitely a danger of wealthy Canadians moving their money out of the country as a result of a wealth tax being passed. While this wouldn’t be exactly ethical, there’s nothing stopping the richest citizens from relocating or trying to evade the tax in some way, shape, or form.
If this happens even on a minimal scale, the projections for the bill’s impact would skew and the benefits wouldn’t present as planned.
Another concern from the dissenting camp is that a wealth tax is a slippery slope. Why? Well, because those with the most wealth naturally tend to be older Canadians who have had time to grow their fortunes and worked their entire lives for it.
Disregarding the monetary impact it would have on these folks, the real issue is that a wealth tax could accidentally become an age-based tax.
In general, there are a lot of ways that the Canadian people could benefit from a wealth tax. By taxing the wealthiest estates a small percentage each year, the economy could theoretically recover faster and citizens affected most by the pandemic could breathe a short sigh of relief after such a year.
However, all potential benefits depend on what the government would do with the proceeds. In order for a wealth tax to be approved, there should be a plan in place to ensure that it would genuinely benefit all Canadians, be it through social spending or economic stimulus.
Overall, there are solid arguments on both sides surrounding a potential wealth tax in Canada. While the impact of one would affect people in a myriad of different ways, there is currently still enough opposition to stave it off. However, it has been gaining support and in the future, there will undoubtedly be more efforts to make it a reality.