With parliament crying deficit, increasing the capital gains tax rate is a possible financial salve
By Jonathon Simister
It’s been in the news recently that Mitt Romney’s running mate Paul Ryan wants to eliminate tax on capital gains — money people “earn” from investing the money they already have instead of actually working. Even Mitt Romney, a multi-millionaire, admits that such a plan would reduce his tax bill to near zero.
Many Canadians are content in believing that such outlandish ideas would only be considered amongst libertarian true-believers in the United States, who are so out of touch with reality that they actually believe that privatized courts would be “more just,” and that shiny rocks are “the only real money.” This is not the case.
In Canada today, capital gains are taxed at only half the rate of income earned from labour. Just look at line 199 of your T1 form: “Multiply the amount on line 197 by 50 per cent.” After adding up all of their investment income, and subtracting any losses, investors get to add only half of this total to their taxable income. This means someone earning $50,000 per year in interest on a couple million in savings at the bank would pay the same amount of income tax as the poor sucker who gets $25,000 to do their landscaping. One person works all day in the hot sun while the other gets twice the money to do nothing and yet they both pay the same amount of tax at the end of the year. Factor in tax-free investment vehicles like RRSPs, RESPs, and TFSAs and the multi-millionaire could actually earn much more and pay even less tax than the poor schmuck mowing their lawn.
In fact, these investment tax shelters ensure that regular people, the 99 per cent, never have to worry about paying capital gains tax. Anyone who has money left over after maxing out their annual tax-free $22,970 RRSP contribution limit, $2,000 per child RESP limit, and $5,000 TFSA contribution limit isn’t exactly working class. No one is paying capital gains tax on money they need to save for their retirement or their children’s education so there’s no legitimate reason to afford capital gains special treatment on tax forms. The low capital gains tax actually makes it harder for most Canadians to go to school or retire comfortably, because it robs the government of revenue it would otherwise have to help offset these costs and necessitates higher taxes on the meager incomes of students and retirees.
An increase on capital gains tax ought to be one of the least controversial tax increases. Aside from inheritance, investment income requires the least amount of effort to earn. The one per cent’s one, tired argument for the capital gains tax rate is that the money currently being invested in Canada will be invested elsewhere if it is increased. Their argument is flawed for two reasons. First of all, Canada is not a poor country by any standard, and thus doesn’t need huge amounts of foreign investment. This affords us the luxury of restricting foreign ownership in major industries. There’s plenty of money already in the hands of Canadians to be invested in new ventures or major developments; we don’t have to sacrifice our principles to appease overseas plutocrats.
Secondly, there are already plenty of places with zero capital gains tax, but investors are still pouring money into Canada. Canada will never be able to compete with tax havens like Barbados or The Cayman Islands, but we don’t have to. Canada’s investment appeal comes from the country’s resources and skilled workforce, not tax incentives. People who want to invest in the oil sands, for example, can’t very well choose their tax jurisdiction, so there’s no reason not to make them pay their fair share. Improving education will likely do the most to hasten growth of the Canadian economy. Increasing the capital gains tax to match taxes on labor income is the obvious way to pay for such improvements.
