OP-ED: Patriotic Millionaires' concept of tax ‘fairness’ ignores tax facts in Canada

Jake Fuss and Tegan Hill write, "Unfortunately, the Patriotic Millionaires (whose motto is “Tax the rich!”) seem to misunderstand the current distribution of taxes paid by different income groups."

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By Jake Fuss and Tegan Hill

A group of wealthy Canadians called the “Patriotic Millionaires” recently asked governments in Canada to increase the amount of taxes they pay to “ensure greater fairness” in the system. In particular, the group is calling for a wealth tax and higher taxes on capital gains.

Unfortunately, the Patriotic Millionaires (whose motto is “Tax the rich!”) seem to misunderstand the current distribution of taxes paid by different income groups in Canada and the economic consequences of raising taxes.

The fixation on tax “fairness” (which the Patriotic Millionaires never actually define) is not new in Canada. It was a constant focus of the Trudeau government, which decided to increase “fairness” by increasing the top federal personal income tax rate from 29 per cent to 33 per cent in 2016 and proposing to raise taxes on capital gains in 2024.

These policies, like the Patriotic Millionaires, ignored basic facts about taxes. According to a recent study, the top 20 per cent of income-earning families in Canada paid 54.2 per cent of all federal, provincial and local taxes while earning less than half of the country’s total income (46.4 per cent). These families are the only income group in Canada that pay a larger share of taxes than their share of income.

In contrast, the remaining 80 per cent of Canadian families pay less in taxes than their share of total income. For example, the bottom 20 per cent of income-earning families pay 2.0 per cent of total taxes while earning 5.0 per cent of total income.

Why? Because Canada, like most advanced economies, has a progressive income tax system where government taxes individuals at increasingly higher rates as their income rises. For example, the marginal federal tax rate is 15 per cent on individual incomes up to $57,375 but more than double that rate (33 per cent) on income that exceeds $253,414.

According to the Patriotic Millionaires, Canada needs a “wealth tax,” which taxes a person’s net wealth. But time and time again, wealth taxes have failed to deliver the promised results of proponents. Eight European countries that experimented with wealth taxes have since abandoned them because they were expensive to administer, raised little revenue and imposed enormous costs on their economies. In particular, wealth taxes discourage investment, which is needed to broadly raise living standards and improve prosperity, by prompting people to move their assets away from productive investments (e.g. new businesses) to investments that may be exempt from the tax.

So, if Ottawa implemented a wealth tax, we’d likely see a reallocation of investment away from startups and towards housing (assuming housing remains exempt from the tax). Consequently, companies and investors would have less resources to invest in the technology, machinery and equipment that improve productivity, create jobs and drive higher living standards, particularly for average workers.

The Patriotic Millionaires also want to raise taxes on capital gains, which would have similar negative effects by making it more expensive for individuals and businesses to invest in Canada, leading to stagnant wages and living standards for Canadians.

The Patriotic Millionaires are misguided in their claims about “fairness” in the tax system. High-income earners already pay the majority of all taxes in Canada, and proportionality is one of the only objective measures of fairness with respect to the tax burden. Their policy proposals, if enacted by government, would only harm the economy rather than help it. That wouldn’t be fair to Canadian workers.

Jake Fuss and Tegan Hill are research directors at the Fraser Institute.