July 16, 2021 | The Big Suck

At 37, Nathaniel Erskine-Smith is one of the youngest MPs. There are reasons to like him. He’s a big animal rights dude, taking concrete steps against cruelty and exploitation. He thinks party politics can be stifling, so free votes and open debate – even questioning the leader – should abound in Parliament. But he’s also more of a Dipper than a Lib, wrapped in the rhetoric of the left and striving to be seen as a maple-flavoured Robin Hood.

So it was NES who asked the PBO (Parliamentary Budget Officer) to run the numbers on a Canadian wealth tax – which hit the news this week, just in time for the next election. This has been a major plank in the NDP platform and recent polls found that 80% of Canadians support raiding the net worth of ‘rich’ families. Because, of course, a fair tax is one that somebody else pays.

What’s a wealth tax?

It’s not income tax – which is already at the 54% level for most 1%ers in Canada. Instead it’s a levy on net worth – owned assets – which can include residential real estate, investment portfolios and (mostly) business equity. The latter is problematic, of course, because businesses employ people, pay corporate taxes and usually have most of their capital tied up. If the company is privately owned it’s impossible to sell some shares on the market to raise money to pay a new tax. It might have to be scaled back or sold instead. Not good.

Most countries don’t have a wealth tax because it apparently doesn’t work. Families move money around to avoid tax (like you do). Investment is curtailed. Wealthy people migrate elsewhere. The economy is hindered, not helped. These days only Norway, Spain and Switzerland routinely tap personal net worth, and in very different ways.

Norway has a 0.85% levy on financial portfolios worth roughly $200,000 C$ or more. Spain’s tax is on a sliding scale (by region) on financial assets of about $1 million and up. The Swiss have taxed net worth routinely since 1840 and it covers worldwide assets.

Other nations tried this and gave it up. France taxes real estate, instead. Italy taxes assets held abroad. No other European countries have adopted a wealth tax. Not in the UK. Nor America. Places that tried and failed to design or sustain this kind of thing include Austria, Denmark, Finland, Germany, Ireland, India, Netherlands, Sweden and France which gave up three years ago.

In short, it doesn’t work. Rich people don’t usually have liquid assets waiting nicely to be Hoovered. Their wealth resides in land, buildings, equity and operating companies. If a government wants to take, say 1% or 2% a year of a family’s overall holdings, then stuff has to be sold. So, how does an entrepreneur peel off a little hunk of a grocery store chain? Or a shipyard? Or an online platform? And what’s the economic benefit of being one of the few countries on earth where the government sucks off more than half a successful person’s annual income, then comes back for a bite of what’s left?

Well, that hasn’t stopped crusader Nathaniel. Or the orange guys. So here are the proposals being bandied about…

The Liberal MP from Toronto (trained as a lawyer, married to a vegan chef, whose parents are retired teachers) wants a one-time tax on the net worth of families with ten million. There are 87,139 of them in Canada. This would take $60 billion of their money, which they could pay over five years. The rate would be 3% of net worth, rising to 5% for folks with over $20 million (there are 19,000 families in this category). This would be (supposedly) a one-time hit, so that wealthy people would not just be scared away forever.

The NDP wealth tax is simple and eternal: 1% of all the net worth of families with $20 million or more annually, which would raise about $5 billion from 13,800 households. (That is 1.5% of last year’s deficit.) Socialist leader Jagmeet Singh also wants a ‘profiteering tax’ levied on those WFH companies (Amazon, Apple, Shopify, Netflix etc.) that actually made good bank during the pandemic.

New Democrat finance critic Peter Julian says bringing in a wealth tax will be a key debate topic in this coming campaign. NES wants his party to be the one spearheading the assault on net worth. The Cons says this makes them the only ones who can see straight. And meanwhile, as stated, eight in ten voters believe what they’re told – somebody else can foot the bill.

Oh, Canada.

Garth Turner July 16th, 2021

Posted In: The Greater Fool

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