Taxing the One Percent

Make the rich pay: that's a good populist slogan, and very dangerous — to the rich.

How do the rich fight back? Currently, two ways. First, they have some dupe or colluding leftie to advocate for higher income tax. Currently, for example, newly elected US Congress woman, Alexandria Ocasio-Cortez, is calling for a 70% top tax rate, while Bernie Sanders, an old-line Commie, calls for a more moderate 15% increase in the top tax rate to a mere 52%, or about what Canada's 1% pay, already.

But what does that mean for the rich. Well here's Bill Gates, one time richest man in the world, on how income tax impacts the rich:

In terms of revenue collection, you wouldn’t want to just focus on the ordinary income rate, because people who are wealthy have a rounding error of ordinary income.

Get it? For rich people the income tax rate is essentially irrelevant because they pay it on only a trivial amount of their actual annual increment in wealth. How come. Because, as Bill Gates goes on to explain:

(The rich) have income that just is the value of their stock, which if they don't sell it, it doesn't show up as income at all, or if it shows up, it shows up over in the capital gains side. So the ability of hedge fund people, various people — they aren't paying that ordinary income rate.

OK, and the second way to fight making the rich pay?

Why, like Canada's young and handsome Prime Minister, Justin Trudeau, you point out that the poor don't pay any tax at all! 

This is, of course a preposterous lie, since in Canada, income tax kicks in on any earned income in excess of $12,069 per year: or approximately $750 US per month.

How do Trudeauvians justify such a preposterous claim? Why, easy sleazy: from your tax payment we deduct the cost of the government services you receive, for example, brain-washing your kid with compulsory sex "education, " you know, indoctrinating the youth of the nation with the idea that the only sexual vice is reproduction. Then there's the cost of all those wonderful bureacratic services you receive from Ottawa, like that of Revenue Canada, for example.

The argument is absurd: like saying that when you buy a new car you don't pay for it because, well hey, you received a car of value equal to the money you handed the car dealer. But what else could a rather dim-bulb trust-fund kid like our Justin say?

But in any case, who really benefits most from government? The rich, obviously, who are absolutely dependent on the military and the forces of internal law and order to secure their property from the depradations of both fellow citizens and foreign enemies. Thus, the chief form of taxation should be on wealth, not earned income.

How should wealth be taxed? By a simple yearly percentage.

How much should be the tax on capital? Enough to pay for the maintenance of the state, which is to say the cost of the military, the police, the physical infrastructure upon which the functioning of the state and the value of most property depends — for example, a house without road access, water supply, or sewer connection is of little or no value.

In addition, the tax on wealth should cover the cost of basic social services that contribute to the education and health of the people upon whom the owners of capital depend for the operation of the corporations in which they are invested, and the provision of the infrastructure and services such as roads, airports, sewage works, etc.

So how much should this tax on wealth be? For Canada, we can work that out from the fact that the average net worth of a Canadian currently stands at $808,000 or thereabouts.* That means the total wealth of Canadians amounts to around $29 trillion, of which 80% is owned by the wealthiest 20%. So let's exempt the poorest 80% from the wealth tax, and impose a tax of 1% a year on the nearly $24 trillion, or $3.4 million each, owned by the top 20%.

Such a tax would yield $240 billion a year, which is more than the current combined Federal Government revenue from income tax and the job killing corporation tax, both of which could be abolished. Then the poor really would pay no tax, but the rich would still be rich.

According to the French economist Thomas Picketty, financial assets yield around 7% annually over the long-term.  Thus, even if inflation eats 3 or 4% of that return annually, the rich could still expect a positive, after-tax unearned income of 2 or 3% on their investments. What more do they expect? Well, any amount obviously. But if the alternative is a bloody revolution, they should be well content with a real after tax unearned return of 2 or 3%.

Meantime, the really hardworking entrepreneurs and corporate employees, the people who are not rich, by the standards of the rich, but who earn big money, would have maximal incentive to be productive by working like crazy, without the distraction of attempting to minimize their tax obligation through off-shore structures, and the use of trusts and foundations.

____

* Different sources give widely different estimates of Canadians' net worth. The actual number makes no difference to the argument presented, only to the extent to which a capital tax reduces the need for other taxes.