In Canada, we have a progressive tax system. This means that the more money you make, the higher percentage of your income goes to income tax. While many would say that is very fair that those who can most afford it, pay the most. The flip side is whether it is fair that one person contributes $10 for the same services that the next person contributes $2 for, and the third person contributes $0 to the cause.
The same family that uses the same roads, health care system, infrastructure and police department, pays many multiples what another family pays for the same services. In fact, the wealthy family may use the education system and even the health care system less, if they choose some private options. …
Is $10 million, or $11.5 million, in lifetime taxes, a fair amount for a couple to pay? I guess that is what Trudeau was saying when he talked of being “willing to help out in meaningful ways.”
To top it all off, the couple that will pay $10 million in taxes will now receive $0 in tax-free child benefits, while the couple that pays $669,000 will receive roughly $6,000 in tax-free child benefits in the coming year. This is a meaningful benefit that wasn’t even factored into our tax bill planning.
In both cases, the families are going to be fine in retirement. The one-per-cent couple that paid all that tax will still have an estate value of $23.2 million in future dollars, or $5.9 million in today’s dollars. This is after maintaining their lifestyle their entire lives.
The middle-class couple will have an estate value of $2.9 million in future dollars, or $745,000 in today’s dollars, after maintaining their lifestyle their entire lives.
Of course, most lives don’t work that smoothly. We have assumed steady employment for all four of them for the next 25 years straight. That rarely happens, and likely paints a rosier picture than reality. At the same time, we have assumed that their incomes grow with inflation. In many cases, especially in management level jobs, income will grow faster than inflation for a 35-year-old as his or her career progresses. In this case, our income numbers might be understated. We have also assumed $0 in inheritance, which is unlikely to be the case.
So, is $10 million in taxes for a high-income family too much, too little or fair? That’s subjective. Objectively speaking, the higher taxes haven’t stopped the one-per-cent couple from a strong lifestyle with a nice cushion.
What I do know is that Canadians shouldn’t be looking at this one-per-cent couple as greedy capitalists. They should be saying “thank you” for funding so much of Canadian society; thank you for financially contributing much more than you are using; thank you for working hard so that all Canadians can benefit.