5 Things You Should Know About Wealth Taxes
Resource Movement is calling on the Federal Government to implement a wealth tax. How would this work? Here are the 5 most important things to know:
1. What is a wealth tax?
In Canada, our major taxes include income, capital gains, sales and property. Income taxes apply to any income from employment, capital gains taxes apply to income from return on investments, sales taxes are taxes on the sale of certain goods and services and property taxes are calculated by valuation of property.
A wealth tax (which Canada doesn't have...yet) is an annual tax, where the value of assets including property, bonds, savings, inheritances are calculated and, if they are valued above a certain threshold, a percentage gets taxed.
Canadians with large amounts of wealth often make sizable annual returns from investments. This results in their wealth growing at a faster rate than the overall economy, and contributes to growing inequality, which is associated with higher rates of poverty, crime and mental illness.
In terms of percentage, the top 1% of Canadians often pay a lower effective tax rate than middle class Canadians thanks to tax loopholes and lower rates on investment income. An annual wealth tax would offset some of these wealth gains, increase the progressivity of the taxation system and reduce inequality.
2. Will I have to sell my house if a wealth tax is implemented?
Absolutely not! Under most wealth tax proposals, the vast majority of people wouldn’t pay any wealth tax at all. Wealth taxes purposely include a high exemption threshold to avoid any liquidity issues. For instance, Resource Movement’s wealth tax proposal would exempt the bottom 90% of Canadians.
Assets included in the net worth measurement for the wealth tax vary according to the proposal. Generally, a wealth tax includes assets such as high-value residences, closely held businesses, assets held in a trust, retirement assets, assets held by children considered minors, and personal property.
It may seem complicated to value someone’s total wealth, but property and capital gains are already being tracked for tax purposes, and these account for the bulk of many people's assets. The valuation of other non-income assets on a yearly basis would likely not be much more complex. In fact, a wealth tax could be a catalyst for the government to collect more reliable data on wealth, and lead to greater transparency about the distribution of wealth in Canada.
3. Is a wealth tax feasible?
Yes! Other countries already have a functioning wealth tax, for example:
In Norway, a wealth tax is levied at the municipal and national level with rates going up to 0.85%. Assets subject to taxation include household’s global financial assets and housing.
In Spain, the state progressive wealth tax rates rise from 0.2% up to 2.5%. The tax is payable on the net value of most capital assets (real estate, savings and investments, shareholdings, jewellery, etc.)
In Switzerland, all cantons levy a net wealth tax based on the balance of the worldwide gross assets minus debts. The applicable tax rates are progressive and vary depending on the region. The tax rates usually range between 0.1% to a maximum of 1% of the net assets.
Many other OECD countries have had wealth taxes in the past, but they were eventually repealed. This decline of wealth taxation abroad is one of the main arguments used by skeptics to argue a wealth tax would not work in Canada.
However, this argument is missguided. The wealth tax repeals in Europe weren’t because wealth taxes don’t work, they were a consequence of ineffective policy and a lack of political will to curb tax competition and tax evasion. Canada can learn from those mistakes and do better, by cracking down on tax avoidance and evasion used by the wealthy that make wealth taxes less effective overtime. Both measures are needed.
4. Do Canadians want a wealth tax?
Yes they do, and now more than ever! Taxes on the richest are a popular solution: a September 2020 poll found that 76% of Canadians support a new wealth tax on the richest millionaires and billionaires to pay for COVID-19 recovery.
Caption: Poll results from Abacus Data showing responses to the question "to pay for new investments needed to solve many of the problems caused and made worse because of the pandemic, would you support or oppose the following?" The results show that 48% of Canadians strongly support, and 28% support, "a new wealth tax on the riches multi-millionaires and billionaires"; and that 41% of Canadians strongly support, and 32% support, "a new tax on corporations who have made very large profits during the pandemic."
5. Why doesn’t Canada have a wealth tax already?
Wealth taxes are progressive taxes that are gaining in popularity, but if they’re effective then why don’t they already exist?
This is a complicated question and there are many reasons.
First, taxation policy in general has been made to increasingly favour the interests of corporations and the elite in recent years. Although there may be incremental adjustments under more progressive governments, these temporary changes tend to be undone quickly.
Secondly, there is a widespread myth that implementing wealth taxes would hurt the economy, GDP growth, and the overall well-being of Canadians. However, it is clear that “trickle down economics” (the presumption that decreasing taxes for businesses and the wealthy will increase investments and the benefits will trickle downwards to workers/the larger society), has done nothing to help the economy and is a major driver of inequality. On the other hand, strong social safety nets, funded by progressive taxation, can help break cycles of poverty, which leaves the majority of people - and the economy - better off.
A wealth tax is especially important now, as it would provide funding for the COVID-19 recovery and reduce Canada’s growing inequality. Higher personal and corporate taxation can be used to build a strong safety net that allows Canadians to do better both during and post pandemic.
Revenue from implementing a wealth tax can be used to invest in health and social programs that will reduce inequality and prepare us against future COVID-19 outbreaks and/or future pandemics.
Resource Movement believes we need to tax Canada’s top wealth holders and invest this money in communities. It is clear that Canadian’s want a wealth tax, and we need to keep building momentum that pressures the government into adopting progressive taxation.
You can find Resource Movement’s petition calling for wealth and inheritance taxes on the ultra-wealthy here.
 Wilkinson, Richard, and Kate Pickett. The Inner Level: How More Equal Societies Reduce Stress, Restore Sanity and Improve Everyone’s Well-Being. Penguin, 2019.