Should we increase the taxation of the most wealthy?

Devrait-on augmenter l’imposition des plus fortunés?

Photo: Chad Hipolito, The canadian Press
The reform of the Law of income tax, conducted by the minister of Finance Bill Morneau, has not had the desired impact.

Now is not the time apparently to the increase of the tax of the richest in Québec, as in Canada. The opinions on the subject have varied widely in different eras and objectives.

This will be day budget in Ottawa and Quebec city next week. Continuing to enjoy an economic environment that is relatively favourable, the federal and québec governments will be less in the search for additional sources of revenue as new services or tax reductions to offer to their citizens.

On the front tax, Ottawa is pressed by the business community so that it mimics at least in part to the generous tax reductions on the companies of Donald Trump in the United States. In Quebec, the government Legault will present his first budget, in which it is among other things expected to find a decrease in the education tax, the abolition of the additional contribution to the costs of care and enhancing tax credits for families.

Nobody expects it to be about raising taxes of the wealthiest. It must be said that the Trudeau government has already proceeded to such an increase in its arrival to power. There was then added one level of taxation on the income of the 1 % most wealthy who gave a combined rate in Québec of 53.3 % for all income in excess of 210 $ 400 per year. The addition of this new tier would not be enough to compensate for the reduction in income resulting from a simultaneous reduction of the applicable rate at the second level, ranging from 47 600 $ to 95 000 $.

One recalls that the minister of Finance Bill Morneau has also tried to reduce the ability of entrepreneurs and other professionals to artificially reduce their tax notice by the tax Act on income, but that the famous “reform Morneau” has largely turned out badly.

In Quebec, the pq government of Pauline Marois has been the last to talk about increasing the tax of the richest and most had had to quickly beat a retreat before the outcry of the business community and experts who saw this as an attack on entrepreneurship and the chance of prosperity.

The ” optimal rate “

The new elected to the Congress of the democratic Party in Alexandria Ocasio-Cortez has substantially had the same reaction at the beginning of the year when she suggested that we wear in the United States the marginal tax rate higher than 37 % to 70% for those earning more than $ 10 million per year. His supporters were quick to remind him that the proposal was not as radical as it was in the air since this rate was higher than 90 % from 1951 to 1963 and that he is finally dropped below 70 % after the arrival at the White House of Ronald Reagan.

This was not the same thing, related to the month of January, the Wall Street Journal. The rich had at that time all kinds of ways to reduce their taxable income, by, among others, move to gain capital, and to the point that their average rate of tax was, in reality, only 32 % in 1952.

In Canada, the top marginal rate combined exceeded also the 80 % until the early 1970s, recalled the Chair in taxation from the University of Sherbrooke in a report in 2017. This rate was then set to go down at the same time we tightened the rules, but that recourse was also made to other sources of income, such as tax, goods and services tax (GST).

According to the specialists of the fight against inequalities in Peter Diamond and Emmanuel Saez, the optimal rate of tax on the income of the richest in the United States is expected to be 73 %. Lower down, the government is deprived of revenue ; earlier, they would discourage the rich to produce more wealth.

In Quebec, the richest 20 percent (61 of 200 $ of income per year and over) accounted already for 70 % of total revenue of personal income tax in 2015, recently highlighted by the Chair in taxation. Alone, the small group of the 1 % richest (221 000 $ and more) accounted for 18 %.

But the tax on the income “staggering” of the rich among the rich should not be judged by the tax revenue that it generates, argued Emmanuel Saez, and his colleague Gabriel Zucman in the New York Times in January. It should be to discourage an ” extreme concentration of wealth that leads to extreme concentration of economic and political power “, they said, as ” the purpose of the carbon tax is less to generate revenue than to reduce the polluting emissions “.