Yes. No buts. No ifs. Just when.
A minimum set of questions should be asked to decide whether Canada should have a wealth tax.
What’s the purpose of a wealth tax? If one thinks a wealth tax is there solely to raise revenue, one just might be disappointed. Don’t get me wrong – it could raise billions. But there’s a deeper purpose behind the enactment of a wealth tax – the pursuit of justice in a civil society.
As a redistributive instrument, a wealth tax could reduce wealth inequality. Wealth inequality, coupled with income inequality, exacerbates political inequality. Wealth inequality is different from income inequality. Income inequality has a widely used indicator – the Gini Index, which comes in different flavours. But the Gini is about distribution of income, not wealth. Often wealth inequality is illustrated by shares of wealth of wealthiest households. Taxing the wealth of the top 1% wealthy households, for example, will help make society less unequal.
Some argue that wealth inequality is not a problem since it’s a sign of the dynamism of a market economy. But extreme wealth inequality undermines the dynamism of such a market economy. Some argue that wealth inequality is not a problem in Canada, as some countries like the US have much higher wealth inequality. But why use the US as the benchmark? Canada has higher wealth inequality than many countries.
Can a wealth tax do what it is supposed to do? The arguments against wealth tax often instill fear by suggesting adverse unintended consequences. But perceptions of those unintended consequences, like the overreach of government power and a plunge in productivity, often turn out to be smoke and mirrors. As a wealth tax "takes from the rich", by design it narrows the gap between the "haves" and "have-nots". Some like Larry Summers argue that a wealth tax won’t help much in narrowing that gap. But the rebuttals against this claim are swift and persuasive.
Some argue that since wealthy taxpayers just don’t want to pay taxes with the assistance of their professional advisors they will engage in artful wealth tax avoidance . The depletion - erosion - of national treasuries is a problem to be reckoned with by all governments. But given tax avoidance endeavours of taxpayers, the governments should stop collecting taxes? No sensible government should or would acquiesce to that.
Some argue that a wealth tax would drive innovation away. Ask the likes of Bill Gates. Would a young Bill have had decided not to start Microsoft because he would be making hundreds of millions instead of billions? Would he, as a productive and creative mind, even thought about this? I imagine that Bill Gates would still be Chairman Gates, no matter whether there was a wealth tax or not.
Some argue that there are other ways in reducing wealth inequality. How about taxing capital gains more? Some like me would argue that capital gains should be taxed like employment income, but that’s a conversation for another day. More relevant to the discussion here, if the charge against wealth tax is the depletion of the entrepreneurial spirit, wouldn’t that be the same if capital gains were taxed more? How to make taxpayers pay what they should pay deserves further discussions, but on the narrow question of whether a wealth tax can reduce wealth inequality, the answer would be a resounding yes.
What if a wealth tax is not implemented? Assuming that there’s no other program implemented to reduce wealth inequality as directly as a wealth tax, Canada just might become more like the US, but not in a good way. According to OECD, the most recent data available provide a stark snapshot of wealth inequality. In 2016, the share of the top 10% of wealthiest households amounted to almost 80% of all wealth in the US, while that amounted to over 50% in Canada. In that year, the top 1% wealth share exceeded 40% in the US, while that exceeded 16% in Canada. Canada already has a racialized problem in economic injustices. No one would want Canada to be more like the US in terms of wealth inequality.
Embedded in arguments against many taxes – personal income tax, corporate income tax, capital gains tax … you name it, the question looming large is whether to tax the rich more. Patriotic Millionaires, who want their own wealth to be taxed, are not radicals. Their wealthy peers want to be taxed more too. Who would have thought refrains of taxing the rich more that contribute to the zeitgeist of our times would be originated from some of the rich themselves.
Incidentally, now is an odd time to argue against a wealth tax. See what happens in the US? Systemic racism magnified by income inequality and wealth inequality with political inequality making lives of all in a pandemic that much worse. The Canadian Human Rights Commission cautions of such ramifications of economic injustices. Canadians want government actions to deal with inequality, and one of those actions the majority wants is to tax the wealth of wealthy people.
Again, should Canada have a wealth tax? Yes. No buts. No ifs. Just when. The opacity of when alludes to a conundrum. The enablers of the robbery of national treasuries always say their clients pay taxes mandated by the law, and if you don’t like the law, go change the law. But then they would work hard to make sure that the law won’t be changed. So when? Solving that conundrum might be a first step forward.
Thaddeus, I understand the claim that a wealth tax may have desirable effects on wealth inequality even if it does not raise substantial revenue, but I wonder whether the reduction in inequality would be meaningful in that case. Imagine that a wealth tax raises little revenue because high-wealth individuals avoid the tax by changing their tax residency. Technically, wealth inequality among Canadians would decrease (if the universe of Canadians means those who are tax residents), but the recently departed wealthy would probably still yield substantial political and economic power in Canada: they would continue to hold assets here, retain citizenship, and may even continue to spend substantial time in Canada (although probably less than 50%). It's not clear that wealth inequality would be decreased in any meaningful way.
One response to this problem would be to direct the wealth tax to assets held in Canada (whether held by tax residents or not). Imagine that a wealth tax raises little revenue because taxpayers move assets from Canada. Assuming that the assets are truly moved (not just on paper), the economic power of the taxpayers in Canada would decrease in a sense: they would have less direct control over the Canadian economy. But the wealth could still easily be drawn upon and consumed in Canada. Many of the very wealthy Canadian families already hold a substantial portion of their wealth outside of Canada, so it is not clear that a wealth tax focused on Canadian assets would address inequality in a significant way.
I should add that both of these arguments assume that the wealth tax would not raise substantial revenue due to avoidance/tax planning. If the wealth tax did raise substantial revenue because taxpayers were unwilling or unable to avoid it, then we would see an impact on wealth inequality. My claim here is simply that the argument that a wealth tax would have desirable effects on inequality even if it raised no revenue is not immediately apparent.