The basic theory behind progressive taxation is poor people can't afford to pay as much tax as rich people or, put the other way, rich people can afford to pay more tax than poor people. If you are part of a family making $40k/year you can't afford much for income tax. If you have kids, you really can't afford anything. I live in a tiny apartment (no bedroom, 365 sq ft) and I pay $1300/mth. So I need to make $15k just to cover my rent. I figure my nut (the minimum amount required to keep me alive) is $2k/mth. That's living on rehydrated noodles and pizza pockets and buying clothes based on how long they will take to wear out. $3k/mth ($36k/year) means I am just barely above the poverty line - a figure calculated by how much of your income is required for necessities. 80% for necessities is a normal(ish) definition, 90% is verging on cruel. Incidentally, the most common way for governments to reduce the number of people living below the poverty line is to change the definition. If I bring in $40k/year (and since I have no dependents and constitute my entire household) I can afford to pay some income tax. I'm already being taxed 15% on every purchase (harmonized federal and provincial sales tax) so I don't have much more than that to give. And the government doesn't ask me for much - I think I paid around $600 last year, which was a very lean year. This year has been even leaner so I probably will only pay $200 (which will still constitute a burden). So there's the situation at one end of the spectrum. Which end should be kind of obvious.
Now consider a family with 2 parents and 2 kids in the same household. Both parents work and have good jobs. They pull 50 or 60 hour weeks regularly. They earn $250k combined. Seems like an enormous figure to me but it really isn't. They have a house and two cars. They have all the expenses incurred by having kids. They are saving for retirement and worried about their investments constantly (worried about putting the kids through college, worried that a big hit to the market at the wrong time could wipe out their retirement savings, worried about money all the time). They are solidly in the middle class but are nowhere near being in what should be the top tax bracket. They couldn't, for example, buy a house in which 4 people could comfortably live in Toronto. Houses like that are at least $1 million. But the top tax bracket in Canada kicks in at $135k/year. So they pay the same rates as families making $1 million or $10 million or $50 million a year. This hypothetical family can afford to pay higher rates than I can but they don't have anywhere near the disposable income of a family making $1M/year. This is not the situation at the other end of the spectrum. At least, it shouldn't be. This should be the situation in the middle (edging closer to the top but just barely).
The way the government gets votes by slashing the top tax bracket (aside from all the bullshit about "job creators") is by keeping the amount at which the top bracket kicks in low enough that our hypothetical family is forced to pay the top rates. Slashing the rates on the wealthiest people in the country is a terrible idea (as Bush the Lesser proved in the US) but $135k/year aren't the wealthiest people! They aren't even close. There are enough of them (and enough of them vote) that governments can get away with reducing taxes for those who are the real beneficiaries of cuts like the one the Canadian government is thinking about now.
Any statistician who has looked at income distributions over the last ten to twenty years will show you (and I have linked to the demos many times already in this blog) the difference between people in the top 10% and the people in the top 5% is enormous. And the difference between the top 5% and top %1 is bigger than the difference between the top 10% and top 5%. You only have to earn about $300k/year to get into the top 10% but to get in the top 5% you need to earn many times that much. And all the people between from the top 10-5% together don't earn as much as the top 1%.
I can't give a figure for precisely how much you should earn before you enter the top tax bracket but I can say, with absolute certainty, it should be above $135k/year.
The tax rate on the top income earners is the lowest it has been since the 1920s but, while I think that rate should be increased, it shouldn't be increased very much. $135k just isn't what it was. Again, when I was a kid that was rich! Now it's doing well and feels like doing ok. It is cynical as hell to keep the entry level for the top tax bracket so low. It means members of city councils, university professors, some blue collar union members, almost everyone in the federal government are considered "The Wealthiest Canadians". It's also how the people who live off inherited fortunes or do nothing but own things get away with paying far less tax than they can and should.
The obvious conclusion is the government wants to decrease taxes for those who give the most to their campaigns - which is entirely predictable. But they aren't thinking of the people who barely scrape over the limit into the top bracket, which is how they will try to sell it. They are thinking about those who were born so far above the top bracket they have never even laid eyes on it. I know this because even a dumbass like me can think of adding another bracket at the top, rather than decreasing the top tax rate as a way to help families in the $100-200k range. If there were two more brackets above what is currently the highest bracket it would make even more sense.
When I have discussions like this with my brother - who actually understands some stuff about money - he says there is no point because people earning that much money can afford to pay someone $100k/year to hide it from the government. Or they can just leave the country. While this is no doubt true, I don't think it changes anything. To me it's like saying cops shouldn't check for fingerprints on cases where something worth more than $100k was stolen because anyone smart enough to steal something that valuable wouldn't leave any behind. If we think it is wrong not to tax the richest people in the country more than they are currently being taxed shouldn't we at least try? If they don't want to pay they should have to break the law instead of using their money to change the law.
Ah, yet another complaint against the world that will change precisely nothing. Sometimes I think it would be both easier and more effective to just kill the richest fucks in the world. But even if I limited myself to people worth over $1B, I would be killing all the time and that really isn't how I want to spend my life.
No comments:
Post a Comment