HIGH-INCOME TAX INCREASE
Bill C-2 also introduced a new high-income tax bracket for those earning $200,000 or more, taxable at 33% (previously, this level of income was subject to a rate of 29%). When the plan was originally proposed, the Liberals suggested that this new tax bracket would generate $3 billion in revenue — not coincidentally, exactly the amount needed to fund the middle-income tax cut. In theory, it was a symmetrical redistribution plan. However, by January we all learned that these numbers were a little too perfect and that the Liberals’ plan was going to result in a $1.2billion annual deficit. That’s just one of the reasons why most experts are highly critical of the changes. In many cases, they see it as simply a case of political pandering to the “whack the rich” movement that has gained so much popularity in recent years.
“Economically, it will be counterproductive,” Wudrick says. “These tend to be people who help generate lots of new wealth. Frankly, it won’t even raise a lot of money, so it seems more symbolic than anything, which is the most troubling part.” The super rich are “not the ones that are fussed about it,” he says. Those who are include people who may make just over $200,000, but don’t have unlimited funds such as small-business owners who may not invest as much in the economy because their motivation to do so has been removed.
Another issue, of course, is that although $200,000 seems like a lot of money, someone making that much in, say, Moose Jaw, Sask., is likely much better off than someone raising a couple of young children in Toronto’s highpriced Annex neighbourhood. “Frankly, $200,000 in an urban area is no longer an extraordinarily outrageous salary,” Aptowitzer says. Besides, the wealthy have the means to hire someone to help them shelter their income and avoid paying extra tax — something critics suggest the Liberals underestimated when calculating how much revenue this new tax bracket would generate. Waters says he’d advise clients affected by this move to look into vehicles that generate capital gains and dividends, which are taxed at a lower rate.