Don Cayo: In my opinion

Number crunch: Rich people are not going to retire, start working less or move to another country over this

The tax hike on high incomes proposed by the newly elected federal Liberals looks like it will be enough to notice, but not enough to hurt very much.

Make the rich pay! Just how far is prime minister-tobe Justin Trudeau planning to go down the road advocated by this old socialist mantra?

Not so far, according to Rhys Kesselman, the SFU economics professor and tax policy guru.

Even with the federal election campaign over and most of the partisan anti-Liberal spin-doctors having retreated from the public stage to lick their wounds, alarmist voices are still decrying what they portray as a brutal tax hit awaiting upper-income earners. But what has been characterized as a four-per-cent income tax increase for Canadians who earn $200,000 a year or more turns out to be a whole lot less than that when you do the math, Kesselman noted when we talked this week about the Liberal tax plan to lower the tax rates on middle incomes and to raise them on high incomes.

First, note this will not be an increase of four per cent to rich people’s tax rate, it will be a four-per-cent increase on the marginal tax rate that applies only to a portion, in some cases a small portion, of high-earners’ incomes. For everybody, including the top one per cent of Canadian earners, the tax rate will be the same on the first $200,000 of taxable income each year. Not incidentally, Trudeau has promised this rate will go down.

This promised tax cut will reduce tax bills by up to $675 a year, and higher-income earners will enjoy the maximum savings. So this will cancel out some of the impact of the increased rate applied to the top bracket. The net result will be everyone who has a taxable income of less than $217,000 a year will wind up with tax bills at least a little bit lower under Trudeau’s proposed changes.

Note we are talking about people’s taxable income, not gross incomes. Kesselman suggests most rich folks are able to ensure their taxable income is lower, often much lower, than their gross income thanks not only to the personal deductions all taxpayers enjoy, but also provisions like reduced tax liability on capital gains, dividend tax credits, tax-deductible RRSP contributions, self-employment deductions, tax advantages stemming from being paid in stock options, and more. Plus, most rich people can afford quality tax advice.

For someone with $250,000 in annual taxable income — that is, what they have left after all those substantial deductions — the additional hit on their tax bill will be $1,325 a year, Kesselman calculates. This is less than a 0.5-per-cent increase in their total federal tax bill payable. And, since provincial income tax rates won’t change, it is significantly lower still as a percentage of their total income tax bill.

When taxable income rises to $500,000 a year, the tax bite will be harder. He calculated it to be approaching $1,000 a month, or 2.25 per cent of the total federal income tax bill.

When their incomes reach well into the six figures and beyond, he said, “People can gripe if they want. But they’re not going to be out-of-pocket enough to cut into their budget for latte-buying or for Armani-buying.”

Nor does he think the proposed new tax rates will be high enough to influence how hard well-todo Canadians are prepared to work, how early they will choose to retire, or what country they will want to live in. The evidence from other jurisdictions is it would take a tax rate much higher than the Liberals are proposing to influence these kinds of behaviours to anything beyond a minuscule degree, he said.

People can gripe if they want. But they’re not going to be out-of-pocket enough to cut in to their budget for latte-buying or for Armani-buying.

RHYS KESSELMAN

SFU ECONOMICS PROFESSOR