The pandemic has stretched our fiscal capacity, and we should ask the wealthiest in our society to help pay for our recovery. A one-time tax on extreme wealth would be fair, efficient and find broad public support.
Through the fall economic statement, Finance Minister Chrystia Freeland committed to an inclusive recovery fund of at least $70 billion over three years. The Library of Parliament estimates the same sum could be raised with a one-time tax of three per cent on net wealth over $10 million, and five per cent on net wealth over $20 million.
Taxing extreme wealth to offset the costs of the pandemic would be unquestionably fair.
While our government has worked previously to address income inequality, wealth inequality is far greater. According to a 2020 report from the Parliamentary Budget Office, the top one per cent of families own 25.6 per cent of Canada’s wealth, almost as much as the bottom 80 per cent combined.
The pandemic has exacerbated that inequality further. As small businesses struggle to survive, and our unemployment rate hovers around 10 per cent, Canada’s billionaires added more than $50 billion in wealth.
In the last election, the NDP and Green Party each proposed an annual wealth tax of one per cent on net wealth above $20 million. The PBO estimates revenue at $70 billion over ten years, while the Canadian Centre for Policy Alternatives pegs it at more than $100 billion.
The idea of an annual wealth tax has merit, and enjoys significant public support. But it also has mixed real-world experience without the same broad support among experts. Some economists point to administrative challenges with annual assessments, worry about distortive effects and capital flight, and suggest other tax reforms are better suited to address inequality.
A one-time extreme wealth tax avoids these criticisms. It is as efficient as it is fair.
According to the U.K. Wealth Tax Commission, “since it is based on wealth at a (past) point in time, a one-off wealth tax does not distort behaviour” and, in contrast to other tax measures, “a well-designed one-off wealth tax is the most economically efficient form of taxation possible.” There just aren’t that many Canadian families with extreme wealth, so any administrative costs would be dwarfed by the $70 billion in estimated revenue.
In addition to being smart and fair, such a measure would also meet the moment in which we live. Canadians overwhelmingly support the idea of a wealth tax, and our government’s fall throne speech committed to identifying “ways to tax extreme wealth inequality.” A one-time tax on extreme wealth would answer these calls.
By its nature, it would not be a permanent solution. For more lasting action, we should look to new tax measures on extreme wealth transfers, including inheritance taxes, and to changes in the tax treatment of investment income to ensure more equitable treatment in relation to employment income.
But for now, as we look to Budget 2021, we should ask those with extreme wealth to pay for our national recovery. It would be a mistake to miss this moment in our politics when a fair, efficient and impactful idea can so easily find broad political support.
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