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Taxes for the Rich

A Canadian entrepreneur is moving to London, England. It seems income taxes in Canada are too high. Britain is attracting this wealthy economic class with an almost zero tax rate.

Let’s start this essay with a picture of taxes paid by all sorts of citizens.

Here are the 2016 marginal tax rates (with a little rounding to make my calculations a little easier):

From there, I calculated the federal taxes at different income levels:

I should add that the above table is for federal taxes. The provinces have their own income tax brackets and rates. As a general rule, provincial taxes are about 50% of federal taxes. When provincial taxes are considered, the $25,000 earner would take home about $22,000 and the $1,000,000 earner would take home about $550,000.

With provincial taxes, that $1,000,000 earner being taxed at 45%. If paying a 45% tax rate is too much from a moral perspective, a high-income earner has the freedom to reduce his or her workload. Other aspiring citizens will be happy to pick up this slack.

Earning a high income is not within everyone’s pool of talent. Many higher income earners have a great combination of genetics and good formative environment to give them the attributes to earn a higher income.

A higher income is very dependent on roads, water & sewage, electricity, police & courts & prisons, education, and well educated employees. If all citizens are to pay exactly the same tax, these services would not be there for more talented people to earn their higher income.

To enjoy wealth, high income earners depend on a lot of people earning $25,000 a year to provide goods and services at a low cost.

There is an unofficial contract between the high-income earner and the nation. In exchange for the opportunity to build and enjoy wealth, the government provides services in exchange for taxes. This contract is well known before the high income is attained. If the terms are unacceptable, then the future high-income earner should move elsewhere — before the high income is realized. By staying to get rich and then finding ways not to pay taxes, the high-income earner is violating the terms of this social contract.

The entrepreneur of the news article made his fortune in Canada, then moved to Britain. The article suggests he can bring in all his wealth, not pay taxes, yet use various services paid for by British taxpayers. Would this not make him a bit of a freeloader?

And there are other countries where high-income earners pay very low tax rates. Somalia has total business freedom, but virtually no business laws by western standards. And Haiti ensures the lower classes remain as the lower classes. Are these the model societies where entrepreneurs can thrive and flourish?

If the talents and hard work of high-income earners are so vital to society, then logic suggests high-income earners should be rewarded with a lower tax rate than an average worker.

Thirty-five years ago, reaganomics predicted lowering tax rates would increase consumer and corporate spending to the point where more tax revenues would be generated by the stimulated economy. There is little evidence this trickle-down economics has worked out. It seems reducing tax revenue has mostly resulted in ballooning government debts and an increasingly disenfranchised lower and middle class, tilling the soil for nefarious political movements. Is the individual’s right to acquire vast wealth more important than the nation’s financial and psychological health?

This article shall close pointing out that many high-income earners understand the connection between a strong civil society and opportunity to build and enjoy wealth. These people willingly pay their taxes. They do not change their residence to get a tax break. They do not set up shell companies and offshore accounts. They still live a very comfortable life. They are thankful for their geography and time in history to provide the creative opportunities they so enjoy.

The entrepreneur who inspired this article does not seem be thankful.

Published on 2016. Calculations simplified in 2023. Link to original news article is no longer working.

Are High Taxes Evil? 

I Used to be a Libertarian