Do wealthy Canadians pay enough taxes? That depends how we define 'fair share'

When the federalgovernment announced an increase incapital gains taxesin itsrecent budget, the hike wasdefended, in part, as a way to ensurethe wealthiest Canadians pay their fair share.

But how exactly do wedetermine what a "fair share" is?Especially, as some data suggests, the wealthiest are already paying a larger share of the overall income tax burden.

"That word fairis completely subjective," said Trevor Tombe, a professor of economics at the University of Calgary."What's needed in any kind of statement around what is or isn't fair is clarity around what the person means when theysay that word."

Jake Fuss,director of fiscal studies at the Fraser Institute, echoed that a lot of these discussions are not informed by definitions, which is whythe institute releases anannual report about Canada's tax system that has foundhigh-income Canadians are payingdisproportionately more in taxes.

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Fair share definition 'vague'

"It's kind of very vague in terms of what governments and policymakers actually mean by a fair share," said Fuss.

In the 2024 budget, the federal government lays out its case for what it believes is not fair, particularly when it comes to taxes on capital gains.

"While all Canadians can benefit from the capital gains tax advantage, the wealthy, who tend to earn relatively more income from capital gains, disproportionately benefit compared to the middle class," the budget said.

That's why, in the interest of fairness, thegovernment saidit would increase theinclusion rate of the capital gains tax from one-half to two thirds on capital gains above $250,000 per year for individuals, and on all capital gains realized by corporations and trusts.

This, according to the government, would affect0.13 per cent of Canadianswith an average income of $1.4million.

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While those tax changes may impact the very wealthiest, Fuss suggestedthat what is often overlooked is how much high income earners are actually paying in taxes.

TheFraser Institute's2023reportsuggests that the top income-earning families those making just under $250,000 pay the majority of Canada's taxes.

It found that the top 20 per cent of income earning families pay 61.9 per cent(that's nearlytwo thirds) of all the country's personal income taxes, while accounting forjust under half of itstotal income.

As well, the studyfound that those top income earning families pay 53.1 per cent of total taxes.

Similar data was also compiled by Statistics Canadaon those who pay higher income taxes.For example, in 2021, the top one per cent income group paid 22.5 per cent of all income taxes, but accounted for 10.4 per cent share of the country's total income. The top 10 per cent income group paid 54.4 per cent of all income tax, but had a share of the country's total income of 34.4 per cent.

Still, Allison Christians, theH. Heward Stikeman Chair in the Law of Taxation at McGill University,said some of those numbers are skewed because sometop earners can shelter their income through creative tax planning.

According to Christians, the top earners also pay a much lowerpercentage of their income in consumption taxes than other earners.

"The question is not what percentage of income taxes is someone paying, but what is their relative contribution to the finances of Canada as a whole," she said.

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Income inequalitya factor

Clement Nocos,director of policy andengagementat the Broadbent Institute,says the Fraser Institutefigures, along with the Statistics Canada data, ignores the totality of actual income inequality.

Nocos referred to arecent Statistics Canada report showingthatthewealthiest 20 per cent of Canadiansaccountfor more than two-thirds of the total net wealth.

As well, according to the data, the bottom 40 per cent of net income earners make up just under three per cent of total wealth.

"You lookat wealth as a whole of what people have and what contributes to inequality. That's sort of what's missing in these arguments," he said. "Inequality when it comes to wealth is actually massive and growing."