New, from the Fraser Institute;
“While capital gains taxes raise a small amount of revenues for government, they do so at considerable economic cost by reducing returns on investment, which discourages private sector investment and entrepreneurship–two things we need more of,” said Charles Lammam, associate director of tax and fiscal policy at the Fraser Institute, which released The Economic Costs of Capital Gains Taxes in Canada, part of a collection of essays on capital gains taxation.
Raising tax’s and implementing gun control, the historical mark of tyranny.
Consider the cost of a government that consumes more than half the total income of every working citizen, and borrows against the other half.
Fraser Institute, doing the math the MSM is paid not to do.
If only the gov’t would take the Frasers’ advice. Brace yourself for the leftard hand-wringing. Here’s what you’d hear from the usual suspects if this did happen:
“The right wing Fraser institute wants the evil Harper to bring in yet more tax breaks for his Bay Street pals” (Thomas Mulcair).
“By cutting capital gains taxes the evil Harper is benefiting the 1% at the expense of the middle class.” (Shiny Pony).
“It’s all part of the evil Harper/CIA plot to foment war and raise sea levels by funding more carbon pollution through lower capital gains taxes.” – (Liz May).
Thank you Stephen Harper for Tax Free Savings Accounts
Well, those of us that bother to do the math know that you get a lifetime capital gain exemption of $750,000. So, on your first million in capital gains, only $125,000 is taxable income, which even at a 50% marginal rate, is $62.5k.
So, on your first million, your effective capital gain tax rate is 6.25%. Anyone who considers this a stumbling block to investing is just stupid.
Even after you have exhausted your lifetime exemption, the capital gain effective tax rate on your NEXT million is:
$1,000,000 gain x 50% rate at which gain is brought into income = $500,000 taxable income. Now, you’re definitely at the top marginal rate there, so about 50% of that income goes to tax = $250k. This is a 25% tax rate on your capital gain vs. 50% on your regular income. If this is a disincentive to invest, our entrepeneurs must have an extremely high internal hurdle rate.
KevinB, reread the tax code. The $750K exemption is for a personal small business or farm.
Nothing else is exempt. If I buy a stock and make $10 on it, I pay tax on the 50% that is not tax free at my marginal tax rate.
Where does this magic investment money come from. It has already been taxed once. It is then risked as an investment. The companies that use this investment also pay taxes. If the investment is used to hire people for new product lines, those people pay taxes. This investment can be taxed many times over before it generates a return. It makes no sense at all to (re)tax these investments.
The argument the Fraser Institute made was that capital gains taxes prevent ENTREPENEURS from investing, not FINANCIERS. Their quote was”which discourages private sector investment and entrepreneurship–two things we need more of”.
You are quite wrong when you say “The $750K exemption is for a personal small business or farm.” Here’s the relevant data from RevCan..
Qualified small business corporation shares are the shares of a Canadian-controlled private corporation (CCPC) which essentially is a corporation incorporated in Canada or resident in Canada which is not controlled directly or indirectly by one or more non-resident persons, or one or more public corporations (The Canada Revenue Agency’s IT458R2 – Canadian-Controlled Private Corporation explains the qualifications to be a CCPC more fully.)
You also have to have held the shares for at least two years and during that time, “more than 50% of the fair market value of the assets of the corporation were: used mainly in an active business carried on primarily in Canada by the Canadian-controlled private corporation, or by a related corporation; certain shares or debts of connected corporations;or a combination of these two types of assets” ( Definitions for Capital gains, Canada Revenue Agency).
Again, the Fraser folk were talking about entrepeneurs. Here’s a typical scenario: Johnny Genius has an idea for a new widget. He goes to ten rich friends of his dad; they all lend him $100k each for 50% of the company (5% each). He issues them shares, opens his factory, and starts marketing his widgets. If it’s a success, he might want to go to an IPO, or just buy out the original investors. Say he offers them 3 times what their shares were worth – they all have a $200k capital gain ($300k sale – 100k cost base), and they can apply their lifetime exemption if they have any room left. The policy is designed to stimulate small businesses in Canada.
We can thank Pierre Elliot Trudeau for introducing capital gains tax in 1972, in 1984 Canadians were given a lifetime 100 thousand exception, which Chretien did away with in 1994.
Any, and all, taxes are a disincentive for business. That should be obvious to anyone. Except people like kevinb who make their living from taxes.
An interesting fact from Piketty’s excellent book “Capital in the 21st Century” is that “Public wealth in most developed countries is currently insignificant or even negative, where public debt exceeds public assets”. We’re poorer than we think.
That’s why liberals love capital gains tax. There mo is ” the worse, the better”
The liberals favor a tax that is low on revenue, but big on economic destruction. What does that tell us about their true priority? Too bad the uninformed constantly fall for their proclamation of concern for he poor.
The largest component of “capital gain” is an inflationary price rise. Do you really think your house is worth 3 times what it cost 30 years ago, or alternately, is it worth the same, and the dollar it is measured with has lost two thirds of its value? The answer is that our money has devalued significantly over the past decades, and continues to do so.
As such, capital gains taxes are primarily a government imposed confiscation of wealth that has changed in nominal price, due to a government imposed increase in the quantity of money in circulation.
This is simply a confiscation of wealth due to inflation, disguised as a tax on increase in value.
Can you also explain how this works to avoid paying tax on $2.2 billion (Bronfman)? Or is there another tax code for the rich?
“Any, and all, taxes are a disincentive for business.”
Er, true. Other disincentives are the costs of employees, real estate, electricity and water. Do you really think there should be ZERO taxes on corporations? Don’t companies use the same services as people – e.g. courts, police, etc.? Shouldn’t they pay their share of the costs?
I don’t, and have never worked for any government, so I don’t make my living off taxes, you moron. I am objecting to the implication by the Fraser people that a 6.25% tax on your first million (which most entrepeneurs NEVER – I repeat NEVER – make) is a disincentive to starting a company. I’ve worked for startups in the past; the last thing in anyone’s mind was “what kind of capital gain taxes am I going to pay?”. We were consumed with getting the product right, getting production right, getting marketing and distribution right, etc. I’ve never heard of any one saying “Nah, I’m not gonna try to cash in on my idea; the capital gain taxes are too high!”, so I say the Fraser’s contention is utter BS.
WalterF, I’m not a tax avoidance authority; I only play one on TV.
Nonetheless, I’ll suggest that $10-20 million in donations to the LPC (pre-Chretien’s ‘f*** you’ to Martin limits on contributions, of course) will get you friendly tax treatment on your sale of an immense public corporation.
Thanks Kevin. 🙂