It's stunning when Leftists propose tax increases on the filthy rich in the modern world. Capital is extremely mobile. Wealthy people won't just sit around and let the government steal more of their money; they'll a) move it to another jurisdiction, b) simply work fewer hours, and c) hire accountants for some serious tax planning which, surprise!, results in lower tax revenues for the Leftist idiots.
One of the economics lessons I learned early on is that governments essentially have two choices when it comes to managing a budget: cutting spending or raising taxes. But what if raising taxes actually leads to lower tax revenues? That possibility was not covered in our Grade Ten class but seems to be playing out right here in Canada.
According to a new study out this week from the C.D. Howe Institute, the federal government’s decision to raise taxes on the top one per cent of income-earners likely only yielded about a third of the tax revenues that would have been raised without what’s known as the “behavioural response.” In turn, this also resulted in provincial budgets suffering fiscal losses greater than the federal revenues raised.
The government ignored its own advice from 1966:
[...] the idea of a top rate capping out at 50 per cent can be found in the 1966 Carter Royal Commission Report on Taxation [...]
“We are persuaded that high marginal rates of tax have an adverse effect on the decision to work … (and) on the decision to save.… We think there would be great merit in adopting a top marginal rate no greater than 50 per cent. With such a maximum marginal rate, taxpayers would be assured that at least half of all gains would be theirs after taxes. We think there is a psychological barrier to greater effort … when the state can take more than one half of the potential gain.”
The top marginal tax rate in the largest province of Canada is 53.53%. The Liberals raised the income taxes on the rich and ended up getting lower tax revenues. No wonder they are losing all over Canada in numerous elections.