We need a wealth tax.
This is not a tax on your parents, who bought the family home for a toonie and a bag of apples in ‘95, and now it’s somehow worth $1 million. It’s not a tax that would apply to your life savings, or a local business. It’s a small tax on the very few households whose massive wealth grows faster than anyone could ever spend it.
Let’s break this down using an example: if you win the lottery tomorrow you’ll make life harder for your loved ones, and it won’t be intentional.
Say you win $100 million. That’s a supercar, a mansion, and you and your friends flying somewhere warm for lavish meals and top-shelf bottles. After all that, you still have $90 million left to spend.
Okay, okay. You have bigger dreams, so you buy an exotic island. But did you notice what just happened? You bought an asset: something that holds its value or earns you money. You’re trying to splurge, but you’re accidentally investing. This is because you’ve run out of things to buy that don’t make you wealthier.
Next, you hire a financial advisor to make sure your personal chef gets paid on time and your favourite soda magically appears in your many fridges. Your money is invested at a modest five-percent return, and you’re right back to $100 million in a couple of years.
But how does any of this hurt your loved ones? Well, there are only so many new things to invest in, so your money buys what already exists: shares, land, housing. While you’re relaxing on your island, your money is outbidding your friend for the condo they’ve been saving for. Not because you want to live there. Just because it’s a decent investment.
None of this is your fault. You did what anyone in your position would do. The problem is what we tax and what we don’t tax.
The money in your friend’s paycheque is taxed before they ever see it. But, as your investments grow in value, that growth isn’t taxed at all unless you sell. And when you want cash, you don’t sell. You get a loan, backed by your assets, and the loans aren’t taxed either.
This is how the largest fortunes can grow faster than wages, or even the economy. Even the highest earners eventually spend their savings on things like homes and retirement, while fortunes too big to spend keep buying up what already exists. Every year, the rest of us bid for homes against money that never stops growing.
The solution is a wealth tax.
There are two main critiques of wealth tax. One is that fluctuating assets are hard to value. But I’d argue that we already do it: public companies are priced every day, BC assesses properties for tax every year, Canada calculates everything a person owns when they die, and courts value and divide fortunes in high-stakes divorces.
Another concern is that the wealthy might leave, taking their personal spending with them. Some might, and that has a cost. However, the value of Canada is in the skills of its people, and our vast resources and land, and those things don’t leave Canada when an individual does.
BC just held two back-to-back elections, and a wealth tax was barely a part of the conversation. If we want to lower the cost of living we must tax wealth the same way we tax work.