How the Rich Avoid Paying Taxes

[Scroopy Noopers]

I assume a lot of the hesitancy behind “just get the government more tax revenue!” is that it is unlikely to solve any problems that affect normal earners. Sort of like adding lanes to a highway, it doesn’t solve any traffic issues. They just plug up the new space.

“Give them more tax and hope they do the right thing with it” isn’t going to fly for anyone. I imagine those struggling will be just as frustrated with a significantly richer government.

[Leondros]

Originally Posted by Mathgod

Well having a conversation on this is going to be hard if you just ignore certain things I say and then strawman my position. Again, people born into families that have money have basically won a lotto, so what's the downside to taxing those inheritances? Those who lucked their way into a pile of money they didn't work for, instead will luck into a smaller pile of money? Egads, what an unthinkable proposition!

Ya, but isn't everything like winning a lotto? Living in Canada? Good looks? Intelligence? Skin color? Height? Gender?

Where does it stop?

[TorqueDog]

Living in Canada is like having won the lottery relative to everywhere else we could have been born. 100%.

Originally Posted by Mathgod

Well having a conversation on this is going to be hard if you just ignore certain things I say and then strawman my position. Again, people born into families that have money have basically won a lotto, so what's the downside to taxing those inheritances? Those who lucked their way into a pile of money they didn't work for, instead will luck into a smaller pile of money? Egads, what an unthinkable proposition!

Egads, what an ass you are!

You don't have to be born into money to actually get an inheritance. My parents aren't loaded, but they worked their asses off and I'll get something. Not a lot, but something. Not enough to retire off of or even pay off my house, but perhaps something that would make a decent retirement savings contribution. Why would I be okay with that being arbitrarily taxed all of a sudden when everyone who came before me got it tax-free?

You think I'm ignoring what you're saying but I'm not. It's just that your arguments don't have the persuasive or explanatory power you think they do.

[Mathgod]

Originally Posted by Leondros

Ya, but isn't everything like winning a lotto? Living in Canada? Good looks? Intelligence? Skin color? Height? Gender?

Where does it stop?

There's no easy answer to that. But at some point we have to realize that those in positions of greatest wealth & privileged need to help those who are in positions of less wealth & privilege. If we don't structure our society around that principle, all we have is a plutocracy.

Originally Posted by CaptainYooh

Why do you bother responding? For someone with a Mathgod user name, you'd expect an analytical mind (unless it was in jest). His long ramblings about the doom of humanity in another thread were so childish, I thought he's just a kid, but he said he wasn't. Unfortunately, this means he is simply clueless.

Once upon a time, a person would be dismissed as stupid & childish for suggesting that slavery should be abolished. Fast forward a bit, any person who suggests that child labor be prohibited is dismissed as stupid & childish. Fast forward to today, anyone who cites climate science is dismissed as stupid & childish. So go on, keep calling people like us childish & stupid... it's a sign that maybe you're the thing you accuse us of being.

Originally Posted by TorqueDog

Living in Canada is like having won the lottery relative to everywhere else we could have been born. 100%.

Egads, what an ass you are!

You don't have to be born into money to actually get an inheritance. My parents aren't loaded, but they worked their asses off and I'll get something. Not a lot, but something. Not enough to retire off of or even pay off my house, but perhaps something that would make a decent retirement savings contribution. Why would I be okay with that being arbitrarily taxed all of a sudden when everyone who came before me got it tax-free?

You think I'm ignoring what you're saying but I'm not. It's just that your arguments don't have the persuasive or explanatory power you think they do.

A lot of people inherit nothing at all. No decent retirement savings contribution, nothing. What about them?

[TorqueDog]

Originally Posted by Mathgod

Once upon a time, a person would be dismissed as stupid & childish for suggesting that slavery should be abolished. Fast forward a bit, any person who suggests that child labor be prohibited is dismissed as stupid & childish. Fast forward to today, anyone who cites climate science is dismissed as stupid & childish. Look how far we've come! We deserve a big pat on the back.

You don't think much of yourself, do you.

Originally Posted by Mathgod

A lot of people inherit nothing at all. No decent retirement savings contribution, nothing. What about them?

Maybe we could pay them better so they do? Why is the answer "they don't have it, neither can you"?

[Mathgod]

Originally Posted by TorqueDog

Maybe we could pay them better so they do? Why is the answer "they don't have it, neither can you"?

There is only so much we can do as a society. There's no such thing as an outcome that makes everyone 100% happy. Therefore, everyone has to compromise so we can find a balance that everyone can live with. I don't think it's unreasonable that small inheritances get lightly taxed, and larger inheritances get taxed more heavily. You feel differently, so we agree to disagree.

[Locke]

Or...

[TorqueDog]

Originally Posted by Mathgod

There is only so much we can do as a society. There's no such thing as an outcome that makes everyone 100% happy. Therefore, everyone has to compromise so we can find a balance that everyone can live with. I don't think it's unreasonable that small inheritances get lightly taxed, and larger inheritances get taxed more heavily. You feel differently, so we agree to disagree.

I don't think it's unreasonable that we recover the taxes from the underground economy first and then see where things sit before we start asking for more from people that already do pay what they're supposed to.

[mrkajz44]

Originally Posted by TorqueDog

I don't think it's unreasonable that we recover the taxes from the underground economy first and then see where things sit before we start asking for more from people that already do pay what they're supposed to.

I think this sentiment is what causes me to cringe when I hear the chants of "tax the rich". The vast majority of the rich are following the rules and they have advisors to help them pay as little as tax as possible. There is a large segment of the population who are not even following the rules now, like those involved in the underground economy, so who is really not "paying their fair share"?

[AltaGuy]

I like the idea of hitting the underground economy - but I can't imagine the CRA doesn't already like it even more. I wonder what tools they would need to make a noticeable dent in it. Canada sits at 16% of its GDP underground and around 15th in the world. Wonder what it would take to get to Austria or Switzerland's levels under 10%.

Seems like controlling cash and cash-based industries would be a way to go, as paper transactions are of course easier to regulate. I think removing cash hurts low income people the most though - predatory lenders, bank fees, etc etc.

Would take some finesse.

[Cain]

I would support a closer look at inheritance taxes.



I understand the inclination to do as much for your child as you can, and to pass on to them as much as you can for a comfortable and happy life. My parents are like this and so am I.



However, it does come to a point where some people are leaving such vast sums of wealth that there really is no way to address the snowball of the wealth gap getting larger and larger. In my mind, a wealthy child already has a huge headstart in life with all of the advantages that wealth brings while growing up. This is then multiplied with a large inheritance.



A more equitable system would look at the extremely large inheritances and tax that again. You can't take all of it, those inheritances will still remain large, but you cannot convince me that anyone truly "deserves" to be born into enough money that they won't have to lift a finger for the rest of their lives. I also understand people being unsure about a system like this but I don't think you focus on the kids that are stumbling into a couple hundred thousand, but those who are inheriting the 10s of millions.


It certainly won't address all of the wealth inequality/distribution issues in society but in my opinion it is definitely worth looking into.

[DoubleF]

Originally Posted by Mathgod

Thank you for the reasonable rebuttal. Cheers!

Putting more time, resources, & effort into going after the underground economy is a great idea. 100% agree there.

I would suggest though that while the CRA has mechanisms for going after foreign money, there's a lot of tax dodging that still slips between the cracks. An estimated $20-$24 billion is lost each year due to tax non compliance. https://canadianlabour.ca/canada-sho...e-to-good-use/
https://www.canada.ca/en/revenue-age...-overview.html

I also sincerely believe that the wealthy are given too much leeway in terms of appeals, negotiating power, etc. When it comes to taxes on offshore money, it should be that the CRA determines how much you pay, and you pay it end of story. No beating around the bush with appeal processes that take years and make it not worth it for the CRA to keep pursuing many of these cases. While due process is an important thing, and our intuitions tell us that everyone should be guaranteed it, we have to call a spade a spade here and realize that the wealthy tend to abuse these processes and end up paying less than they ultimately should, because they make it too expensive & cumbersome for the CRA to pursue their cases.

The other issue is tax avoidance techniques, which are technically legal but allow a person to bring down their effective tax rate. These techniques are related to already accumulated wealth, not income, and as such are overwhelmingly used by multimillionaires & billionaires, not everyday people. The videos in the OP talk about those.

Canada does not have an estate tax, and IMO badly needs one. And in case anyone's wondering, I personally stand to lose if such a tax is implemented. That's right, I'm advocating for a policy that will have a negative impact on me personally if implemented. GASP! How can such a thing be possible??? The answer is I happen to give a damn about others, that's how.

Some point out that when a person dies, the person's assets are considered sold at that point, and 50% of the capital gains on the asset are considered income for that tax year. Some would argue that this amounts to an estate tax. I disagree. Capital gains tax and estate tax are two different things. An estate tax looks specifically at the value of the assets being inherited, where CGT looks at the amount of appreciation in the value of the asset over time.

People bring up the issue of double taxation. I'd argue it's not an issue at all. Whether you're taxed x amount twice, or 2x amount once, the end result is the same amount of tax paid. It's the same thing. A government should put in any tax system that it needs to in order to raise the revenue it needs to provide services, programs, infrastructure, etc. Any combination of taxation policies is justified, as long as the overall system is feasible and doesn't place an unreasonable burden on anyone.

So yes, time for an estate tax. For all the talk coming from conservatives about bootstraps/hard work/self determination, it does come across as ironic when they want to carve out a nice neat little exemption to those principles for those who happen to have won the birth lottery and lucked their way into being born into a family that has significant wealth.

Raising the GST to curb consumption is probably a good idea too.

You need to go a bit more in depth in understanding before quoting certain things to avoid taking certain things out of context. The bolded points are really off or worded very badly context wise.

Your $20-24 billion lost number is not purely foreign tax dodging as you implied. It's total tax gaps before audits. Audits reduce the tax gap between 30-75% depending on the category. There's even a nice little picture chart on the link you put up. Foreign taxes are around $0.8-3 billion. BUT, most of these numbers are pre-Audit numbers for which the article mentions that they recover around %. Furthermore, the article discusses "what is tax gap"? Not all of it is tax dodging as you implied, but it includes things like bankruptcy, honest mistakes not filing on time or at all and finally, "deliberate choices". IMO only the last two are actual tax dodging and I wouldn't say the first two aren't insignificant. The first two I'd assume are pretty close to half (+/- a little bit).


Tax minimizing/tax efficiency is NOT tax avoidance. Please learn the appropriate terminology if you want more reasonable rebuttals. Tax avoidance is known as GAAR. Tax minimization is not tax loopholes either. As I mentioned Canadian and US taxation are completely different. The Income Tax Act as I mentioned is based on principles unlike the US that is rules based. There are excruciatingly few tax loopholes in Canada. There are on occasion situations where the Department of Finance/Governments feel that they want to tax certain types of income higher/lower, but that's not a loophole. That's a tax rule that was perfectly fine at one point, but as time went on, CRA/Department of Finance felt it makes more sense to tax those things to meet a certain objective. This includes relatively recent changes to dividend rates, TOSI rules, income attribution and sprinkling, FAD rules, FAPI rules etc. If CRA or Department of Finance do not like certain things, they can close those out easily. This is completely different than the USA.

Tax minimizing strategies is like wanting to buy a TV right now. An awesome LG OLED. You do the research, find the retailer with the lowest price and/or wonder about deals and timing of expected mark downs and you're done, right? No, you can go further and look for coupons, or special retailer only deals (ie: Spend X, get freebies or extra value on redemption of points). Done again? No. Research credit cards for extra cash back or warranty extension options etc. Ask someone to put in all that effort for you and you paid the lowest price on that awesome LG TV. It's all legit. What you're claiming in terms of "tax avoidance" is akin to someone buying that LG OLED for one of the absolute highest prices out there or absolutely no discount, jealous someone else got it for way cheaper and lashing out screaming scam and unfair etc. It is not avoidance.


Your concept of an estate tax and not caring about double taxation is also a bit off. The reason why Canada does not have an estate tax is because Canada has many other taxes along the way that end up accumulated to significantly more overall taxes paid than a US counterpart AND reduces capital up front (in comparison to an estate tax) which also reduces opportunity cost to individuals vs their US counterparts. An individual who passes away has deemed disposition on their estate prior to distribution to the beneficiaries. There is a sudden rush of income and that income is often likely sitting in a marginal tax rate of around 50% ish. A US estate tax rate is approximately 18% up to 1 million and then 40% after that for amounts over the US citizen lifetime estate exemption of $11+ million or something like that (I am not well versed in US tax law, but it's approximately that). Not to mention, not everything is capital gains. Capital gains on the deemed disposition is basically taking the snapshot at that time of death and resetting the "pregnant liability tax clock" on the appreciation of that asset.

If someone dies, tax is paid. If you inherit it, you inherit it at the baseline tax basis. If you sell that inherited asset in 2 years or 22 years at a gain, that's when the tax is owed again. For the US situation, if I am not mistaken, that $11 million is eroded if you use it to shelter gifts. So in essence, if I am not mistaken, you could keep kicking a major chunk of that tax bill further down the road over and over and over through the beneficiaries if that asset/estate value is not over $11 million.

The last point isn't really off, but it's not really on point either. Raising consumption taxes doesn't do much of anything. In fact, we have a ton that you'd likely not recognize. Beyond GST/HST/PST have you ever seen a bill that includes a tourism tax? Deposit? Enviro? Alcohol/Cigarettes? Those are types of consumption taxes? What do they do overall to those you're arguing need to be taxed more (the rich)? Squat. Do you know who it hurts? Lower and middle income.

A consumption tax would not work as effectively as income tax for wealth spreading as you're usually hinting at. But another aspect of the income tax is that you cannot just turn up the dial and not expect a point where you suddenly stifle innovation and attract talent. Innovation wise, some of the things we have like SRED only goes so far. Lower taxes is part of the reason why the US attracts and retains so much talent. Higher tax rates isn't always beneficial if you cannot grow your pool to tax from. Lower tax rates may mean a higher bigger pool to tax from and even though it's lower rates, you end up with more overall tax income. It's an incredibly delicate balance, especially with how global our world has suddenly become.

I think many of your concepts have some merit even if I don't completely agree. However, IMO, if you want to further the discussion in a more interesting and engaging manner, you may need to better learn the concepts at hand, how to separate certain concepts for discussion and package your opinion better. You're mixing up Canada and foreign concepts together. You're mixing up different types of taxes. You're mixing up fairness and jealousy. It's OK not to know all of these concepts. Lots of what is being discussed is also extremely high level. It's fair you don't know them.

However, if you want higher level enjoyment, you might want to bring your understanding higher. This comment isn't intended to tear you down, but to encourage you to equip yourself to be able to discuss these topics at a higher level and perhaps discuss them in a manner where you could actually create good conversation that could further real life solutions in the long run. That might be "fun" to you.

[GGG]

Originally Posted by Azure

He has effectively created a launch system and committed all the money for R&D before he got any government subsidies, and the subsidies he got were due to being able to actually prove the product works.

Of course the cost is high, but he also has a massive waiting list and has said as they become more efficient the cost will come down.

Maybe you could go do some research on how much money the US government has wasted on subsidizing ISPs who have nothing to show for?

Aren’t those ISPs people the previous generation of Billionaires?

[Enoch Root]

Regarding estate tax...

First of all, yes CGT is different than estate tax. However, death doesn't just trigger CGT - RSPs/RIFs are also unwound and completely taxed as income. All tax deferrals are realized and taxed. In other words, it is a complete reckoning, and even though there is no official estate tax, there is plenty of tax at death.

Having said that, I would be fine with an additional estate tax above a certain threshold ($10M would be the sensible number, IMO). However, if you implement an estate tax, people will simply shelter their assets. Yes, you need to establish a gift tax along with the estate tax, however, that doesn't really solve anything. All a family needs to do is keep their assets in a trust because the trust never dies and therefore never faces the estate tax. (yes, trusts have a 21 year shelf-life, however, you can role into a new trust)

When you weigh it all, the best system is what we have: make death a deemed disposition, where all taxes deferrals come due. It is effective because it doesn't scare wealth away.

[Enoch Root]

Originally Posted by Mathgod

This is probably the biggest misconception in this entire thread and probably in our entire society. The "rich being rich doesn't affect you" mindset. Reality is, the rich being rich as they are DOES take money out of everyone else's pocket, in the form of inflation. Their massive wealth cycles through the economy, meaning there's more money chasing around goods & services than their otherwise would be. Taxation is how you take some of that money out of the economy and fight inflation.

Actually, the opposite is largely true. Additional wealth, in the hands of the poor and the middle class, results in additional spending, or as you described it: more money chasing around goods & services.

Wealth, in the hands of the rich, does not generate spending, it generates investment. We can debate whether this is a net benefit or a net hindrance to the economy, but what it doesn't do is push up the prices of goods and services.

What you may be trying to get at is that more economic activity results in more inflation. This is true, but inflation is well known as the enemy it is, and central banks are very diligent towards keeping it in check.

Yes, if we slowed the economy down, there would be less inflation, but I very much doubt that slowing the economy down would benefit the poor.

[blankall]

Originally Posted by Enoch Root

Actually, the opposite is largely true. Additional wealth, in the hands of the poor and the middle class, results in additional spending, or as you described it: more money chasing around goods & services.

Wealth, in the hands of the rich, does not generate spending, it generates investment. We can debate whether this is a net benefit or a net hindrance to the economy, but what it doesn't do is push up the prices of goods and services.

What you may be trying to get at is that more economic activity results in more inflation. This is true, but inflation is well known as the enemy it is, and central banks are very diligent towards keeping it in check.

Yes, if we slowed the economy down, there would be less inflation, but I very much doubt that slowing the economy down would benefit the poor.

The problem right now is that the central banks (and the government for that matter) aren't being "very diligent" about keeping inflation in check. In fact, the combination of ultra low interest rates and constant payouts are making inflation much much worse.

A slow down in the economy would cause a temporary disadvantage to everyone, but halt the long term damage to the poor that inflation is causing. Inflation benefits those who have lots of capital already, and horribly hinders those trying to acquire it.

The current path is, more or less (a small percentage of people can work their way out of it, but it's a very uphill battle), a class system. If you're born into a family with lots of real estate, investments, etc... you're going to acquire that wealth. Meanwhile everyone else is born into a lifetime of renting and scraping by.

People in Calgary aren't quite experiencing the crunch yet, as the real estate market was already so depressed. But that's quickly changing, as both the cost of acquiring and the cost of renovating/maintaining real estate in Calgary are rising rapidly.

People are demanding higher wages to combat the inflation driven increases in the cost of living, but the fact of the matter is that many small business owners are scrapping by themselves and cannot afford to increase salaries. So we end up with the death of small business and the furtherance of mega corporations like Amazon.

[GGG]

Originally Posted by Enoch Root

Actually, the opposite is largely true. Additional wealth, in the hands of the poor and the middle class, results in additional spending, or as you described it: more money chasing around goods & services.

Wealth, in the hands of the rich, does not generate spending, it generates investment. We can debate whether this is a net benefit or a net hindrance to the economy, but what it doesn't do is push up the prices of goods and services.

What you may be trying to get at is that more economic activity results in more inflation. This is true, but inflation is well known as the enemy it is, and central banks are very diligent towards keeping it in check.

Yes, if we slowed the economy down, there would be less inflation, but I very much doubt that slowing the economy down would benefit the poor.

The only explanation for why money printing the last 20 years hasn’t led to massive inflation is that our assets have increased in cost. I think the paper value of companies and houses is preventing inflation because it locks up money and matches productivity to purchasing power.

[Enoch Root]

Originally Posted by blankall

The problem right now is that the central banks (and the government for that matter) aren't being "very diligent" about keeping inflation in check. In fact, the combination of ultra low interest rates and constant payouts are making inflation much much worse.

A slow down in the economy would cause a temporary disadvantage to everyone, but halt the long term damage to the poor that inflation is causing. Inflation benefits those who have lots of capital already, and horribly hinders those trying to acquire it.

The current path is, more or less (a small percentage of people can work their way out of it, but it's a very uphill battle), a class system. If you're born into a family with lots of real estate, investments, etc... you're going to acquire that wealth. Meanwhile everyone else is born into a lifetime of renting and scraping by.

People in Calgary aren't quite experiencing the crunch yet, as the real estate market was already so depressed. But that's quickly changing, as both the cost of acquiring and the cost of renovating/maintaining real estate in Calgary are rising rapidly.

People are demanding higher wages to combat the inflation driven increases in the cost of living, but the fact of the matter is that many small business owners are scrapping by themselves and cannot afford to increase salaries. So we end up with the death of small business and the furtherance of mega corporations like Amazon.

I agree that inflation risks have grown significantly in the last 6 to 12 months, but that isn't what was brought up in this thread. Would slowing down the economy take some of the wind out of the sails of inflation? Sure. But slowing down the economy now, with high unemployment, and so many small businesses hurting due to Covid, would create many other problems.

Also, I think the current source of the increased inflation is commodity-based and scarcity-based, not due to over-heated economic activity.

[blankall]

Originally Posted by Enoch Root

I agree that inflation risks have grown significantly in the last 6 to 12 months, but that isn't what was brought up in this thread. Would slowing down the economy take some of the wind out of the sails of inflation? Sure. But slowing down the economy now, with high unemployment, and so many small businesses hurting due to Covid, would create many other problems.

Also, I think the current source of the increased inflation is commodity-based and scarcity-based, not due to over-heated economic activity.

A major issue was the even before covid hit, the central bank had ultra low interest rates. They were using these rates to disguise deficiencies in the economy. Consumer debt was already at a very dangerous level. Instead of biting the bullet, successive governments kicked the can down the road.

When covid hit, the government had little choice then to spend, but things should have been in a much better place prior to covid. A lot of the issues, imo, had to do with lack of proper regulation in the housing market. They kept interest rates low, to let "average Canadians" get into the market and avoid a crash following the initial investor driven inflation of the housing market.

[Enoch Root]

Originally Posted by blankall

A major issue was the even before covid hit, the central bank had ultra low interest rates. They were using these rates to disguise deficiencies in the economy. Consumer debt was already at a very dangerous level. Instead of biting the bullet, successive governments kicked the can down the road.

When covid hit, the government had little choice then to spend, but things should have been in a much better place prior to covid. A lot of the issues, imo, had to do with lack of proper regulation in the housing market. They kept interest rates low, to let "average Canadians" get into the market and avoid a crash following the initial investor driven inflation of the housing market.

I don't believe this was the goal - pre-Covid, they were keeping interest rates low to fight deflationary risks.