Stickin’ it to the Richie Riches?

According to Statistics Canada, in 2008, 390 people in New Brunswick had an after tax income (from all sources – employment, dividends, capital gains, etc.) of $250,000 or more.  New Brunswick had the fewest people in Canada reporting income (after tax) of over $250K among all ten provinces in Canada – by a wide margin compared to provinces such as Ontario and BC (adjusted for the size of the population).  It is interesting to point out that Alberta had nearly 10 times as many people reporting that level of income.

 There were only just over 5,000 persons reporting $100,000 or more in after tax income from all sources (or 913 per 100,000 persons with income as shown in the chart below).

I have heard a number of people talking about sticking it to the rich with any tax increases needed to balance the provincial books.   The point I have been gently trying to make is that in New Brunswick there ain’t a lot of rich folks to be had.   You could stick it to those 390 folks who made more than $250k – even if you charged them another $100k in taxes each – you would still only raise $39 million in new taxes.    

The bare facts of it are simple and the folks at the Dept. of Finance, I assume, know this.  The place to look for new taxes – in large numbers – is in the middle class.  Folks at the lower end (rightly) pay very little tax and there are not a lot of folks at the higher end.  There are nearly 140,000 folks with after tax income between $35k and $100k.  If you took an average of $3k each in new taxes from this gang, you would have well over $400 million in new tax revenue each year.

Number of persons per 100,000 with after-tax income of:

 

$250,000

and over

$100,000

and over

CAN

314

2,319

NL

75

996

PEI

75

819

NS

117

1,213

NB

68

913

QC

160

1,319

ONT

369

2,688

MAN

162

1,334

SK

180

1,598

AB

737

4,659

BC

302

2,365

Source: Statistics Canada. Table 111-0043 – Neighbourhood income and demographics, taxfilers and dependents with after-tax income, by sex and age group, annual.

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16 Responses to Stickin’ it to the Richie Riches?

  1. Mike says:

    Moreover, the fall-out effects of higher taxation on the “rich” will have an adverse effect on investment attraction – if you’re VP/CEO of a tech company being wooo’d to setup camp in NB, the prospect of your income taking a hit tends to weigh heavily on your decision – rightly or wrongly.

  2. mikel says:

    I should respond because I’m one of those people who have been saying this. The number of people is exactly why the rates for these people need to be increased. There are relatively few of them-and yet their tax influence is quite high. I should also point out that nobody has been saying ‘stick it to the rich’-because most taxing authority is mainly at the federal government. What I and labour groups have been saying is to simply roll back the Graham tax breaks and change the tax brackets to what they were previously. That is a modest proposal that mirrors what is going on in the US. It failed there due to political, dare I say, craziness, but in NB its barely even been RAISED.

    If you recall CBC did a study when Graham passed the tax decreases, somebody should go do a search, I couldn’t find the articles. But I remember the number being VERY significant, especially in light of Higgs’ claim that most of the ‘savings’ so far has amounted to a mere 42 million.

    And like the MLA’s pay and pension issue, it is primarily symbolic. A good many of those in those income branches are public servants and consultants. Many are judges and lawyers, people the province really doesn’t need to worry about ‘moving away for lower taxes’.

    Its true the amount may be inconsequential, but at this point, everything helps. And if those making an extremely comfortable living with guaranteed jobs and incomes are not willing to pay an extra 5% or so when things are extremely precarious, then what does that say to the middle class who are being asked to have fewer services, more fees, and higher consumer taxes? Asking somebody to pay the same taxes they paid four years ago when the economy was better doesn’t seem that contentious. In fact, it wouldn’t be a bad idea to peg salaries to the economy. To go against the labour groups, its ludicrous to sign a contract with public servants promising 5% increases per year when you have no idea what the economy is going to be like.

  3. Tim says:

    Tough conversation to have without data on relative (both amongst the segments, and against other regions) tax burdens per segment.

  4. mikel says:

    I found one report:

    “..announced Tuesday a four-year plan that will merge the province’s four tax brackets into two with lower rates and cut corporate taxes to the lowest in the country. Under the plan, there would be tax cuts totalling $143.5 million in 2009-10; this would increase to tax cuts totalling $380.2 million in 2012-13.”

    Read more: http://www.cbc.ca/canada/new-brunswick/story/2009/03/17/nb-boudreau-budget.html#ixzz1C578MaAC

    And this: “Alward has said he could save $120 million over the next four years by halting the tax cuts for the highest income earners.”

    So we have an approximate figure of about 40 million, which is pretty substancial. And thats just the highest income earners. If you are making 60 grand and over, getting rid of your tax breaks would only cost you about $300 per year and would add a HUGE amount to the budget. It’s interesting that Alward said that THEN, but now seems to have backed off. When it gets to the point where like in the US the wealthiest of the population refuse to balk even a LITTLE, then you know you have a big problem.

    T

  5. I think that is exactly my point – in an indirect way. As long as people realize that $60,000 and over is ‘the rich’ than we are talking about an ability for government to raise significant tax revenue. If ‘the rich’ is everyone making over $200,000 – than it is harder to milk that cow because there are so few of them. In the PC platform, it states: “Cancel future tax reductions for the 1,300 richest New Brunswickers, who have an average income of $450,000,
    announced by Shawn Graham last year.” That is supposed to generate $30 million per year.

    According to Stats Canada there are only 1,200 people earning over $250,000 per year (the PCs say there are 1,300 earning $450,000/year). Either the PCs made a clerical error or they are talking about household income. Even then it is highly unlikely if there are only 1,200 individuals earning over $250k that there are 1,300 households earning over $450k.

    Either way I still maintain the opportunity to fleece the rich is limited. Even if they are right and can generate $30 million a year – that is on a deficit of $800+ million per year.

    The two largest income brackets in New Brunswick are between $25,000 and $35,000 in annual income from all sources(95,000 in that group) and between $35,000 and $50,000 in annual income (86,000 in that group). That’s the big middle folks, it dwindles down from there. There are only 13,500 persons earning over $100k in total income. This is 2007 data (all I have access to) but it hasn’t changed much since then. If you are in that group, enjoy it.

  6. > If ‘the rich’ is everyone making over $200,000 – than it is harder to milk that cow because there are so few of them.

    Of course, the focus here is completely misleading, because it is entirely on people, rather than corporations, and says nothing about the super-rich in the province, who could probably pay the $120 million themselves without even noticing it.

    We always hear about how few rich people there are. Why not run the following set of equations: what percentage of the NB economy is *owned* by the people making over 200K (and over 1M, etc) and their companies? And then tax them at *that* percentage.

    If you own hardly anything, you should pay hardly anything. If you own the lion’s share, then you should pay the lion’s share. Enough of this sophistry about how few of them there are.

  7. Tim says:

    When I had the choose between two adjacent communities to live, I chose the one with the lower property taxes. Now this same community has higher taxes, but not so high, that I’ll move, just enough to be a slight irritant. When I moved to the US and had multiple job offers (but back “home” now) I chose the job that was in a region with the lowest cost of living (relative to any upside from intangibles). Drawing conclusions from static analysis misses the dynamic effects, and the greater the disparity between taxation regimes the greater the dynamic effects. Taxation causes certain flows in and out of region – it is tough to pass any judgement without some understanding of the dynamic effects.

    … but if the policy makers can’t agree on even the current snapshot of data, well… sigh, I dunno what to say.

  8. mikel says:

    I think the number of people who choose to live according to various taxes are pretty limited. I certainly wouldn’t even let property taxes enter into the equation unless it was a VERY significant number.

    I agree with Stephen about corporate income taxes, but see it more along media monopoly lines. It’s interesting that most MLA’s aren’t even in these brackets, so why balk at just saying ‘ok, those tax breaks are gone’ and move on with it.

    That NB has the lowest corporate income tax rates in the country is just bizarre. By far the NB corporations gain the most benefits-lax regulations, little environmental oversight, subsidized road work, etc. Wouldn’t you just LOVE to see the provincial books to see what corporations pay how much.

    The trouble is, in todays environment saying that you are raising taxes, even if it is still low, guarantees you bad publicity and the dreaded ‘business UNfriendly’ designation. But that doesn’t mean its not the right thing to do.

    PS: I”d love to see the data on the numbers of NBers in the various wage groups. I’ve tried to find that for years, if Mr.Campbell can link it or print ithe rest of it, that would be very nice.

  9. This is 2007 data.

    Total persons with income(5) 575,410
    Persons with income under $5,000(5) 42,840
    Persons with income of $5,000 and over(5) 532,570
    Persons with income of $10,000 and over(5) 473,000
    Persons with income of $15,000 and over(5) 409,290
    Persons with income of $20,000 and over(5) 336,290
    Persons with income of $25,000 and over(5) 280,180
    Persons with income of $35,000 and over(5) 185,080
    Persons with income of $50,000 and over(5) 98,780
    Persons with income of $75,000 and over(5) 33,570
    Persons with income of $100,000 and over(5) 13,510
    Persons with income of $150,000 and over(5) 3,980
    Persons with income of $200,000 and over(5) 2,020
    Persons with income of $250,000 and over(5) 1,170

  10. Mike says:

    I’m still having a hard time figuring out how we can justify higher taxation (income) in any bracket. For the majority of us, you would think that in exchange for paying higher taxes we should be entitled to enhanced service offerings…but alas, I still can’t find a family doctor. And for those lucky enough to be “rich”, if we ask them for more there will be movement out of the province for those groups identified in some of the commentary here (lawyers, accountants, consultants) because we won’t be as attractive to investment, corportations won’t move here because execs will be taxed out the ying yang, and the lawyers, accountants, and consultants won’t have anyone to law, account, or consult for. Raise the friggin HST but for the love of Zeus, please leave income tax alone!

    I think we’re fishing where there are few fish…we’ve got to enable more economic development and grow the tax base. Stop trying to save the dinosaurs (forestry, etc) and focus our spending on growth sectors. Jeez.

  11. Tim says:

    Mikel,

    You are correct in pointing other there is a long list of influences that underpin our choices, but holding everything else constant (ye old “ceteris paribus”) and looking just at taxes alone, it would be irrational to choose higher taxes.

    Will this alone (taxes) defer people from moving here? Well there are obviously a large number of other factors that a person considers… each of which are positive, negative, or neutral in their influence – but taxes will always be negative in that equation.

    Every other decision that affects the economy can be thought of using this same concept. Taxes are necessary, yes, but they effect behaviour, and influence virtually every aspect of the economy.

    If Canada were made up of 100’s of thousands of small businesses that could easily move between provinces – then a lower corp. tax in one province (ceteris paribus) would draw in a large number of businesses and people into that province. But, add in facts like there are very large business, medium business, small businesses, some more mobile than others; less mobility in the work force; social and community stickieness… etc etc , and the modeling becomes quite complex. But despite how complex this may become, taxes still remain as an influence. Pushing taxes upward will at some point reduce government revenue; It also reconfigures the economy along the way – like waving your hand through a cloud of smoke – it will set off an infinite number of other effects.

    BUT, (to finally offer an personal opinion and bring this back to a practical level), I’m not sure we (NB) have experienced the magnitude of positive influence on economic activity that offsets the losses from the drop in corporate taxes. I’m sure proponents of a lower corp tax would argue that it takes time and is coming, but some indication of positive results should be apparent within a couple years. Investigating this would seem to be a reasonably easy analysis to pull together. … I would argue NB is trying to be half pregnant. The achieve any significant results, corp taxes would have to be substantially lower that even what has been proposed… and that’s unnecessarily risky, and has some unpredictable lag. Therefore, a better strategy might be to have the taxes be in the same ballpark as other provinces, but not the lowest.

  12. mikel says:

    We talked about this before, a few years ago there was a study out of Maine (not ABOUT Maine, just out of the university there) that polled companies on location requirements. Taxes ranked EIGHTH. Well behind standard of living, infrastructure and worker skills.

    In business taxes are relatively insignificant. To repeat what a friend said who was a corporate accountant for twenty years-“corporations essentially pay whatever taxes they want to”. It’s fine if you don’t believe that, but just look at a place like NB where corporations contribute less than 3% of the entire provincial budget. In Canada, the division between corporate taxes and personal taxes was about 50-50, today, well, look at that 3%.

    It would be crazy to make business decisions based on taxes. As David has pointed out, the vast majority of small businesses service large businesses and local areas. They are stores and restaurants. Quite obviously you can’t pack up your Pizza Delight franchise and move to Winnipeg because ‘taxes are less there’. You CAN, but you’d be an idiot.

    Other businesses rely directly on local resources. An aquaculture company can’t just pack it in and move from NB to ontario. A timber company can’t move away from the trees. A potash company can’t move away, well, you get the point.

    For the wealthiest NBers, again, how many of these were criminals back when VLT’s were illegal? Judges easily make in the wealthy tax bracket, but you can’t just pack up and move to a lower tax jurisdiction and expect a job. Same if you are an executive at NBPower.

    It is VERY difficult for accountants and lawyers to move between the provinces. Most of these people are essentially ‘self employed’, which means they have a set client base. How many NB lawyers or accountants are corporate specialists that would be woo’ed away to another jurisdiction? There isn’t even a functioning public market in the province.

    Again, we are talking about paying taxes at the same rate as four years ago. Would you pack up your entire life and move because you had to pay the same rate that you historically ALWAYS paid?

    That is always the argument made-that these people will run fleeing, but there is no evidence of that.

    And again, 90% of NBers have a family doctor. No other province has a higher rate of family doctors than NB. But that certainly isn’t an argument against services. Like any person I think there should be open transparancy on how much EVERYTHING costs government. Much of that is already available, its just buried in government documents that media doesn’t bother with. But thats why I like the way US states do it-every item is broken down, and when a service is desired, it is approved or disapproved in a referendum based on the tax and the service. In Canada, if you don’t SEE it, you don’t feel like you are getting the service.

  13. Tim says:

    @mikel
    Mikel,

    As per my final remarks in my previous post – despite possibly different rational, I think we are in agreement on corp taxes. Mediocre tax cuts to corps may not get enough upside to justify the downside, that is unless the tax cuts were really deep… and frankly really deep tax cuts would be inefficient (given our particular circumstances) as a means to incent regional business growth.

    I don’t think we in agreement on personal taxes. Personal taxes already seem high relative – but I haven’t seen a comparison in a while – and disparity in personal taxes do effect labor flows.

    Fundamentally, we have to make New Brunswick a place where people are positive, entrepreneurial, hard working, and generally enjoy being here. Taxes are not the biggest lever to pull in order to create this type of environment… I just think that they have a greater negative force, than they do positive, and more so on labour markets.

  14. mikel says:

    Normally I’d agree, but the current economy is far from ‘business as usual’. Frankly, in NB, if you are lucky enough to HAVE a permanent secure job, then I suspect it would be difficult to pry it out of you. My sister tried for YEARS to get a job in her profession and lived practically in poverty just for the chance to live in New Brunswick. If you are the kind of worker who is that selfish that the tax level decrees where you live and work, I say its fine if they leave-there will be a thousand people applying for their job. Doctors are a bit different, but by and large there isn’t any person who is in an occupation who is ‘irreplaceable’.

    In this I come against most unions, who of course want the most for their members. I don’t think teachers and nurses have it so tough and are so poor that they can’t handle the taxes.

    IF personal taxes ‘seem high’, then I suspect you aren’t in the income group I am talking about. A decent mortgage costs about $1200 a month, a car costs about $550 at most. Other expenses added up would bring a household budget to $25,000 that you can live quite comfortably on and everything else is gravy-RELATIVE to say, living in poverty. So basically if your after tax income is $30,000 or more, you’ve got nothing to complain about, your life is pretty good.

    People of course are endlessly greedy, which is I suspect why Alward hasn’t made this small concession. When the province is in the financial straits its in, you start with the people with money, then you go down the list.

    To make one concession, I wouldn’t even be averse to the idea of making tax cuts contingent. If you are a public servant making X, you pay a higher level of taxes than, say, a businessman who employs X number of people. I’m not sure about that though, in most cases businesses are NOT built up by the accumen of businessmen but by investment by banks.

  15. richard says:

    “I’m still having a hard time figuring out how we can justify higher taxation (income) in any bracket”

    Reviewing my tax payments over recent years, I’d have to say that I have to wonder about the factual basis for that remark. Quite a few taxes have come down over the past several years. That has not been followed by any apparent positive economic response. So raise ’em back up, I say. We have a fiscal deficit as well as service deficits to take care of. After all, we had fairly robust growth in the 50s and 60s did we not? And weren’t quite a few income and corporate taxes higher then? How would after-tax discretionary income in, say 1960, compare to today?

  16. mikel says:

    It’s really hard to find past data on income taxes, I may have to hit the university database.

    I did find a corporate income tax database from Ag. Canada.

    Corporate income taxes were at a high in 1960 of 50%. Since then they slowly came down, until the eighties, which coincidentally was when ‘globalization’ began to take off-then they decreased steadily to 38%.

    Keep in mind though that several large corporations changed to Income TRUSTS, so they could avoid tax altogether. They got a couple years holiday before the feds closed that off.

    There are also different tax mechanisms for manufacturing, usually around 7% which is taken off depending on the economy.

    Interestingly enough, since the fifties the maritime provinces always had lower CIT than Ontario and Quebec, though not by much. These raised from 10% to 17%, but again, once the year 2000 hit, all of sudden CIT had to be lowered to be ‘competitive’.

    So I’d like to find a historical database for income tax, maybe stats canada has one. I’d also like to see CIT as a percentage of total revenue for canada, thats another figure I have a hard time finding. Usually I find that the harder information is to find, usually the more embarassing it is for SOMEONE.

    But like Richard our taxes have lowered markedly, EXCEPT property tax which has increased substancially in the last five years. There is a price for that even if we don’t feel it-I have a friend who is over 80 and on a tight budget but had to pay $50 for a machine to take his blood pressure steadily over 24 hours to find out why he had a heart attack. That’s something I”d think should be part of ‘universal health care’.

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