We need more rich people!!!

Action Saskatchewan #32
To run September 13

Head: A million is enough
Subhead: Saskatchewan trailing in tax capacity


Urban legends garner a life of their own, generally with little basis in fact. A good case in point is the old saw that the rich don’t pay tax.
Actually, nothing could be farther from the truth – high income earners pay disproportionately high levels of tax, fueling public treasuries starved for revenue to expend on infrastructure and social programming. Consequently, those jurisdictions with large numbers of high-income earners are in a far better position to support public programs.
Saskatchewan is not among them.
This finding has emerged as a key element of the Action Saskatchewan blueprint, an economic and social strategy for the province prepared by the Saskatchewan Chamber of Commerce. The Chamber embarked on the initiative to foster debate and discussion on the future of the province as we approach our 100th birthday.
At its heart, the Chamber’s initiative is about growth – economic growth, growth of the population and personal growth opportunities for the province’s citizens. Critical to Saskatchewan catching up to other provinces is development of a much larger private sector that creates wealth and high-income earners.
As outlined last week, Saskatchewan’s private sector is dangerously small. Only one-in-seven Saskatchewan people actually pay more in taxes than they get back from the public treasury in one form or another. Whether it’s employees of governments at all levels – they receive 100 per cent of their income from government and pay their share in taxes but, on a net basis, receive more from the treasury than they pay in – to those on public pension programs.
The problem is exaggerated when high-income earners – the most mobile people in our society and, under our progressive tax system, who pay the largest share of income taxes – leave for another jurisdiction. Left behind is a smaller group of taxpayers to shoulder the burden. It’s a cascading effect – our system levies the highest tax assessment on those who earn the most and when they leave, the burden they carried is spread over a narrower band of taxpayers. The highest tax category in Saskatchewan begins at $100,000 in taxable income so the easiest way to fatten the treasury is to attract a lot of high-income earners.
And the way to attract high-income earners – the ones who pay the bulk of the taxes – is to lower tax rates. That’s one of the reasons the provincial government has spent the last three years implementing a personal tax reduction plan – to stem the tax version of the brain drain.
And here’s why. Saskatchewan had 1,430 people in 1999 who earned a taxable income of $250,000. That’s just over one-tenth of one per cent of the population. Alberta, on the other hand, had 10,790 or six times as many, even though their population is only three times Saskatchewan’s. So, they have a much larger percentage of high-income earners. But here’s the kicker.
That one-tenth of one percent of the Saskatchewan population in this income category paid eight percent of all the income tax in Saskatchewan. In Alberta, the $250,000 plus category amounts to three-tenths of one per cent of the total population or twice as many as Saskatchewan on a per capita basis. Yet, they pay 15 per cent of all the income taxes.
By comparison, in the U.S. slightly less than one per cent of the population earns $250,000 (Canadian dollar equivalent) but they pay half nearly the income tax – that’s right one per cent of the population pays almost half the income tax.
Simply put, the rich do pay tax – they pay the most tax. And when you chase rich people away, you weaken not only the economy but the public treasury.
Saskatoon financial planner Fred Smith is a student of tax system dynamics who has written extensively on the subject and says Saskatchewan’s tax base lags far behind the rest of the country.
“If you look at the Canadian statistics, it’s one in five who is a (net tax) contributor. So one in seven in Saskatchewan is not enough. The only reason we have the social programs that we do is because we’re a recipient of equalization.”
But, he asks, what if we got that to one in six?
“That’s only a change of 25,000 people in the whole province - that’s 2.5 per cent. So all we’ve got to do is move 2.5 per cent of the people from the current recipient level to the contributor level. That would be an incredible change in this province,” Smith offers.
Over the years Saskatchewan has seen dozens of high profile business and commercial leaders leave the province, usually destined for Alberta. Ostensibly, they’ve left because tax rates were lower elsewhere – but that may not be the entire story.
We’re also pretty good hammering successful people, or as some put it, we have been captured by the scarcity mindset. At its heart, the scarcity mindset is about jealousy. If someone is doing well, scarcity thinkers believe, that individual getting a bigger piece of the pie which, in turn, must mean I’m getting a smaller one. In short, scarcity thinkers believe a successful neighbor is getting more than their fair share. Success, they believe, is bad because someone else is getting too much.
Those who have done well – the ones on the receiving end of the jealousy – often get fed up and leave. They can be successful elsewhere and don’t have to put up with the negative connotations of being successful.
The result is – we might feel better for putting one of those successful individuals in their place – but then we get to pick up their share of the tax load.
“They’re vilified,” Smith says of the too few successful people in our province. “If you take that tack, you’ve just destroyed all the social programs because it’s only the high income earners who pay for social programs. It’s only five per cent of the population in the private sector who make more than $50,000 that pay for social programs. So people making more than a quarter of a million dollars pay a third of social programs and they’re one-tenth of one per cent of the population. If we were able to double that, we’d have 50 per cent more money for social programs. But unfortunately there are too many envious people who would rather oppress successful people than have better social programs.”
So how is that we have cornered the market on scarcity thinking, on making Saskatchewan a place that vilifies success and financial achievement?
“It’s got great resonance in the public mind. People love to hear that they’re not at fault. So you’ve got to pick a scapegoat. Rich people are great villains because they can take care of themselves and people are jealous. Somebody else is the problem, not me,” Smith adds.
He goes on to say that a province like Saskatchewan, where social programs and public intervention in the economy are well established, it’s doubly important to build a larger private sector.
“What I say to my left-wing friends is: I really feel sorry for you. Here you are in a system where the only way socialism works is because there are enough capitalists around to fund it. So you’ve got to be nice to your worst enemy. And that’s a terrible situation to be in when you’re dependent on your worst enemy. But until you can create jobs and fund social programs, that’s the plight you’re in. We (private sector) create the jobs, we fund the social programs and until you can do it, you’ve got to put up with us.”
Unfortunately, based on the tax data, fewer high taxpayers have chosen to call Saskatchewan home. Whether we like it not, places like Alberta or the United States have the ability to squeeze out more tax money because they have more high-income earners.
In this year’s Alberta budget, for example, the government reported the bottom fifty per cent of taxpayers contributed one percent of the government’s tax revenue. On the other hand, the top 15 per cent of income earners paid 66 per cent of the taxes.
Government revenues flow from profits and incomes. Those jurisdictions with more of each will have fatter public treasuries – it’s quite simple, adds Smith.
“There’s loss of trust, that’s the problem. The people who can create the jobs don’t trust the government and with good reason. They create these jobs and the government comes along and changes the rules. So there’s a definite lack of trust in the government and it’s going to take a long time to get that back.
It will be interesting to see what happens in B.C. because it’s so difficult to change from a culture of entitlement back to a culture of work. It took Ireland 20 years to do it.”
One idea that has been floating around – a mechanism to repatriate some of those high-income earners who moved away – is to cap provincial personal income tax levies at a million dollars. Once you’ve paid a million dollars in provincial income tax, you’re done. To reach that threshold, you’d have to earn a taxable income of roughly $10 million over your lifetime. For those who have left the province, it would cost us nothing because they’re not paying taxes here anyway. But, if they moved home to Saskatchewan – where they’d be free of provincial income tax – we’d get the benefit of their investment, money management and they’d employ people here (who WOULD pay taxes) instead of elsewhere.
Even though the province would be better off, imagine the uproar if the wealthiest among us were tax exempt.
Our thinking is scarcity-based.




Chart:
Jurisdiction People earning more Percentage of Percentage of
than $250,000 annually the population total taxes paid

Saskatchewan 1,430 .14 % 7 %
Alberta 10,840 .3 % 17.8 %
U.S. 2,570,000 .92 % 41.4 %