From crisis to crisis, calls to support recovery efforts by an increased contribution from the richest or the highest paid are recurring. But in the absence of constraints on tax evasion, the formula still faces the same pitfalls.
The International Monetary Fund has relaunched the idea: to increase the taxes of the richest and the major companies benefiting from the pandemic in order to reduce the inequalities amplified by the health crisis and help finance the recovery. It is “necessary to mobilize additional tax revenues” provisional to redeploy them through health care, education, social safety nets, argued Paolo Mauro, one of the budget affairs officers at the IMF.
The soil could be fertile. At the end of December, weren’t they around 200 wealthy Patriotic Millionaires?, to use an old mantra of Warren Buffett to demand that we tax the rich to support the recovery? This lobbying campaigns for an increase in the tax rate of the richest and for an increase in minimum wage. But without allusion to any wealth tax, the elimination of loopholes or an offensive against tax havens, has already been written.
A study released in late August by the Center for Productivity and Prosperity (CPP) focused on the ability of higher income taxpayers to ease their tax burden. Robert Gagné, director of the CPP and co-author of the study, mentioned in particular a behavior consisting in lowering their income in order to avoid paying an increased tax bill, in particular by reducing their working hours to move to a lower income class.
Above all, high incomes have easy access to the services of tax professionals showing them legal avenues for creative planning and tax avoidance. Not to mention the game of incorporation among professionals, salary-dividend arbitrations among SME owners or even taxed accounts, creation of trust … “The bypass routes available to taxpayers increase as their income increases. increase and their sources of income diversify, ”adds Robert Gagné.
The adage “too much tax kills tax”
The economist and researcher from the Institute for Socioeconomic Research and Information (IRIS) Raphaël Langevin repeated the exercise by applying another methodology, with conclusions debunking certain myths. In particular, the researcher opposes the substitution effect, which takes the form of a disincentive to work, to the income effect working in the opposite direction, to observe an increase in the labor supply in order to compensate for the drop in income.
For Raphaël Langevin, the adage “too much tax kills tax” is false, “at least in Quebec at the moment”. According to his projections, a ten percentage point hike in the marginal tax rate on annual income exceeding $ 250,000 would likely generate between $ 2.7 billion and $ 4 billion in additional public revenues over the next three years (2021 to 2023), depending on whether or not behavioral effects are introduced in the analysis.
The argument also evoking the mobility of the better-off is not cemented. “The wealthiest taxpayers amass their wealth in particular through a complex geographic ecosystem of individuals and businesses, making their exodus more difficult. “That said,” even by considering the most cautious scenarios with regard to the reactions of the taxpayers concerned, we still obtain a significant increase in State revenues, or 2.7 billion “, retains the analysis model. applied by Raphaël Langevin. These scenarios take into account the mobility of people affected by the measure, as well as a possible reduction in their working time or even greater recourse to tax avoidance or planning, he takes care to specify.
And if there will always be tax avoidance strategies and tax evasion, for Raphaël Langevin, fighting against these strategies would only make the State lose less money while increasing even more the taxes of the wealthy. .
However, a notion of psychological threshold that should not be exceeded could emerge from this debate. Robert Gagné returned to the strategy put forward by the Trudeau government in 2016 to increase its tax revenues and respect an election promise granting a tax cut to the middle class, by compensating for it by adding a new level of tax. taxation affecting the richest. “This reform, which reduced the combined federal-provincial marginal rate in Quebec from 49.97% to 53.31%, did not produce the desired effect. In reaction to this increase, the wealthiest taxpayers in Quebec reduced their total revenues by $ 2.7 billion in order to avoid the additional tax effort.
“When marginal tax rates are low, it is possible to increase tax revenues from very high income taxpayers even by increasing these rates. However, there would be a prohibitive threshold beyond which any further increase in the tax rate would be associated with reductions in tax revenue. This threshold would probably be exceeded in Quebec and Canada, he says.