Why make money complicated?
In its “unobscured by charlatans” form, money and its management is little more than common sense. Spend some, save some, honour your debts, have a little aside for emergencies and the unforeseen. Everything else is artifice.
Then there is the government
Steven Jarislowsky, the dean of money managers in Canada, makes some interesting points in a recent article. Our tax system is now so unfair it will push productive people to leave Canada
“Tax system unfair” Are tax systems not supposed to progressively become more expensive? How much is fair to take? Should people who earn less care?
“Push productive people to leave” How so? Would they not feel a duty to stay and make do? Besides how big is the push.
Will common sense investors choose to stay?
The push is quite substantial.
If I earn more than $220,000 the tax bracket amputates 53.5% of each dollar that follows. The 46.5% I keep is investable and/or spendable. If I spend it, there is the national sales tax to deal with. 13%.
If I invest it, inflation takes some of the value away over time. If I invest in fixed income assets, I will need 4.3% return before taxes just to stay even with purchasing power. The today rate for 10-year bonds is 1.44%. The more I save and invest the more I lose.
It is about reward and punishment
The rule of life is, “You get more of what you reward and less of what you punish.”
Taxes punish, but up to a point people are willing to pay them. Every person smart enough to earn a good income is smart enough to know they need infrastructure to do it. What would they pay willingly? Certainly less than 53.5%
Why do higher income earners need to pay high rates?
Because these people pay a very large share of total income taxes is paid. A single taxpayer earning $500,000 pays as much tax as 82 people earning $25,000. If the government takes too much, the high income earners have a choice. Stay and pay, or leave. The freedom for taxpayers to leave seems to be ignored by the lawmakers.
The reason it has become this way is people fail to make a small distinction about wealth. Wealth can be achieved by predatory methods or by productive methods. The current version of political thought seems to fall on the side of all wealth is predatory. Donald Beaudreux sums it up well here. It is a lazy mistake.
Do governments, on balance, fall on the side producer or predator? Or is there some other way to grade them?
Do people leave for tax reasons.
Some do. Illinois is the most financially crippled state in the United States. The IRS reports that the average income of people leaving the state is about $77,000 and the average income of people moving to the state is about $57,000. That is a serious problem in the long term. Other states are better off, but hardly good. Connecticut, New Jersey, New Hampshire, Kansas, Ohio and New York show an income loss of more than $10,000 per transient.
Some very high earners move and save millions. New York or New Jersey to Florida is attractive. California to Texas. The receiving state gets stronger as the others get weaker. The flow will accelerate. Then what?
Trudeau wins the vote in Canada.
The federal government has created and expects to create a $50 billion dollar shortfall over their first two years in office. The more distant future is not better. Does anyone feel better off? No one I know.
If you can’t notice $50 billion, perhaps there is a problem.
It is even more exasperating in Ontario. The current government proves the adage, “The problem with political jokes is that some of them get elected.”
Governments would have you believe nonsense
Each would have you believe they have problems getting enough revenue. The real problem is on the spending side. It is like a compulsive shopper who has trouble living within their income. Would you suggest borrowing more or would you suggest spending less?
The answer is spend less.
What about the unusual times where spending is important?
Sometimes they need to spend. Wise spending is always affordable. But fashion often overrides wise. Wise is not always popular.
How will they come to understand that incurring debt to support unproductive spending impoverishes us twice.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772