Who are these "Rich Canadians" yearning for higher taxes?

Hint: they're doing a superlative job of downplaying any visible signs of their wealth

As a regular reader of The Toronto Star, I couldn’t miss the recent op-ed by a group of purportedly “rich Canadians” professing support for Finance Minister Chrystia Freeland’s Budget 2024 proposal to increase the tax rate that Canadians pay on capital gains.

Parroting the Liberal government’s own Spin Doctors, these “rich Canadians” claimed the tax grab would only hit the “ultra rich,” even as many of us pointed out how these changes would impact Middle Class cabin & cottage owners, doctors, farmers, individual income property investors, etc. The very insight one would have if you’d ever contemplated, let alone enjoyed, your own personal capital gain. Being “rich” Canadians and all, one wonders how they could be so in the dark on “rich people stuff.”

As op-ed pieces go, Trudeau’s PMO couldn’t have written it any better themselves:

The government is using this revenue to fund new spending on priorities like Old Age Security, clean economy, medical care, child care, and housing, but it doesn’t go far enough to address class distortions decades in the making.

Recognizing that every society can pause and reflect on the underpinnings of “class distortions,” I took to Twitter to point out that despite the hopeful claims above, the ~$7 billion of additional capital gains taxes that the Liberal Party hopes to raise in 2024 had already been wasted on a host of very recent spending travesties (via Blacklocks Reporter):

- $5B tax break for builders was never intended to subsidize 'small $500,000 apartments that are maybe not suitable for everyone,' according to Finance Canada.

- $169M of unused Covid ventilators (bought from StarFishMedical under sole-sourced contract) which were recently sold for scrap.

- Ottawa is still taking delivery of millions of unwanted Covid shots while throwing away nearly $2B worth of expired vaccines.

- the Liberal’s 2016 decision to waive Visas for Mexican “tourists” wound up costing $660M/year..for refugee claims in Canada. Asylum claims jumped from 120 a year to 24,000, most of them bogus. The claims appear to have been orchestrated by organized crime.

These same “rich Canadians” aren’t prepared to declare victory, even with the proposed higher capital gains taxes. They are also advocating for several Socialist-leaning concepts usually associated with members of the New Democratic Party:

As Canadians with wealth- and class-privilege, we wish Canada was taxing the rich more — we’d also like to see a “super wealth tax,” an inheritance tax, and progressive property taxes — but we support this step. Let us pay our fair share.

Pretty compelling Left Wing stuff, if a bit curious, as many municipal urban tax systems are already progressive (the more your house is worth, the higher your property taxes, despite receiving the same municipal services as everyone else). Moreover, if you don’t believe that you’re currently paying your “fair share,” Canada’s existing tax forms already allow citizens to hand over more in tax each year than they are legally obligated to — there’s a box to direct your savings to deficit reduction. Another choice is to follow in the footsteps of my late wealthy friend John MacNaughton, CM, who voluntarily turned over $3.1 million of his JDS Uniphase option gains to the Canada Pension Plan (with zero personal tax benefit).

No one is stopping anyone from paying THEIR fair share, but that’s not the play here.

The 10 “rich” proponents of “taxing the rich more” made a telltale error by referring to their own “class privilege.” This is not the type of language one normally hears from traditional — and identifiably — rich folks, be they successful Strivers or Trust Fund Babies. That language choice made me curious: who exactly are these self-proclaimed “rich” people?

Many of the ten individuals associated with the Star op-ed are members of Montreal’s Resource Movement: “a community of young people with wealth and/or class privilege working toward the redistribution of wealth, land, and power.” They’d want me to report that the group “organizes on Turtle Island, within the colonial state known as Canada.” 

Given how much new wealth has been created over the past 40 years, I wasn’t shocked that none of their ten surnames are readily found in any of Peter C. Newman’s various books on the Canadian Establishment. In the absence of Mr. Newman’s research, it falls to me to help you learn more about their “privileged” backgrounds.

One of the two main authors, Jonathan McPhedran Waitzer, is a community organizer with various Montreal-area groups: COCo, Head & Hands, Small Change Fund, The Leap. The grandson of a Veterinarian, Prime Minister Trudeau appointed they’s mother to The Senate in 2016, which could lead to all sorts of “class privilege” if one’s not careful: VIA Rail passes, trips as a member of a Parliamentary delegation, free long distance calls — all of the spoils that we “Colonialists” have awarded the families of those who are legally tasked with governing the “state known as Canada.”

Contributor Britt Caron is a Toronto-based Psychotherapist (I had no idea psychotherapists were so well paid!), who you might have seen organizing to defeat Toronto Mayoral candidate Ana Bailo. She’s definitely a fan of the “Pro-Palestinian” campus encampments, as with fellow-traveller McPhedran Waitzer, who was concerned about “genocide” in Gaza as early as last October. Ms. Caron sympathizes with the “Defund the Police” crowd, and would like to “take all” of the money that Billionaires have earned over the course of their lives.

If Ms. Caron is so rich, you’d think she’d be concerned that, eventually, someone will get around to coming to take her accumulated wealth, too. Once her team is done with the Billionaires, of course. Perhaps she’s already given it all away? Perhaps Ms. Caron simply identifies as “rich” for the purposes of marketing a Socialist concept to the media and political classes?

None of which would be anyone’s business but for the self-styled “rich” label being applied in the aforementioned Toronto Star op-ed.

Contributor Katie German completed a Masters at OISE, with a SSHRC-funded focus on “Food justice, food literacy, whiteness, race, & youth as curriculum writers.” That was followed by a decade as an Advocacy Director at FoodShare Toronto — a long-standing group that supports “urban farms, subsidizing local produce markets or coordinating community kitchens.”

Contributor Sylvie Trottier, a Board Member of Montreal’s Trottier Family Foundation, is a well-educated person with serious and laudable philanthropic goals. Her family foundation was established in 2000 by Lorne Trottier, OC and Louise Rousselle Trottier. A very successful and generous entrepreneur, Mr. Trottier co-founded graphic card maker Matrox in 1976.

I’d be remiss if I didn’t point out that there’s some debate within the Left about the merits of Family Foundations. To some activists, they’re just another tool for “wealth hoarding and tax avoidance” by rich people.

It is true that the Canadian tax system was changed many years ago, courtesy of the efforts of D.K. Johnson, OC, to allow any of us (including truly rich people) to donate public securities — without paying any embedded capital gains taxes — to Canadian charities and registered family foundations (while maintaining the tax deduction in each case). As a society, we are deeply fortunate when financially successful Canadians help pay for an Art Gallery, McGill University engineering wing, Opera House or the research hub at Toronto’s SickKids Hospital. Others are quite critical:

The ultra-wealthy use charitable giving to avoid taxes and exert influence, while ordinary taxpayers foot the bill. Some ultra-wealthy givers make genuine efforts to give back. But others appear to use charity to burnish their public image, amplify their political voice, and protect their assets.

This dynamic must make for interesting discussions when the ten signatories get together: do they believe that Family Foundations get an unfair 100% break on their capital gains taxes?

Now a climate consultant, contributor Lindsay Wiginton once worked for the City of Toronto’s Transportation Dept. — a workplace that’s devoid of both seven figure salaries and stock options. She wants to “ensure equal rights and Status For All 1.7 million migrants [to Canada] including undocumented people,” which I guess means giving the vote to people who came to Canada from the USA to avoid deportation under former President Donald Trump. Ms. Wiginton’s advocacy of “wealth redistribution” is to be expected, and she supports Environment Minister Guilbeault’s efforts to do-away with single-use plastics.

I could go further with signatories Emma Davis, Dan Hoyer, etc., but I think you get the point. The following Venn Diagram is rudimentary, but it reflects my initial impressions of what I’ve come to learn through this research:

This particular op-ed wasn’t the only angle of attack, however. The Globe and Mail featured a piece by Duncan Rowland. Rowland is the founder and CEO of Migrations.ml, a 2019-vintage Toronto-based capital markets Startup. Earlier work experience includes a Market Risk role at Coventree Capital, a firm which could be so fingered for bringing down Canada’s ABCP market in 2007. According to Crunchbase, Migrations.ml raised a $120,000 pre-seed round from Boulder, Colorado’s Techstars in 2021; meaning the team knows what it’s like to work with the investment community. All of which are legit credentials to bring to this particular conversation.

The headline “Calm down, the sky isn’t going to fall with the capital gains tax hike” isn’t wrong. Minister Freeland’s decision won’t see the end of the early stage economy in some thermonuclear firestorm; nothing quite so immediate as that, anyway. My point is simply that the negative long term economic repercussions of the decision outweigh whatever immediate deficit reduction benefits the Liberals think are coming their way.

There are two core elements of Rowland’s Globe piece that I’d like to address. Starting with:

Even in the United States, where there is a huge US$10-million tax exemption on capital gains for a company founder, from conversations with my American counterparts, this isn’t the impetus for starting a company.

According to Pitchbook-NVCA data, over 15,750 U.S.-based entrepreneurs raised US$171B of capital from venture funds in 2023. That’s 24x more than the CVCA tracked for Canada, with just 660 similar financings drawing ~C$7B over the same period. Based on relation population sizes, the USA deal multiple should be ~8.5x, not the 24x. If you prefer relative GDP instead, one could argue a 12x multiple (not 24x).

This speaks to a fundamental difference between the two countries. To get to the (first or next) VC round stage of your journey, you’ve got to be doing something right as an entrepreneur…and you needed a suitable environment to put yourself in the position to build your company to the point where a VC raise is possible. These stats prove that far more U.S. entrepreneurs are able to reach that milestone — on a relative basis — than their Canadian counterparts.

One can’t forget that it takes “two to tango,” investor and entrepreneur. Rowland claims that the typical entrepreneur may not care about the ultimate tax rate on their “billion dollar idea,” and I can’t prove a negative; but Rowland can’t make the same supposition about their Angel/VC Investor. They’re doing far more individual simultaneous deals given the nature of their business model — leading to far more investment write-offs over the course of their careers. Prior to Freeland’s change, the after-tax financial rewards on capital appreciation were already better in the USA, whether you be an Angel investor or Founder.

It can’t be a coincidence that, despite the excellent post-secondary education system and public health care found in Canada (which should enhance early stage company formation), far more U.S.-based entrepreneurs get to the venture stage of their growth arc (on a relative basis).

Rowland rationalizes this as a function of relative “risk appetites”:

If a Canadian founder gets her funding from the United States, it’s probably because that American investor had a greater risk appetite and was willing to offer a better deal. If she had to relocate to the New York, San Francisco or London because that’s where the money and clients are, then she’s a smart business person, and the inclusion rate was again a non-factor in that decision.

U.S. investors can afford to have a “greater rick appetite” because the after-tax upside of the particular investment was higher in their country. Rowland’s own point supports my argument, as lower upside requires an investor to reduce their risk. Steering Investors away from the Seed and Venture space.

I can’t believe I have to explain this stuff to folks who should know better; unless, of course, the author is using imprimatur of their business credentials to subtly support of wealth redistribution ala Karl Marx, versus growing the economic pie ala Adam Smith.

Much like the purported “rich Canadians” who want us all to pay more tax, Rowland pitches the Liberal Budget move as necessary to make society better:

U.S. Supreme Court justice Oliver Wendell Holmes said nearly a century ago: “Taxes are what we pay for a civilized society.” This holds true today, so I’d prefer to see less hysteria, and more consideration that something has to be done to reduce homelessness and make housing affordable for the next generation.

I appreciate they’s honesty, although I’m pretty certain that Canada already has one of the highest tax burdens in the world. Increasing capital gains taxes isn’t going to make us more competitive against our key trading partner, nor will it solve our growing productivity deficit.

Canada has a spending and waste problem, not a revenue problem. None of which is going to stop a bunch of social engineers from trying to grab the levers from the real “engineers” of our economic train.

MRM

(note: this post, like all blogs, is an Opinion Piece)