Taxing inflation
The thin line between dumb and dishonest
I could call this post “The meaning of politics #2”, as it is, in a way a continuation of my previous train of thought about the difference between political narrative and actual political goals.
For those of you who are not Canadians, let me introduce the people: it is a montage of Andrew Chang, a CBC journalist between Chrystia Freeland (Deputy PM and Minister of Finance) and Pierre Poilievre, leader of the opposition and the most likely successor of Trudeau. The picture is a cut from this video:
Who’s telling the truth about the capital gains tax? | About That (youtube.com)
This 15-minute CBC segment is about the latest changes to Canadian tax laws, raising the capital gains tax inclusion from 50% to 66.7%. It is an interesting video in more ways than one.
The point of the video is to explain why the liberals are mostly right; how the conservatives are liars and why little people like you and I shouldn’t worry at all. It doesn’t happen frequently and even if it costs us a lot, we can be assured that it will be spent wisely by our benevolent government.
27% (in absolute terms) is a hefty hike. It affects mostly certain professions, like doctors and farmers, but also people who own more than one property. As one of the people interviewed pointed out, 60% of people only pays capital gains tax once in their lifetime, but when they do, the gain will likely push them up into a higher tax bracket as well. This highly manipulative presentation ends with the following insult:
If you are just an average person, the likeliest way you will be directly affected by any of this is if you own an investment property, somewhere you don't live personally, but you might sell or transfer at some point.
On that, you stand to lose tens of thousands of dollars on that eventual sale. If you are selling a business, you stand to lose much more than that, but only if you are already making a fair bit of money, well over $1 million from that eventual sale. Either way, more of your money goes to the government for healthcare, for housing, for whatever their priorities may be.
…or to pay Andrew Chang’s salary. The Canadian government gives 1.37 billion dollars a year to the CBC, representing 70% of their revenue. OF COURSE they will tow the line. Still, that is NOT why I am writing this post. I am writing this to consider what is missing from it.
The elephant in the room is inflation, strangely missing from the conversation.
Capital gains tax is a tax on inflation.
The capital gain can also be the result of a whole slew of other government actions:
Supply and demand
While supply and demand is an economic concept, it can be greatly influenced by actions of the government. The major component of the Canadian real estate bubble is uncontrolled immigration. Canada invited about five to ten times as many immigrants as it has the capacity to provide essential goods and services for. The insane real estate prices are the result of the government’s mismanagement of immigration. It is the people, who bear all of the burden.
Zoning and regulations
The ‘Greenbelt’ around the golden horseshoe represent a major limitation on residential construction, raising property prices within the greenbelt.
“The World Bank currently ranks Canada’s (Toronto’s) building permit process at 57th in the world”Multiple layers of taxing real estate.
There is federal, provincial and municipal taxes. The socialist mayor of Toronto just raised the property taxes in TO by 9.5%, while also putting a one-time levy of 6% and a city building tax of 1.5% of assessed property value.About 30% of the cost of a new real estate in Toronto are various taxes and fees, NOT construction and material costs.
But the greatest cost, the elephant in the room is inflation. The Canadian dollar is worth one quarter of what it did in 1980 (the year I moved to Canada)
The average home price in 1980 was $90,000 today it is 1,170,000, A 13X increase.
Yet, the capital gains increase does not even take into consideration the official inflation figures.
The cottage your grandma bought in the sixties to enjoy with her children and grand children and is ready to pass onto you, did not substantially change since she bought it. It probably did not turn into a castle.
The only thing that changed is the value of the money that the Canadian government is printing as if there was no tomorrow. The value of the cottage didn’t necessarily change, only its price did.
The government first steels the value of your money than robs you by taxing you on its own theft.
Then to add further insult to the injury, uses your tax dollars to pay someone to brainwash you suggesting that it is all normal, its is no big deal and it is all for the greater good.
If you were born in the fifties or the sixties, your parents may very well be alive. They may have bought a cottage for $20,000. That cottage today may be worth a million. If you inherit it, you will have to pay the capital gains tax on half the proceed. Even if you did not make ANY improvements to it. Even if it is the same old shack your grandparents bought. What makes the difference in the price? An act of God? Who decides what its value is as a gift?
Let’s do a little napkin calculation:
The American revolution started for a lesser outrage.
The example may seem a little extreme, but not out of the realm of possibilities. What makes it look extreme, is the time frame.
What concerns me the most is that this may be far more than what it appears to be. All Western countries are printing money like crazy. All Western countries are living far beyond their means and cannot possibly keep the promises they made to their citizens. Hyperinflation is one possible way out of it.
With the help of these tax laws the government can take us a step closer to the Schwab – Trudeau – Freeland dream of us owning nothing.
The most valuable asset of the middle class is real estate. That is the number one vehicle of wealth accumulation and trans-generational wealth transfer. Destroy this value and you destroyed the middle class.
Am I crazy to think that this is the aim? What do you think of Andrew Chang and the CBC?
Are they dumb or dishonest?
The capital gains tax is the most insidious, most exploitative of all taxes. Let me know if you think I am wrong.
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References
How many Canadians currently own at least two homes? | Canadian Mortgage Professional (mpamag.com)
Toronto Mayor Olivia Chow opts for 9.5% property tax hike in 2024 | Financial Post
Willie Sutton Rule: What It is, How It Works (investopedia.com)
CUR_RESCON_Modernizing Building Approvals in Ontario Report_2017.07.05.pdf (torontomu.ca)
You've nailed it Zork. The CG tax is everything you say and more. I have been telling many people of this sinister linkage for years now but few really understand it. Its twin sister is 'Market Value Assessment' as the basis for municipal property taxes. In that case the taxes a homeowner pays (or a tenant pays through their landlord) is NOT based on the cost of providing municipal services to the property but rather on the degree to which others COVET the property - the more 'desirable' others find your property, the more you pay! In any other realm such financial manipulations would be deemed a blatant conflict of interest. It is through an Orwellian debasement of language that we are struck blind and dumb.