A Look at Wealth Tax Proposals in Canada and the U.S.
October 25, 2019
Ahead of Canada’s federal election last week, we blogged about the tax platforms of Canada’s three largest political parties. One of them, the NDP, had introduced several proposed tax reforms, including a “super-wealth tax“, which would apply a 1% tax rate to any individuals with more than $20 million in wealth.
South of the border, Massachusetts Senator Elizabeth Warren, who is rapidly becoming a front runner for the Democratic presidential candidate in next year’s election, has also introduced a wealth tax, called the “ultra-millionaire tax“, proposing a 2% levy for wealth over $50 million, and a tax of 3 cents per dollar of wealth over $1 billion.
This week we examine both proposals in more detail.
The NDP’s Super-Wealth Tax in Canada
Although the Liberal’s won last week’s election, they only secured 157 seats in the House of Commons, short of the 170 they needed to become a majority government. This result has given the NDP a fair amount of power since Prime Minister Trudeau will need the support of either the NDP or the Bloc Quebecois in order to make decisions.
The NDP’s proposed Super-Wealth Tax has been listed as one of the NDP’s top six priorities, and NDP leader Jagmeet Singh has noted that he intends to fight for the levy in his support of a minority government.
According to the NDP, the Super-Wealth Tax would apply to households, rather than individual taxpayers. This is intended to prevent individual taxpayers from moving wealth amongst family members as a tax avoidance strategy. Assets that would be included in the calculation of wealth include real estate, investments, and luxury items.
According to the Parliamentary Budget Officer, the super-wealth tax has the potential of raising $5.6 billion in the 2020-2021 tax year, a number which could grow to approximately $9.5 billion by 2028-2029, and could raise up to $70 billion over a decade.
Singh notes that this tax would apply to about one tenth of one per cent of Canadians. In Canada, 87 of the most affluent families have as much wealth as 12 million Canadians. Canada’s richest families are worth, on average, $3 billion, whereas the median net worth for Canadians is just over $295,000.
Elizabeth Warren’s Ultra-Millionaire Tax
Elizabeth Warren’s proposed Ultra-Millionaire Tax on the net-worth of the wealthiest Americans is, in the words of her campaign, a reaction to “an extreme concentration of wealth not not seen in any other leading economy.
Currently, the richest 130,000 families in America now hold nearly as much wealth as the bottom 117 million families combined. Between the late 1970’s and the late 2010’s, the most affluent 0.1% has witnesses their share of wealth triple from 7% to 20%, while the wealth of the bottom 90% has declined from 35% to 25% in the same time frame.
The net worth that will be subject to the proposed wealth tax will include residences, closely held businesses, retirement assets, assets in trusts or held by minor children, and personal property valued above $50,000.
The tax will include several measures intended to thwart tax evasion including:
a proposed increase to the IRS’ enforcement budget;
a minimum audit rate for taxpayers who are subject to the tax;
a 40% “exit tax” on any net worth above $50 million of U.S. citizen’s who renounces their citizenship; and
systematic third-party reporting that uses existing tax information exchange agreements adopted after the Foreign Account Tax Compliance Act and builds upon them.
In truly exceptional circumstances, affected taxpayers will be able to defer payment of the tax, with interest, for up to five years.
It has been estimated that the Ultra-Millionaire Tax would generate $2.75 trillion over 10 years.
How Can Feigenbaum Law Help?
We will continue to follow developments with these proposals on both sides of the border, and will provide updates as they become available. In the interim, if you have questions about how these proposals may impact you in the future, or if you have questions about any other recent developments in tax and related areas of law, contact Mark Feigenbaum at Feigenbaum Law.
With professional accounting designations from both Canada and the U.S., coupled with being admitted to the bar in the U.S. and Canada, Mark Feigenbaum and his team are uniquely positioned to provide tax advice to clients on both sides of the border. We regularly provide tax services and advice to those in the sports & entertainment fields and to other high-net worth individuals. We also offer corporate tax planning and compliance, personal tax planning and compliance, immigration & visa services, cross-border estate planning and services related to tax controversy.
We have developed a reputation for finding creative solutions to seemingly unsolvable problems and for the exceptional quality of our work. Due to our vast knowledge and wealth of experience, professionals such as lawyers, accountants, financial planners, agents, and business managers, frequently refer complicated tax and business law matters to our firm.