John Manley writes in the Financial Post on why increasing the capital gains inclusion rate, as announced in the 2024 federal budget, is a bad idea. John authors an op-ed with fellow C.D. Howe Institute members Duncan Munn and Dwight Duncan.
They say the budget does not address intergenerational fairness—as the federal government claims—and point out several problems with increasing the inclusion rate:
- The notion that capital gains are enjoyed only by a few older, wealthier people is false. Many young people are risk-takers, too, and on a mission to create the next business-busting model.
- Most of the bigger capital gains that would face the higher inclusion rate are the result of holding assets for a long time—10, 15 or 20 years—which means much of the return merely compensates for lost purchasing power due to inflation.
- People are mobile, too, not just capital. Those most affected by this new tax are also those whose mobility is greatest. Canada risks losing part of its entrepreneurial class to other jurisdictions.
- Taxing capital gains upon realization creates a "lock-in" effect: investors delay selling assets in order to avoid taxation.
Taxing capital gains amounts to double taxation: corporate earnings are taxed once before they reach individual shareholders, only to be taxed a second time.
John, Duncan and Dwight say that rather than hiking capital gains taxes, the federal government should be prioritizing policies that foster investment, entrepreneurship and economic growth.
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