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Top earners are tops in taxes, too

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CALGARY -- About five years ago I became acquainted with a retired fellow by the name of Jim Tocher. Then in his eighties, Bolden B.C.-born Tocher was a classic Canadian success story.

After university in Vancouver, Tocher worked for several energy firms in the 1950s and 1960s before going it alone and starting his own Calgary-based companies in the 1970s. He founded several energy and resource companies over the decades. He created his last one, Petrobank Energy and Resources Ltd., at age 66.

During one of the last times we chatted, Tocher relayed his proudest career moment. At a company Christmas party some years earlier, he gazed around the room and realized that everyone present, about 100 employees, had been able to carve out a career, buy homes, and pay the associated bills of life because of the company he created from scratch.

Jim Tocher died in 2009 but I relay his personal history because of the recent headlines that some Canadian executives earn in a few days or weeks what the rest of us might earn in a year or longer. In assessing those stories, it is critical to remember one fact: risk-taking entrepreneurs are not a burden but a key part of a civilized, opportunity-based, and prosperous country.

(A useful caveat: this doesn't mean every CEO is worth his or her salary, but it is impossible to definitively peg the "correct" salary for such positions from the outside or in advance.)

For example, some may balk at the $3-million pay package (and potentially tens of millions more in share compensation) for the new Blackberry CEO, John Chen. If Chen turns Blackberry around and its shares appreciate to $20 from $9, however, that's an extra $5.8 billion in shareholder value. At that point, shareholders, and the company's remaining employees who avoided a Nortel-like fate, may think such executive pay worthwhile.

Shareholders, owners of the companies that they are, should indeed demand accountability from boards and performance from company executives on CEO compensation. But in a free society where governments don't get to set wages, such actions are properly left up to shareholders, boards, and executives to fight it out.

More broadly, in deliberations over high-income earners, there is also another point to consider: the amount of tax paid by the now-clichéd "one per cent," the top one per cent of income earners.

The Canada Revenue Agency recently released tax statistics from the 2011 tax year and here are some results from my number-crunching.

Of the 25.1 million tax filers, 8.4 million people paid no income tax at all as their incomes (after deductions) fell below the taxable threshold. It doesn't make sense to tax the poor in that cohort, of course. It does mean all income tax was paid by the other 16.7 million.

Now let's break that down. Anyone who reported income of more than $250,000 in 2011 belonged to the one per cent of all income earners (actually, the top 0.8 per cent, but for the sake of simplicity let's round up). That group garnered 10 per cent of all declared income.

That sounds awfully "greedy" to some -- one per cent of the tax filers with 10 per cent of the income -- until you see how much of the overall tax burden they shoulder. The top one per cent (203,010 people) paid 20 per cent of federal and provincial incomes taxes, or $32.6 billion in taxes.

Expanding the analysis, the top 6.6 per cent of income earners in 2011 (those with incomes of $100,000 or above) garnered 29 per cent of the income but paid 47 per cent of all federal and provincial income taxes, or $77 billion of the $161.4 billion collected.

Those who love class warfare and complain about high-income earners should be reminded of two critical facts. First, tax proceeds from that latter cohort help finance almost half the bills for everything from schools to health care to public transit and national defence. It is thus unwise to dampen such beneficial wealth creation as it even creates a gusher of tax revenues.

Second, as my late friend Jim Tocher reminisced, the successful entrepreneurs among that group also help create opportunities for others. In life, that's what's called a "win-win."

 

Mark Milke is a senior fellow at the Fraser Institute, and author of Tax Me I'm Canadian -- A Taxpayer's Guide to Your Money and How Politicians Spend It, published by Thomas & Black.


--troymedia.com

Republished from the Winnipeg Free Press print edition January 15, 2014 A9

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