"Little people" need not apply for Capital Gains tax cut

Zero tax on capital gains would leave average Canadians paying more than their bosses at tax time

Analyze this, with Richard Shillington

  "We don't pay taxes. Only little people pay taxes." If proposed tax cuts on Capital Gains are implemented, this statement by Leona Helmsley - the infamous New York hotelier and tax evader - may soon be accurate, and average Canadians could end up paying more in taxes than the wealthiest few.
  In an effort to impress Bay Street, several political camps are falling all over themselves to be elected saviour of Capital Gains earners. First the federal government proposed decreasing the inclusion rate - that portion of Capital Gains that is included in taxable income - from the current 75% to 66%. Not to be outdone, Ontario wants the inclusion rate dropped to 50%. These gifts to the richest 2% of Canadians pale in comparison to the federal Tories' most recent offering (seconded by the Fraser Institute) - no tax on Capital Gains at all.
  The table below shows that Capital Gains are highly concentrated at higher incomes. This makes sense given that most Capital Gains come from making a profit on things like stocks and real estate. In 1996, total Capital Gains were about $13 billion (because of the inclusion rate, however, only about $10 B showed up tax forms). The 2% of taxpayers with incomes over $100,000 received about 2/3rds of all Capital Gains. Those 0.4% of taxpayers with incomes over $250,000 received about 40% of all Capital Gains - the average was $180,000.
  While only 7% of tax filers have a Capital Gain, this varies by income; 3% of typical taxpayers at a $30,000 income; 25% for those with incomes between $80,000 and $100,000 and more than 55% for those with incomes over $250,000.

Analysis of 1996 Tax Returns
Income in thousands ($)	Number of Taxfilers (000's)	With Capital Gains
		Number (000's)	Percent of Taxfilers	Average Capital Gain* ($)	Average Capital Gain+ ($)
Under 10	5,673	182	3%	1,351	43
10-20	5,230	227	4%	1,798	78
20-30	3,311	222	7%	2,377	159
30-40	2,470	204	8%	2,929	242
40-50	1,590	167	10%	3,522	369
50-60	1,018	139	14%	4,543	623
60-80	900	161	18%	5,896	1,056
80-100	277	69	25%	10,842	2,687
100-150	192	65	34%	20,577	6,970
150-250	91	39	42%	46,723	19,786
250+	53	29	55%	180,255	99,047
Total	20,806	1,504	7%	$ 8,716	$ 630
* average for those with a Capital Gain + average for all taxfilers in the income bracket Source:www.ccra-adrc.gc.ca/tax/individuals/stats/gb96/pts/pts96/t2v-ca.htm

  The value of the various proposed cuts for Capital Gains is presented in the next table. For the average taxpayer it's not much - at most a couple hundred dollars - as most taxpayers don't have Capital Gains. But for higher income taxpayers the benefits are in the tens of thousands of dollars.
  For the wealthiest taxpayers, those with incomes over $250,000, the planned federal move would reduce taxes by an average of $4,000. The Ontario government proposal for a 50% inclusion rate reduces taxes by $11,000. The federal Conservative/Fraser Institute proposal to exempt Capital Gains from tax is worth about $32,000. These figures are per taxpayer in each income group, including those without Capital Gains income. For those with Capital Gains the values are just about double.

Value of the Capital Gains Tax Cut to Average Taxfilers*
Income in thousands ($)	Inclusion Rate from 75% to 66% ($)	Inclusion Rate from 75% to 50% ($)	No Taxation of Capital Gains ($)
Under 10	0	0	0
10-20	2	5	15
20-30	4	10	30
30-40	9	24	73
40-50	13	37	112
50-60	23	63	189
60-80	41	115	345
80-100	105	292	877
100-150	273	758	2,274
150-250	775	2,152	6,455
250+	3,878	10,771	32,314
Overall Average	$ 23	$ 65	$ 194
* This is the average for all taxfilers in each income group. The average for those in the income group with Capital Gain income would be much higher in high-income groups. - Analysis assumes that the tax cut would apply to both federal and provincial taxes.

  Media coverage of these proposals is particularly interesting. The National Post considered the federal Tory proposal a 'bold move':

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