Inside the Campaign to Kill a Step Toward Tax Fairness

It’s been almost two months since the federal budget, and anguished cries about the horror of capital gains tax changes are still coming.

Other measures in the $535-billion budget are forgotten. But a change that would increase taxes on a small number of mostly very well-off people is still in the news.

The capital gains tax debate is the latest front in the battle to keep taxes low — especially taxes on the wealthy, who have the greatest ability to wage public and political campaigns to protect their interests.

This demonstrates, again, one of the reasons we can’t have nice things such as a comprehensive health-care system or an effective climate response.

And how decades of anti-tax rhetoric — from politicians, interest groups and lobbyists, often amplified by media — have made it almost impossible to have a rational debate on a topic that’s critical to society.

The budget failed to do much to increase tax fairness. But it took one notable step by increasing capital gains taxes. Those are paid when someone — or some company — sells assets that have increased in value since they bought them.

If your childhood collection of hockey cards happens to include a mint Gretzky rookie card, valued at some $3 million, and you sell it, you’ll pay more tax on the profits. If you’re lucky enough to have a cottage and you decide it’s time to sell, you’ll be taxed on more of the gain.

The change is significant, and long overdue. Formerly, individuals had to include 50 per cent of capital gains on their tax returns. The budget increased that to 66.7 per cent on gains over $250,000. (The capital gains tax does not apply to the sale of your principal residence.)

So if you bought $500,000 worth of shares in the Misplaced Trust Co. and sold them for $1 million, before the change you would have declared $250,000 in income and paid tax on that amount. Now you’ll declare $292,000.*

That change does not seem punitive — especially as most of us do not make $250,000 in capital gains in a year.

The federal budget documents say about one in 1,000 individual tax filers will be affected by the change, and the average income of those tax filers is $1.4 million.

This isn’t an attack on mom-and-pop investors.

And yet, the campaigns against the change have been unrelenting and creative.

Among the latest was a Canadian Medical Association poll. Doctors are effective in fighting to protect their interests. And their association decided a poll showing that the tax change would hurt health care would sway politicians.

So the CMA hired pollster Abacus Data, did a survey and put out a release that said 60 per cent of Canadians believe the tax changes would hurt health care.

But that’s not really true. When Abacus first asked people about the capital gains tax measure, 58 per cent of those with an opinion thought it was a good or OK change. Only 42 per cent were opposed.

Not the result the CMA wanted.

“Respondents were then informed about the CMA’s position and concern about the impacts to physicians and health care,” Abacus notes.

Once coached, the respondents changed their minds and decided the capital gains tax would be bad for health care. (These are called “push polls,” ones that steer people toward a response.)

The poll was rightly ignored by most media. But Yahoo Canada bit and published a credulous story headlined “Majority of Canadians Say Capital Gains Tax Changes Will Make Healthcare Worse: Survey.” The mysterious algorithms of Google News amplified the message.

It’s true. The change will affect the retirement income of some doctors, who will pay more tax on their successful investments.

But it will not drive people out of medicine or hurt health care. About 2,800 people applied for 306 spots in the University of British Columbia’s medical school last year. Applicants aren’t going to choose a new career path because of a tax change.

And doctors have already benefited from tax measures that let them avoid taxes most of us pay.

The point isn’t that the CMA or doctors or other opponents of the change are bad. They are acting out of self-interest.

But the entire process shows how any discussion is skewed by the people with the most at stake — and the money and connections to take their case to the public in a bid to pressure the government. And how easily they can distort the discussion for their own ends.

Their task is made easier because interest groups don’t have to offer an alternative and can just snipe at proposals that they dislike. The capital gains change is expected to bring in more than $19 billion over the next five years. Anti-tax groups don’t need to explain where that money should come from, or what services should be cut if the tax is axed.

The Liberal government appears to be sticking with the tax despite the pressure, a decision to be applauded.

But the process is a warning about the powerful forces that will battle any move to increase tax fairness, if it means the rich will pay more.

* Story updated on June 7 at 3:51 p.m. to correct the calculations of how income is taxed on capital gains.