Posted by Tim Stobbs on September 22, 2015
Okay, are you sick of this never ending federal election campaign in Canada? Goodness knows I am already. Yet perhaps the single thing that is pissing me off the most during this campaign is the idea of ‘let’s blame the rich’ theme. Or really more actually I’m not terribly impressed that a few of the proposals out there are to roll back the latest TFSA limit increase since ‘only the rich can use them’.
I okay with general idea of fairness. After all no one likes to be screwed over in life and it does make entirely sense to me to have progress tax brackets that increase as income goes up. After all if I am earning more I can easily pay a bit more to help out those that don’t earn much. I don’t consider that unfair, but rather practical.
Yet rolling back the TFSA limit increase because only the rich can use is a damn crappy reason. Um, news flash people…those how have built business, got high paying jobs and actually save some money to get rich…the system wasn’t fair to begin with.
For example, RRSP contributions are based on last years income up to 18% (to a given maximum), so the reality is that is actually worse for lower income people. Since the more you earn beyond perhaps $40,000 a year it gets easier to save that amount. Meanwhile the TFSA limit is equally to everyone over 18. Even when it means the lower income people can potentially save a MUCH higher percentage of their income as compared to a person making $100,000/year. Case in point the $10,000 limit of $40,000 is 25% of their income, which is WAY higher than the RRSP percentage. Yet for the $100,000 income person the $10,000 TFSA limit is only 10%.
Then when we get to investment gains those that save also get some extra breaks, capital gains are only taxed at half of your marginal tax rate and Canadian dividends also benefit from a significant tax break. The dividends are such a good break that if you earn less than $44,000/year they actually end up being tax free.
The system is built around encouraging people to save and invest, so those that do are rewarded by paying less tax. Fairly simple right? Yet it amazes me that people want to blame the rich. Did you ever consider the fact the ‘rich’ may have started off just like you but rather than spend their money they decided to save it instead. They learned a bit about investing and made ever more money. It was often a hard long road, but after a number of years and the miracle of compound interest they are doing well.
Compared to those at my age and savings I’m likely considered rich or top 20% at least. Yet the money just didn’t appear in my accounts in a puff of smoke…I got a degree and then a good job. Then I saved for a decade straight likely spending less money than you did last year…that is why I have a net worth of over $750,000. So go ahead and take away the TFSA limit increase for all I care…just stop blaming me for your problems and perhaps start to save something yourself.