Capital Gains Tax Case Study

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Purpose: The purpose of this briefing note is to provide the finance minister, Bill Morneau, with insight on the merits of an increase, from 50% to 100%, in the tax on capital gains.
Statement of the Issue:
The federal government is currently running a large budget deficit. “By the end of the current fiscal year, the country will be almost $31 billion in the red…$1.3 billion beyond the $29.4 billion deficit [] forecasted in the March 2016 budget” (Minsky, 2016).
Prime Minister Trudeau has, instead, expressed the government's intentions to decrease the debt-to-GDP ratio, a reflection of the government's ability to pay back its debt:“we will continue to
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A higher tax rate on capital gains will likely generate the extra revenue required by the government. This action will, however, adversely affect the Canadian economy by discouraging innovation and investment in new technologies. “At a time when both the rate of business start-ups and the expectations for long-term economic growth are declining in Canada, increasing the capital gains tax is exactly the opposite of what the government should be contemplating” (Clemens & Veldhuis, 2017).
An alternative course of action involves decreasing the capital gains tax to encourage investment and stimulate the economy. Higher levels of economic growth will, eventually, generate the increased revenue required by the government. Needless-to-say, this method work is more of a long-run solution and may be undesirable for a government that requires immediate revenue.
In summary, an increase in the capital gains tax is unadvisable. It is important to recognize that “a lower, more competitive capital gains tax rate [is] is essential to attracting and retaining both investment and entrepreneurs” (Clemens & Veldhuis,
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(2016, October 13). This year's deficit could be as high as $34 billion, or $16 billion higher than expected: TD Bank. Retrieved March 12, 2017, from
Lammam , C., & Eisen, B. (2016, March 28). Don't blame the economy for Trudeau's deep deficits. Retrieved March 12, 2017, from
Minsky, A. (2016, November 14). Deeper deficits, no sign of balanced budgets in economic forecast. Retrieved March 15, 2017, from
Mitchell, D. J. (2014, November 07). The Overwhelming Case Against Capital Gains Taxation. Retrieved March 12, 2017, from
Tencer, D. (2016, October 13). Deficits To Be Larger Than What Liberals Advertised: TD Bank. Retrieved March 12, 2017, from
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