Capping Net Worths

Welcome back to Middle Ground; today’s issue will discuss capping net worths for the top 0.1%

Why should we consider limiting net worth?

Over the past 35 years, the distribution of wealth throughout Western societies has significantly changed. While historical figures for Canada are not readily available, in the United States, based on the Federal Reserve’s numbers, in 1989, the top 0.1% owned 8.6% of all household wealth; today, the top 0.1% owns 13.8% of household wealth.

The modern figures in Canada are similar. The top 0.1% own approximately 12.5% of household wealth, while the bottom 40% own just 2.8%.

This extreme inequality is both morally unjustifiable and socially harmful. Furthermore, as the wealth held by the few is used to exert political power, the stability of our democracy is threatened, with policies being shaped to favour the few over the majority. This increases economic and social injustice, making it harder for the less wealthy to accumulate wealth and improve their quality of life. 

Introducing a cap on net worth could improve society's fairness. It would give more people a chance to live comfortable upper-middle-class lifestyles and ensure a balance of resources throughout society.

How can we fix this?

Numerous suggestions have been made regarding a wealth tax, an unrealized capital gains tax, and other ways to decrease income inequality. However, these proposals remove financial motivations for entrepreneurship and actively interfere with business operations by forcing those owning fast-growing businesses to sell shares.

My policy suggestion is to start by capping the cumulative net worth of the top 0.1% at 7.5% of the country’s net worth. This means that today, the top 40,000 people in Canada cannot own more than 1.3 trillion combined. 

This policy is flexible, as the wealth these individuals can hold will increase as the country's wealth grows. The number of people in this group will also fluctuate with population changes.

To enforce this cap, all Canadians must provide their net worth as part of their annual taxes. If the top 0.1% has more than 7.5%, then everyone in that group would proportionally pay an additional tax to the government. This payment must be made in cash, with an exemption for entrepreneurs with 90% or more of their net worth in the stock of a company they founded. In that case, they can pay by transferring stock while retaining the voting rights/control associated with those shares. This means that although the government would own a percentage of the company, the founder would still maintain control of the business and its operations. The government also couldn’t sell that stock until the founder sold 80% or more of their shares. This exemption ensures that this policy won't impact an active company’s operations by forcing founders to sell their shares and giving investors control. 

What is the impact of the policy?

If we implemented this policy today, the Canadian government would receive $850B in taxes next year as the top 0.1% reduced their share of household wealth from 12.5% to 7.5%. This would be sufficient to fund numerous major infrastructure projects nationwide to build housing, reduce congestion, improve healthcare and more. The result of that spending should be a significant increase in household wealth over the coming years, allowing everyone (including the top 0.1%) to increase their household wealth. 

If you learned anything from this newsletter, forward it to one person who would benefit from these insights.

Liam Gill