(Image Credit: KMR Photography at flickr.com; the image is at this link. Used without modification under Creative Commons Licence)
Many people are agonizing over the prospect of young workers paying for the healthcare of boomers. But a taxpayer-funded healthcare system is essentially a Ponzi scheme – and with its monopoly in Canada, there is no way out.
Over the past couple of weeks, a debate has emerged on Twitter as to the disparity between the economic prospects and prosperity that was enjoyed by previous generations and its bleak prospect for the young generation of today. This debate has largely focused on two aspects: (1) the appreciation in the value of boomers’ primary residences and (2) the higher cost of healthcare that they are likely to need henceforth. The various arguments on these two aspects can be boiled down to: (a) the monetary gain resulting from the appreciation in the value of their homes is unearned and therefore undeserved, and (2) the high (and rising) cost of their healthcare needs in the future would be an unfair burden on a younger generation that is at the same time being deprived of the prospect of home ownership that the boomers were able to enjoy. The proposed ‘solution’ to this disparity is to either tax the capital gains on the sale of primary residence (which would fall more heavily on boomers) or to make boomers pay for their healthcare. It is unclear to me as to how it would be possible to force a specific age demographic to pay for healthcare while exempting others without violating the former group’s Charter Rights.
An especially intriguing point about this debate is that it is coming from people who are otherwise associated with or lean towards the Conservative side of Canadian politics. In theory, this side is supposed to be averse to taxes (especially new taxes) and the monopoly of publicly funded healthcare. What could possibly explain them not just endorsing but in fact promulgating this idea?
The proposal to either levy a new tax (the amount would be significant for anyone) or, in the alternative, force a specific group of people to pay for their healthcare out of their pockets in violation of our ‘universal’ model may be an unprecedented experience for most of us (if not all). But as someone who was born and grew up in a country that had been colonized by a foreign power, I have a cultural memory which tells me this is how a party that is the dominant one in a political relationship behaves: Once the other party has carried out its obligations under the agreement, the dominant party suddenly realizes that there are ‘newly emerged exigencies’ or ‘previously unforeseen factors’ that require it to withhold from fulfilling its part of the bargain. A great deal of the colonizers’ success stemmed from this practice, and from my limited study of the history of Canada, it was no different here with the Indigenous people that it was with the people of India. In other words, the ideological divide in politics has nothing to do with it – this tendency cuts right to the heart of human nature.
What makes this even more intriguing is that over the last year or so, reports have emerged periodically (and shunted off the public arena with dispatch) that the Trudeau government has been toying with the idea of levying capital gains tax on primary residence, at which point the Conservative side launched vocal protests. The main argument of the protesters was that equity in a primary residence was a major – if not the only – component in the retirement planning of many seniors and those who would become seniors soon. Introducing a tax of this kind was considered a serious violation of an agreed arrangement, and this violation would leave a lot of people in a financially vulnerable position. Each time, the Liberal side either denied the reports or tried to play them down.
GOOD COP – BAD COP
This brings us to the crux of politics. For all the ideological disagreement on display, the overriding desire for both (or all) the parties is to extract as much of the citizens’ economic output, for as little being given in return, as possible. In a recent Twitter conversation, I mentioned to someone that the dichotomy of Liberal and Conservative (or the Left and the Right, more broadly) is false. The true dichotomy in this regard consists of those who are close to the nucleus of political power on one hand and those who are away from that nucleus on the other hand. I would like to modify this statement, because one’s proximity to – or distance from – political power is a continuum, whereas the word ‘dichotomy’ implies two discrete points unconnected to each other.
This congruity of objectives is the reason why you find that an opposition party railing about a new policy of a governing party rarely reverses that policy when it forms government. A stark example of this (at least for me, and I suppose a lot of Ontarians) is the so-called ‘health premium’ that was brought in by the Liberal Premier Dalton McGuinty following his electoral victory in 2003, in a blatant violation of his categorical election promise of ‘no new taxes’. As an aside, it is worth mentioning that in principle, any insurance premium is supposed to be based on the likelihood of the insured person making a claim for losses / damage suffered, but under the health ‘insurance’ policy of Ontario, the premium depends on the person’s income. In other words, the ‘premium’ does not derive from the assessment of risk, but rather on how much they are able to pay – which can also be termed as ‘how much the State thinks it can finagle’. Regardless of the amount of ‘premium’ paid, Ontarians have equal eligibility to access the healthcare system. This brings to mind the communist adage, “From everyone according to ability, and to everyone according to need”. In a nutshell, therefore, Ontario’s ‘health premium’ is a case of communist policy in a democratic country.
Coming back to the point, notwithstanding all the fiery speeches and rabble-rousing from Ontario Conservatives at the time Premier McGuinty introduced this new tax in the disguise of a ‘health premium’, the current Conservative government hasn’t so much as emitted a squeak about getting rid of it, even though they have been in power for over four & a half years. Their ‘opposition’ to it at the time was merely a requirement of the time – and of their status as the opposition party. When their turn came to govern, they have developed a very strong affinity to the revenues generated by this tax-in-disguise.
TWO TO TANGO
I suspect that something similar is happening with the idea of taxing capital gains on primary residence. The two sides will take turns at proposing, denying and vociferously opposing it, all the while taking us to a point where a lot of people (perhaps the majority, or at least a decisive minority) are either on-board with or resigned to the idea being turned into official policy. This is not to imply any mala fide intent on anyone; the need for additional ‘revenue tools’ is very real (at least, as viewed from inside the bubble of politics). As I showed in my article ‘Immigration Does NOT Increase Prosperity’, real (= inflation-adjusted) growth in per capita GDP had all but come to a halt by 2021. On the other side, an aging population is increasing the demands on the healthcare system AND there is no political will to address the megatons of waste that is now a structural part of the government monopoly on healthcare.
So, we have on our hands people’s inability to shell out more money to fund the system precisely at the time when the needs of the system are rising – and are likely to skyrocket over the next decade or so. But this inability is only in relation to their incomes. The logical answer, the way out of the dilemma (from the political standpoint) is to now extract additional funds from the accumulated wealth of Canadians. Extracting as much value of this wealth as possible without losing power becomes a bipartisan objective of the political class. Once we understand this, we can understand why the proposal is coming from unexpected quarters – the problem was with our expectation.
BREACH OF CONTRACT
When Premier McGuinty went back on his word regarding ‘no new taxes’, he was breaking a contract – albeit, an unwritten one. However, that contract had existed for a short duration before it was breached. When it comes to the ‘either pay capital gains on your primary residence or pay for your healthcare’ proposal, it runs counter to an unwritten contract that has stood for a couple of generations. I tried to argue this point on Twitter, but due to the limitations of that platform, I was unable to do that to my satisfaction.
When we instituted our ‘universal’ healthcare system, the basic understanding was that by paying into that system via their taxes, Canadians would be eligible to access the system, equally, as & when the need arose. They would not be asked to pay extra at the time of accessing it. However, it should have been clear (or maybe we are benefiting from hindsight after 50 years) that we were essentially creating a Ponzi system. Given that older people need more frequent medical care, and more expensive medical care, the rising longevity and the resulting aging of the population in Canada was always going to mean that ever-younger workers were going to be funding the healthcare of ever-older Canadians. For a time, we tried to fill this widening gap via immigration, but as the law of diminishing marginal returns (one of the fundamental realities of life) brought us to the point where these marginal returns are basically zero, the Ponzi nature of our healthcare system can no longer be concealed. No amount of new immigrants will suffice to provide adequately for the healthcare needs of the Canadian population. At least, not from their incomes.
CULTURE OF ENVY
Let us now consider the contention that since boomers have benefited from increase in the value of their property courtesy of the government policy of monetary expansion, that they should be made to pay capital gains tax when they cash in this value. I consider this to be a fallacious argument, because it looks at one single policy, and one single group of beneficiaries, in isolation. For example, who else benefited from the monetary expansion? And why aren’t we talking about levying extra tax on them? It is possible to make a list of these entities: banks, financial institutions, insurance companies, builders, people who sold their land to the builders and so on, all the way down to renovators and handymen.
Then there is another piece of government policy that plays a major part here, viz., the policy on immigration. Absent an immigration policy with aggressive quotas, the population of Canada would have declined (you knew this already). As a result, the upward pressure on housing prices that we see today exists solely due to this policy on immigration. Without those aggressive numbers, I contend that the property prices would (or could) actually decline.
But who else has benefited from the aggressive policy on immigration? Let’s talk about large retailers, shall we? Corporations ranging from Loblaw’s and Walmart to Staples and the Brick, all the way down to Tim Horton’s and McDonalds would be on my list. Without the increased population (via immigration ONLY), their fortunes would have been a fraction of what they are today. Is anyone proposing to levy additional tax on them because they benefited financially from a government policy? If not, then why not?
The answer is simple, and in two parts: (a) it is infinitely harder to quantify the gains via government policy that these large corporations made over the past 5 decades, and (b) more importantly, these corporations are closer to the nucleus of political power. It is a lot easier to shaft an individual Canadian, especially one who is advanced in age and in frail health, than it is to upset powerful people who have the wherewithal to ensure that any such attempt signals career-suicide for the politician suggesting it.
Let’s extend this logic further: if a government policy on encouraging ‘renewable’ energy creates a boom in the windmills manufacturing / installing industry, should that industry be made to pay extra tax? I am confident that the suggestion would be dismissed out of hand by the proponents of capital gains tax on primary residence – partly because the ‘climate crusader’ demographic is also very close to the nucleus of political power, and hence one dare not upset them.
Therefore, I am of the opinion that the proposal for this capital gains tax comes encased in envy because then, it is likely to find buyers. Whether one likes it or not, the social atmosphere in Canada includes, to a large degree, the element of envy for the better off, often disguised in terms such as ‘Tax the rich’ or ‘Fair share of taxes’. This envy is also starkly visible in the dogmatic belief that preventing people from accessing healthcare using their own funds, even when the system that they paid into all their lives has failed them, is justified in the interest of ‘fundamental justice’. Paradoxically, the same people who hold this dogmatic belief have no problem agreeing with the idea that boomers should be made to pay when they need to access the healthcare system. This is a case of ‘greater envy’ prevailing; their envy at other people being able to afford to pay for private healthcare is overridden by their envy at those people cashing in the very large value of their homes.
SHARP TURN AHEAD
It is a daily experience for me to see, with chagrin, Canadians who have convinced themselves that one political party is ‘their side’ – which also makes them irreconcilable with the ‘other side’. The reality is that for all the jousting between these ‘sides’, the objective for having this duel is to prepare the audience for a pre-determined outcome on which the duelers have agreed in advance. The only undecided part is regarding the nuts-and-bolts of the policy; the broader contours are pre-established. The longer the people bicker about these details and minutiae among themselves, the more the idea of the broader policy keeps getting embedded in their subconscious.
Therefore, I consider it likely that either capital gains on primary residence or a requirement that the elderly need to pay for healthcare (or a combination of the two) will become official policy at some point. One likely variation could be a tax on ‘assets’ (meaning they won’t have to wait for you to sell your primary residence before they can finagle the tax from you), sort of like a wealth tax. This would give them ‘plausible deniability’ against a charge of having brought in capital gains on primary residence. Here, I must mention India’s experience with wealth tax – they tried it for over 4 decades and then abandoned it as being useless. But perhaps it might work differently in Canada. Let me rephrase that: If it works for the government, it will work against you.
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