That Got Hot Fast: 1. Privilege and Taxes

Whew. For business owners uncomfortable with heated conversations with family and friends, this has likely been an excruciating past few weeks.

I’ve got thick skin, but its not teflon. Being called names hurts. Being told I’m too emotional, hysterical or ridiculous makes me mad as hell. Social media likes are important but not seeing the like is so much worse. WHAT DOES IT MEAN? Did they not see it? Do they disagree? Have I lost a friend or customer?

I’ve always recognized the difference between a debate and a fight. I welcome a debate. I’m even ok if debates get loud. Hyperbol is welcome, as long as we’re ok being called on it. Debates are important — especially in today’s society. Debates allow for an exchange of ideas. The expose us to differing view points. They sharpen our ability to communicate and influence. But there’s one critical part of debating — you have to listen. Ideally, you’re open to the idea that new information might impact your position. I want this to be a debate, not a fight, friends.

In the past week I’ve had some great and useful conversations on the topic of taxes and a few that were not only a waste of time but a little painful. I’ve gotten hot and then cooled down. I’ve wrestled with ideas. I’ve been frustrated and a little dismissive. I’ve questioned my own thinking. Following all that noise — I do have some follow on thoughts based on the conversations I had and further research I’ve done. These thoughts can be grouped into four themes. I’m sorta long winded (is there a such a word as hypobol — as in the opposite of hyperbol ? If so, the word “sorta” made that sentence hypobol) Therefore, for the sake of the reader who has better things to do I’m going to break these themes up into four different blog posts. (Yes. Really)

1. Checking our privilege.
2. Semantics
3. Trust
4. Mutual Ground

Checking our Privilege.

I know I have buckets of privilege. Since you’re reading a blog post on taxes, I’m betting you do. Most of us carry some privilege. So we’re all singing from the same book, let’s define privilege.

Privilege is a special right, advantage, or immunity granted or available only to a particular person or group of people — even if they didn’t ask for it or earn it.

I’m white. I’m grew up undeniably middle class. That middle class upbringing in a healthy and happy home enabled me to become educated. This education (along with other privilege I carry) has enabled me to make more than the median salary in this country. I’m married. I’m able-bodied….and so on. What does this have to do with what I’m writing about? All of that privilege contributed to my husband and I owning a business and therefore having any interest in this topic at all.

There’s been a lot of resentment towards business owners because of their privledge. Lots of folks think we should just shut up and pay up. Many had the same reaction when New Brunswick University graduates protested the cut to their tuition tax rebate 2 years ago. Entitled was thrown around a lot. Greedy was also used.

It’s tough to be called greedy. Its tough to be told to check your privilege. But as author Sam Dylan Finch writes “ When someone asks you to “check your privilege,” what they’re really asking you to do is to reflect on the ways that your social status might have given you an advantage — even if you didn’t ask for it or earn it — while their social status might have given them a disadvantage”

Fair.

Folks. I have gone away and reflected. A lot. I know that my privilege has 100% contributed to where I sit today. I know people I grew up with, people I pass in the street, people in my community did not and do not have the same advantages of me and it is of no fault of their own. There are people in my community really hurting. Their lives are not happy. They don’t feel safe. They are hungry and cold at times. My complaining about paying more tax feels shitty to them. My words hurt them.

We need to ask what we can do to make this better. We need to talk to families living in poverty. We need to listen and hear and understand. Then we need to actually do some shit. We need to find some funds to invest in programs that will improve their chances of climbing out of poverty.

“Amen sister — now pay up”

Hold on. For the new reader — I’m a full time employee and I already pay a good chunk of my income in income tax. (I’m not going to say how much because it still feels icky to talk about money — something we should unpack in a later piece). I will pay more and I’m a-ok with that. We’re all going to pay more to turn this ship around. In a later piece on mutual ground I’m going to address some tax ideas and revenue generation ideas I have.

I just don’t think the government has solved the problem with these proposed changes. I really don’t. And no, I know this smells like it but this isn’t just a NIMBY situation. These proposed tax changes need work. They estimate that the income sprinkling provision, one I have a real problem with will only generate $250 Million in revenue for the country. That seems like a BANK to you and I, but the reality is it will maybe pay the deferred maintenance cost on a few bridges.

WE HAVE TO START SOMEWHERE LINDSAY!!

Seriously. I know. I’m going to present some ideas when I talk Mutual Ground. Just hear me out. Here’s what I will say now. These funds won’t stop the growing divide between rich and poor but they do contribute to the undervaluing of women’s work in this country (both theoretically and financially).

It would be easier to stay silent during this consultation period. To think, no one wants to hear from the upper middle class white lady who’s annoyed her husband will get more tax breaks then she will. I think about that everyday. I edit my life according to that thought. I really struggled with how or even if I could use my privilege to contribute something meaningful and helpful to this conversation.

I now think there is something I can say.

I’m worried that spouses (the majority are wives) who invest in their family corporations will be unfairly disadvantaged because of these proposed tax changes. I am convinced that the contribution of women is being discounted entirely in this discussion.

I admit and own the fact that I am guilty of discounting the labor of women in the past. I did that. I’m sorry for these shitty things I thought and even said about spouses that receive dividends from family private corporations. I was an asshole actually. But, when you know better you do (and say)better.

Here’s the thing for me -lots of people in society make passive income. Hell, there’s whole text books on how to do it. We applaud it. Lots of folks invest in companies, take their shares and walk away, never actively contributing to that company. We count their money as their contribution. They pay taxes on the growth of that money proportionate to their income (unless of course they invest through a TFSA, but we’ll get to that in a later post). Spouses have invested in corporations run by their spouse for years. Now they’re going to be taxed at the highest marginal tax rate because of their marital status.

I have two examples to illustrate why this is unfair. The first is the potentially less contentious one. Many spouses(like me) provided their own cash to the company. Some did this through an informed decision making process and some (and they’re the ones I’m really worried about) were not informed. Some wives (and husbands…I know…but they’re a minority) were told to trust their spouse. Were told the money they’d earned, or inherited was critical to their family’s future. Were told to “sign here”. Were told that they needed to invest it in their husband’s company. They were given papers they didn’t understand. They didn’t want to admit they didn’t understand. They didn’t want to question their spouse. They felt they couldn’t. Their accountant and financial advisers were buddies of their husband. They got no independent advice. They didn’t have money to pay for independent advise. They didn’t know independent advise was a thing! They didn’t have time to go talk to the Banker. They had three kids to look after. They tried to have a real conversation with the accountant but the after the accountant politely asked them how the kids were the accountant spent the rest of the meeting talking directly to the husband. They were told not to worry. So they handed over their inheritance, or their savings, and now our government is proposing that any income earned on that investment should automatically be taxed at 43.6%.

Very reasonable acquaintances of mine have shrugged when I asked them if that was ok. When I asked how that was possibly fair — they said “well, everyone knows business owners are just avoiding taxes by giving money to their wife”.

Let’s be VERY clear. In this example — she invested in the company with her own money. When that investment grows and she gets a dividend, nothing is
“being given to her”. She earned that. The same way you earn passive income. But she will pay more in taxes than she would if she had invested in a stranger’s company. I can’t reconcile that.

The other example is even easier for acquaintances to smirk at. Let’s say the wife doesn’t actually contribute cash, but invests in the company by providing child care, and managing the families’ lives (no small task) so that the husband can spend more hours at the company, building the company, investing in the company. If she wasn’t there, he would either incur costs to do that, or take time away from the business, jeopardizing its growth, to provide those same services.

Let’s take a plumber for example. He incorporated a company to protect his family from liabilities. (not tax liabilities, litigation liabilities). This company offers 24 hour house calls. These middle of the night calls are a lot more lucrative than day time calls because the company can charge double (because let’s get real — we will pay anything when shit is literally overflowing at your house). They can only offer this lucrative service that will contribute to the financial success of their company because the wife is home to stay with their two children while he goes on these middle of the night calls. But to our government, and to the many of the folks I’ve talked to, the contribution she’s making won’t count as active participation in the company and any return on that investment she makes will be taxed at the highest marginal tax rate. Potentially higher than her husband’s.

Truth time. The proposed tax change which has been titled “income sprinking” (a term I despise — see my last piece) won’t impact me right now. Our company won’t dividend out any money to me this year…and probably not next year either. (You’ve got to generate profit to dividend). But just because it doesn’t impact me, doesn’t mean it doesn’t bother me. I know there are a lot of women who don’t feel they can voice their concerns about this.

1. They know society doesn’t value the work of care givers. (Sure…we “appreciate it” but we’re sure as hell not valuing it)
2. Their gut tells them “no one wants to hear the stay at home wife complain about paying more tax on her dividends”.
3. They don’t want to be called hysterical, greedy or entitled.

Solution: How about changing the proposed legislation so that it only applies to minors. I’m not entirely comfortable with infants and minors being shareholders of a corporation anyway. (Minors certainly aren’t informed and we could debate as to whether its appropriate to expose minors to the risks of being a shareholder of a corporation.)

If we narrowed the proposed change so it only impacts minors, spouses can continue to pay taxes on their dividends proportional to their income (like the rest of us) and they will be able to use their capital gains exemption when the business is sold.

Why are so many people mad that spouses get a dividend from a company they invest in? What’s behind that?

“THEY DON’T WORK LINDSAY — WHY SHOULD THEY GET MONEY THEY DON’T EARN AND IN TURN LOWER THE FAMILY’S TAXES”.

Easy champ. Who are you to say they don’t work, one?. And two, do you invest money? Do you have mutual funds? Do you have RRSPs? TFSAs? Are you growing income tax free? Do you work for those companies?

I’m not asking that they get to realize the growth of their investment tax free (like you do with your TFSA growth). I’m only asking that they pay tax proportional to their overall income, just like employees, instead of, the 43.6% that the government has proposed.

And finally — checking your privilege is a healthy exercise in self awareness. Do a little self reflection. Are you carrying some privilege? Could that be giving you an advantage over others? Is that influencing this situation and you feelings toward it at all?