About five years ago, I became acquainted with retiree Jim Tocher. Then in his 80s, Golden, B.C.-born Tocher was a classic Canadian success story.
After university in Vancouver, Tocher worked for several energy firms in the 1950s and 1960s before starting his own Calgary-based companies in the 1970s. He founded several energy and resource companies, creating his last one, Petrobank Energy and Resources Ltd., at age 66.
During one of the last times we chatted, Tocher relayed his proudest career moment — a company Christmas party when he gazed around the room and realized that everyone present, about 100 employees, had been able to carve out a career, buy homes and pay the associated bills of life because of the company he created from scratch.
Tocher died in 2009, but I relay his story because of recent headlines that some Canadian executives earn in a few days or weeks what the rest of us might earn in a year. In assessing those stories, it is critical to remember one fact: risk-taking entrepreneurs are not a burden but a key part of a civilized, opportunity-based and prosperous country.
(This doesn’t mean every CEO is worth his or her salary, but it is impossible to definitively peg the “correct” salary for such positions from the outside or in advance.)
For example, some may balk at the $3-million pay package (and potentially tens of millions more in share compensation) for the new BlackBerry CEO, John Chen. However, if Chen turns BlackBerry around and its shares appreciate to $20 from $9, that’s an extra $5.8 billion in shareholder value. Then shareholders and the company’s remaining employees, who avoided a Nortel-like fate, might think such executive pay worthwhile.
Shareholders should demand accountability from boards and performance from company executives on CEO compensation. But in a free society where governments don’t get to set wages, such actions are properly left up to shareholders, boards and executives to fight it out.
More broadly, in deliberations over high-income earners, there is also another point to consider: the amount of tax paid by the now-clichéd top “one per cent” of income earners.
The Canada Revenue Agency recently released tax statistics from the 2011 tax year, and here are some results from my number-crunching.
Of the 25.1 million tax filers, 8.4 million people paid no income tax at all, as their incomes (after deductions) fell below the taxable threshold. It doesn’t make sense to tax the poor in that cohort, of course. It does mean all income tax was paid by the other 16.7 million.
Let’s break that down. Anyone who reported income of more than $250,000 in 2011 belonged to the top one per cent of all income earners. That group garnered 10 per cent of all declared income.
That sounds awfully “greedy” to some — one per cent of the tax filers with 10 per cent of the income — until you see how much of the overall tax burden they shoulder. The top one per cent (203,010 people) paid 20 per cent of federal and provincial income taxes, or $32.6 billion in taxes.
Expanding the analysis, the top 6.6 per cent of income earners in 2011 (those with incomes of $100,000 or above) garnered 29 per cent of the income but paid 47 per cent of all federal and provincial income taxes, or $77 billion of the $161.4 billion collected in total.
Those who love class warfare and complain about high-income earners should be reminded of two critical facts. First, tax proceeds from that latter cohort help finance almost half the bills for everything from schools to health care to public transit and national defence. It is thus unwise to dampen such beneficial wealth creation and a source of tax revenues.
Second, as my late friend Jim Tocher reminisced, the successful entrepreneurs among that group also help create opportunities for others. In life, that’s what’s called a “win-win.”
Mark Milke is a senior fellow at the Fraser Institute.
