Government redistribution of income is fashionable in many quarters, but often missing from the policy chatters are two important realities. First, raising taxes on “the rich” yields far less government revenue than tax-raising advocates hope. Second, point-in-time statistics on income gaps exaggerate inequality by ignoring mobility, and accounting for this significantly undermines the case for much of the redistribution efforts that take place.

The popularity of high taxes to redistribute income is evidenced by combined federal and provincial top income tax rates of above 50 per cent in all provinces except Saskatchewan (47.5 per cent) and Alberta (48.0 per cent). This is largely due to the Trudeau government’s 2016 increase of the top federal income tax rate from 29 per cent to 33 per cent. Before it was implemented, the Liberals claimed their tax hike would raise about $3 billion per year in additional government revenue. Economic studies suggest nothing near this.

In fact, in 2016 income tax revenue from Canadians in what was previously the highest tax bracket actually fell by $4.6 billion. Many factors contributed to this, so that statistic on its own does not mean the tax hike reduced revenue by $4.6 billion or disprove the $3 billion revenue estimate. On the other hand, it’s not good news for the proponents of the tax hike either.

Indeed, according to a study by Ergete Ferede published by the Fraser Institute, the tax hike raised only an estimated $1.1 billion in federal revenue in its first year because top earners react to the tax by reducing their taxable income. Some engage in additional tax planning. Others reduce their work effort. And there’s significant evidence that raising the top income tax rate reduces entrepreneurship. Over time, these effects become more pronounced, so in the long run, raising the tax rate actually reduces federal tax revenues.

A separate analysis by the C.D. Howe Institute’s Alexandre Laurin similarly estimated only $1.2 billion in additional federal government revenues in 2016—but also a greater $1.3 billion loss in provincial tax revenues, so that by raising the tax rate the federal government actually decreased total tax revenues even in year one.

Yet another study in 2015 estimated the effects of hypothetical provincial income tax increases. Suppose each province raised the marginal tax rate on its top one per cent of earners by five percentage points. In every province except Alberta, the study estimated combined federal and provincial tax revenues would decline as a result of the tax rate increase.

In addition to relying on the fallacy that raising taxes on top earners is an effective way to raise money to redistribute money, the redistribution advocates too often ignore income mobility. People with high incomes today often have low incomes tomorrow, and vice-versa.

According to a 2016 study based on Statistics Canada data (and published by the Fraser Institute), among Canadians with incomes in the bottom 20 per cent in 1993, almost one in four (24 per cent) were in the top 20 per cent in 2012 and almost half (46 per cent) were in the top 40 per cent of earners.

Taxing Smith today to transfer income to Jones, and then taxing Jones tomorrow to transfer income to Smith is worse than futile. In fact, it makes both worse off by discouraging income production (sometimes to the point of actually reducing tax revenue), imposing compliance costs and growing the government bureaucracy. The case for high taxes to redistribute wealth is much weaker than most people think.