227 replies to this topic

[August1991]

Barbara Yaffe wrote an intelligent column about tax reform:

Is there really such a thing as a "friendly" tax system? One in which a tax return can be completed by a Canadian without a doctorate in economics?

Welcome to the world of simplified taxation, care of the Canadian Taxpayers Federation.

The non-partisan lobby, in advance of a federal budget expected next month, is proposing a new, improved scheme for collection of taxes.
....

In its first year in power the Harper government presided over a 7.5-per-cent spending jump. Last year spending increased by 5.3 per cent and it's expected to grow 4.6 per cent this year.

Link

So what of the Canadian Taxpayers Federation proposal? Here's a link to their press release.

What's involved?

The CTF wants to simplify federal taxation and reduce federal income taxes from four rates to two rates. Sadly, the phrase "flat tax" has come to mean "single rate" or "simple tax" or even "no cheating".

Flat rate, two rates or four rates - who cares.

The CTF has a very smart proposal. The CTF proposes that the federal government raise the personal exemption to $15,000 and then remove most of the tax deductions we now have. For example, the CTF wants to eliminate the following deductions:

• Increased capital gains exemption for fishermen and farmers and select small businesses.
• Tax credits for tradesmen’s tools.
• Tax credit for students’ textbooks.
• A children’s fitness tax credit.
• A tax credit for public transit expenses.
• Tax deductions for security donations to charities.
• Tax credit for employment expenses.
• A new apprentice job creation tax deduction.
• An environment “feebate” subsidy for buyers of small compact cars.
• Tax relief for foreign participants at the Vancouver’s 2010 Olympic Games.
• Increased meal expense deductions.

These deductions merely complicate our tax forms and make life difficult for taxpayers. They are forms of vote-buying and social-engineering. (The government tries to induce good behaviour through the tax system.) And note: Many of the tax deductions cited are due to the Harper government.

Under the CTF proposal, what deductions would be allowed in addition to the $15,000 personal exemption?

Proposed credits and deductions from income
Basic personal amount of $15,000
Spouse and equivalent amount of $15,000
Child credit of $2,200 per child
Senior credit of $3,000
RRSP/RPP contributions
Caregiver expenses
Infirm dependant expenses
Eligible dependant expenses
Charitable donations expenses
Disability expenses
Medical expenses
Education savings plan
Foreign tax paid
CPP/EI credits

No deductions for union fees, moving expenses, northern residency, textbooks, tuition fees. (If I were the CTF, I'd take away the senior credit. Why should older people pay less tax than younger people? Most older people are richer anyway.)

Critically, the CTF argues that the tax system is not the way to correct for injustices in society. If we - as a society - want to help certain people, then we should tax everyone and help those who need help. We should not use the tax system as away to help people. If we do so, this is an invitation to people to fudge their income declarations. Let people try rather to fudge their subsidy claims. The onus is on them, not the tax collector.

In the same sense, the CTF suggestion simplifies the lives of many Canadians and the CRA. Many Canadians would not have to pay any federal income tax at all. If we eliminated payroll taxes such as CPP/EI, then the federal government would need to know nothing about them. Employers could pay them over or under the table because there would be no difference.

If the federal government adopted the CTF's proposal, it would be a revolution in Quebec. Thanks to Bernard Landry, the Quebec income tax form is already more complicated than the federal tax form. The CTF proposal would make the difference more stark - the federal form would be simpler and fewer people would bother. Does this matter?

Some people - including me - have argued that a measure of a civilized society is whether people pay taxes. For some, we should all pay taxes because then we all have a stake in the system. IMHO, paying taxes is not a reminder to everyone that government is a collective enterprise and we are all entitled to government services. IMHO, poor people should not pay tax at all. The measure of a civilized society is whether those who should pay taxes indeed pay their tax. The measure of a society is how the majority treats the minority.

Sorry for my Canada rant.

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On CBC Radio, I have heard nothing about this CTF proposal. Instead, CBC Radio news has gone into detail about the Gaza strip and Egyptian and Israeli embargoes. The CBC pays to have a (unilingual anglophone) reporter abroad full time reporting about Palestinian affairs. But the CBC has no one reporting about an intelligent proposal to change Canada's federal tax system.

We pay $1 billion every year for Radio-Canada/CBC. English-Canadians are very poorly served.

Edited by August1991, 25 January 2008 - 09:22 PM.

[Pat Coghlan]

Makes perfect sense, but as with making public sector jobs available to more white, unilingual males, governments won't do it unless they are forced to promise it in an election campaign.

For example, they've had 40 *&^%$#@ years since the 1960s Carter Royal Commission recommended taxing family - vs individual - income, and have made ZERO meaningful reforms/simplifications to the tax system in all that time...except one. The 2007 tax form contains the first real reform in over 40 years: pension-splitting. This, more than anything, will be a catalyst for meaningful tax reform in future years, IMHO.

Just imagine two families living next door to one another. Family A, a retired couple, have a family income of $100K, consisting mostly of the husband's pension from his former employer (Bell Canada, federal gov't etc.). Family B, a couple and their 3 children, also have a $100K income, consisting mostly of the husband's (or the wife's, take your pick) income. Family A have considerable assets but zero debt. Family B have a house with a big mortgage, a car loan and no other significant assets.

In spite of the fact that the couple with children are living paycheque-to-paycheque, their income tax burden will be many thousands of dollars more per year than the retired couple, since the retired couple can now split their income 50/50 to achieve the lowest possible tax liability.

Personally, I don't think this situation is going to be tolerated very long by the Family B's of Canada. They will start screaming discrimination, and politicians will be forced to extend this long-overdue reform to everyone.

[jacobhelliwell]

On paper this seems like a good idea. A progressive taxation system, such as we have, however, helps to smooth out the peaks and troughs in the business cycle and thus the roller-coaster of an economy.

Fortunately, there are other monetary and fiscal policies that can be implemented to smooth out the cycles (without our present taxation system), however, there is recognition lag, legislation lag, and implementation lag. This lag usually means the government plan to pull out of a recession or control inflation is too late and has the opposite or lesser effect.

[Pliny]

On paper this seems like a good idea. A progressive taxation system, such as we have, however, helps to smooth out the peaks and troughs in the business cycle and thus the roller-coaster of an economy.

Fortunately, there are other monetary and fiscal policies that can be implemented to smooth out the cycles (without our present taxation system), however, there is recognition lag, legislation lag, and implementation lag. This lag usually means the government plan to pull out of a recession or control inflation is too late and has the opposite or lesser effect.

Do all businesses experience going through the business cycle at the same time? How does the progressive taxation system prevent business downturns and/or create business upturns? Is the economy like a roller coaster, and if so why doesn't the progressive taxation system help to smooth it out, as you say or would it just be worse, and why?

If the government can make a plan to control inflation then why doesn't it control inflation? Or does it control inflation keeping it at around 3%/annum? Or does it just once in awhile need to control it? What fiscal policy would control it? If it is known there is lag and the "government plan to pullout of a recession or control inflation has the opposite or lesser effect" why don't they know this by now?

[jacobhelliwell]

No all businesses do not experience the business cycle at the same time, but a recession is when many business are going through it at the same time. The progressive taxation system does not prevent downturns either. When we are in a recession, unemployment it higher and wages are lower. Lower wages means you pay less paxes in a progressive system, paying less taxes means you have more money to spend on other things that stimulates the economy. Yes the economy is like a roller coast, it is always going up and down (with an overall upward climb).

The government does control inflation. Its target is to keep it under ~3%/p.a. Without the plans they impliment, it would be growing exponentially. Look at Brazil, India, China etc. They economies are expanding at alarming rates, but their governments are not intervening to control inflation and there inflation rates are 10-15%/p.a.

Two fiscal policies the government has is spending and taxation. Lowering taxes and the government spending more will stimulate the economy and help end bring us to our potential output from he recessionary gap. Raising taxes and spending less will help to lower the inflationary gap bringing us back to our potential output. This is first year Keynesian economics.

The economy is sporatic and you cannot predict when a recession is going to occur. When there are signs of a recession, that is when parliament will start to debate how to best fix the problem. This takes time. Then they decide what to do, but it takes time for the effects to be felt by the economy. This is lag.

[geoffrey]

Just imagine two families living next door to one another. Family A, a retired couple, have a family income of $100K, consisting mostly of the husband's pension from his former employer (Bell Canada, federal gov't etc.). Family B, a couple and their 3 children, also have a $100K income, consisting mostly of the husband's (or the wife's, take your pick) income. Family A have considerable assets but zero debt. Family B have a house with a big mortgage, a car loan and no other significant assets.

Who the hell cares? Family A once had those mortgages and loans. Family B doesn't deserve family A's money just because. Your ideas are rather disgusting from a liberty perspective.

Personally, I don't think this situation is going to be tolerated very long by the Family B's of Canada. They will start screaming discrimination, and politicians will be forced to extend this long-overdue reform to everyone.

Or what happens when I, the single guy, needs to pay more tax than the married couple with no kids? I'll just be happy with that?

On paper this seems like a good idea. A progressive taxation system, such as we have, however, helps to smooth out the peaks and troughs in the business cycle and thus the roller-coaster of an economy.

No it doesn't, not in the least. Where do you get that idea?

Lower wages means you pay less paxes in a progressive system, paying less taxes means you have more money to spend on other things that stimulates the economy. Yes the economy is like a roller coast, it is always going up and down (with an overall upward climb).

That is the most ridiculous statement I've ever heard. If I make less, I'll have more to spend?? No. Not at all.

The government does control inflation. Its target is to keep it under ~3%/p.a.

No, the Bank of Canada has tasked itself with controling inflation. It's target is 2%.

They economies are expanding at alarming rates, but their governments are not intervening to control inflation and there inflation rates are 10-15%/p.a.

Diminishing returns, not monetary policy. Both Brazil and China actively fight inflation.

Two fiscal policies the government has is spending and taxation. Lowering taxes and the government spending more will stimulate the economy and help end bring us to our potential output from he recessionary gap. Raising taxes and spending less will help to lower the inflationary gap bringing us back to our potential output. This is first year Keynesian economics.

No one actually believes in Keynesian economics anymore. Your ideas are 20+ years out of date. And you don't even have the theory correct.

When there are signs of a recession, that is when parliament will start to debate how to best fix the problem.

Very rarely is their a legislative response to economic slowdowns, specifically anyways. The central bank controls most of that. You may see some legislative responses to this one, but likely we saw everything in tax cuts already.

[Pat Coghlan]

Who the hell cares? Family A once had those mortgages and loans. Family B doesn't deserve family A's money just because. Your ideas are rather disgusting from a liberty perspective.

Family A also got to keep 90% of gross earnings back in the 50s/60s when it was raising its children.

I'm not asking Family A to give Family B its money, just that family A doesn't pay thousands less in taxes because it alone is permitted to split income.

Or what happens when I, the single guy, needs to pay more tax than the married couple with no kids? I'll just be happy with that?

Under a progressive system, you pay more if you have ability to pay more. A family of 5 with the same income as you doesn't have the same ability to pay.

Singles will always pay more than families in pretty much ANY tax jurisdiction on the planet, so I hope you're not holding out for one flat tax for all families, regardless of the number of members.

[Jerry J. Fortin]

Why not just eliminate income taxes altogether. Dump Revenue Canada, reduce the federal payroll by retiring all of the no longer required bureaucrats from Revenue Canada, and switch to a flat rate consumption tax. Contract out the collection of said taxes the same way the GST has been done.

[Pat Coghlan]

Why not just eliminate income taxes altogether. Dump Revenue Canada, reduce the federal payroll by retiring all of the no longer required bureaucrats from Revenue Canada, and switch to a flat rate consumption tax. Contract out the collection of said taxes the same way the GST has been done.

You need progressive taxation to ensure that all wealth doesn't end up in the hands of just a few.

If I have $100M in stock and $10M in dividends each year, my tax rate is going to be something like half the rate you pay on, say, a $50K salary.

[geoffrey]

Singles will always pay more than families in pretty much ANY tax jurisdiction on the planet, so I hope you're not holding out for one flat tax for all families, regardless of the number of members.

Seems to me that you'd rather just pick and choose for your desired social engineering outcomes. Realistically, that's bullshit. A family of two earners saves lots by only have one mortgage, one cable bill, ect. ect.. So they have more ability to pay than a single at the same income level IMO.

Not that it should matter.

Why not just eliminate income taxes altogether. Dump Revenue Canada, reduce the federal payroll by retiring all of the no longer required bureaucrats from Revenue Canada, and switch to a flat rate consumption tax. Contract out the collection of said taxes the same way the GST has been done.

That's one way to do it. GST is kind of regressive though IMO, especially if it were at that level. It would be a tax that falls nearly 100% on the middle class. I think an individual flat income tax is a better way to look at it.

You need progressive taxation to ensure that all wealth doesn't end up in the hands of just a few.

Why do you need to ensure that? You then believe that rich people must give money to poor people? Why? What's your basis for that? Are people not entitled to what they earn?

I think Cuba operates on your desired system, where everyone is equal. Unforunately, it's resulted in a system where everyone is equally dirt poor.

If I have $100M in stock and $10M in dividends each year, my tax rate is going to be something like half the rate you pay on, say, a $50K salary.

Whaa??

[msj]

Why not just eliminate income taxes altogether. Dump Revenue Canada, reduce the federal payroll by retiring all of the no longer required bureaucrats from Revenue Canada, and switch to a flat rate consumption tax. Contract out the collection of said taxes the same way the GST has been done.

The reason is very simple: because the GST rate (assuming we also eliminate provincial and municipal taxes) would be in the neighbourhood of 50-60%.

Do you really think Canadians are going to go for that?

What we would allegedly save by contracting out the collection of taxes would have to be spent at border crossings and Indian reserves to prevent cross-border tax evasion.

Take a look at the Jan 11, 2008 article by John Mauldin - scroll down on the following link to read about the "Fair tax nonsense" in the US for going to a consumption only tax:

http://www.safehaven...rticle-9206.htm

[msj]

You need progressive taxation to ensure that all wealth doesn't end up in the hands of just a few.

If I have $100M in stock and $10M in dividends each year, my tax rate is going to be something like half the rate you pay on, say, a $50K salary.

I think what Pat means here is that the person paying tax on eligible dividends will pay tax at a marginal rate of ~18.5% (federal and provincial) and an average tax rate of around 18.3% on $10,000,000 of eligible dividends (this excludes Alternative Minimum Tax - with AMT we're talking 19.3% average and a marginal tax rate of about 19.4%).

A person making a salary of $50,000 would be looking at a marginal tax rate of ~31% (in BC/ON) for the next dollar of wage earnings (this marginal rate usually begins around the $35-37,000 mark). At the same time, that person is looking at paying an average tax rate of 18.3%.

Of course, in the eligible dividend case, we have a corporation that is likely paying tax at 34% before it pays out a dividend that is then taxed at the 18.3% rate versus a company that gets tax savings on the deduction of the wages which is then taxed in the personal hands of the individual.

This is why dividends are taxed differently than wages in the first place.

[Pat Coghlan]

Seems to me that you'd rather just pick and choose for your desired social engineering outcomes. Realistically, that's bullshit. A family of two earners saves lots by only have one mortgage, one cable bill, ect. ect.. So they have more ability to pay than a single at the same income level IMO.

You're comparing apples to oranges, in this case co-habitating couples (under one roof) to two single persons living in separate domiciles.

In the apples-to-apples case, two persons have higher expenses than singles (energy, food, size of residence, transportation...you name it), especially if they have kids.

[Pat Coghlan]

Why do you need to ensure that? You then believe that rich people must give money to poor people? Why? What's your basis for that? Are people not entitled to what they earn?

I think Cuba operates on your desired system, where everyone is equal. Unforunately, it's resulted in a system where everyone is equally dirt poor.

I'm not saying everyone needs to be equal. Those that work harder should have more, of course. However, the billionaires of the world didn't get their through their own physical/mental efforts. Bill Gates would have maybe 1% of his current $50B fortune, if it weren't for the thousands of Microsoft employees out creating/selling/supporting Microsoft products.

The CEO of Exxon was paid $650M (yes, million) in 2006, a compensation package that he and the board (consisting of people he put there) worked out. You're damn right I'm against letting the foxes pay only 10% on the profits from the hen houses they're guarding.

Those that own assets have a huge advantage over those who can only provide labour...at least for 20-30 years when the latter accumulate significant assets. Your first million is the hardest.

Perhaps you'd like to live in a country like Indonesia, where the Suhartos own a piece of just about everything (they tried to get a big piece of BreX when they thought there was a fortune to be made...too bad it didn't work out).

The US have an estate tax, which requires assets above $2M-$3M to be taxed at 30-40% when you die. Various special interests are trying very hard to have the estate tax repealed, mostly billionaire families. If you have a chance, take a look at who occupies the top 10 positions of the 100 wealthiest people in the US. They , of course, want their heirs to stay there, and a flat tax would virtually guarantee it...forever.

[Pliny]

The reason is very simple: because the GST rate (assuming we also eliminate provincial and municipal taxes) would be in the neighbourhood of 50-60%.

Do you really think Canadians are going to go for that?

We have that now. I believe tax freedom day is sometime in July? A consumption tax does have some appeal because people can choose not to spend. Government would probably work on policies to get people spending.
You know what though. If people want something they don't mind paying for it. If it's for their country they will contribute. The government should find ways to raise money voluntarily. Wasn't income tax supposed to be a voluntary tax - maybe that was in the US. If there is no desire for something the government is pushing there will be no money contributed to it.

Good arguments with Helliwell, Geoffrey. I believe Keynes is still the major economic theorist used by governments though, and I am not really in agreement income should be taxed at all, at least on the federal level.