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PostPosted: Mon Mar 28, 2011 3:54 pm
 


Ok guys, some of you asked for something original rather than just reactionary. Here is an idea I've been pushing for many years. I submitted it as a policy resolution; it got through the provincial association and will appear at the national biennial convention this year. ( XD ) Most Liberals who know me will have heard about this, but most from outside Manitoba will not. Although I have tried to get it into the Liberal platform, I didn't get that far.

I raised this issue here a couple years ago, but rather than resurecting a 3-year-old discussion thread, I'm creating this one.

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Yup, I said abolish income tax. By that I mean federal personal income tax.

Summary:
  • Cut spending to restore the $17.1 billion surplus. Paul Martin did it before, we can do it again.
  • Apply all that surplus to the principle of the debt, set the total of the principle plus interest payments as a fixed total. That's how the mortgage of a house works. If we started this in January 2006 it would have been finished in 16 years.
  • Since the total debt payment will remain fixed, the budget will remain balanced even in a severe recession.
  • The deficit for 2011 is deeper than ever in Canadian history. The debt now equals its all-time high. Not only are the last 5 years a waste of time, we're farther behind.
  • Increase GST back to 7%, and at the same time cut personal income tax by 2% in every income bracket. 2% up, 2% down: you pay income tax on all your income but only pay GST on some things, so this is a tax cut. Pay for that by also undoing the 1% cut to corporate income tax.
  • Both corporate capital tax and corporate surtax stay gone.
  • Replace the GST Rebate (CRA calls it GST Credit) with a line item tax credit on income tax, but double the amount. Prorate to income tax withholding from each and every paycheque.
  • Dividends no longer taxable for personal income tax; taxed under corporate income tax. Corporate tax is at a lower rate, but when personal income tax is abolished corporate income tax will stay. Since foreign corporations don't pay income tax to Canada, so foreign dividends will remain taxable under personal income tax.
Details
This is the greatest issue for me, what I keep coming back to, and can be done! This continues what Paul Martin started, and takes it to the next level. As Paul Martin repeated said; you pay off the debt during good times, and subsidize the economy during bad. We should have paid down the debt aggressively during our period of economic prosperity, but the Conservatives screwed it up. Paul Martin announced a surplus of $17.1 billion in his fiscal update of October 2000. When the books were closed at year-end March 31, 2001, and the Auditor General completed her report, we actually had a surplus of $18.1 billion; a whole $1.0 billion more than Paul Martin predicted. What we should have done then was fix the total of that payment to the principle of the debt plus interest as a fixed total every year, treating the debt as a mortgage. I recalculated this in December 2005, during the election campaign. If we had won and cut spending to re-establish the $17.1 billion surplus (not the $18.1 billion, just $17.1 billion) then fixed the total of that plus interest as our mortgage payment (taking the 2005 interest figure), then it would have taken just 16 years to pay off the debt. Unfortunately the Conservatives got in. They increased program spending to an all time high, and promised to cut the surplus to $3 billion.
Image

They didn't fulfill in their promise to kill the surplus immediately. The first Conservative budget was May 2006 budget. It said the "status quo surplus" for 2005/06 was $17.4 billion, which means if the Conservatives hadn't intervened that's what the surplus would have been. That budget promised to reduce the surplus for 2005/06 to $8.0 by increasing spending. But that budget came out in May; fiscal year end is March 31, any spending after that date is attributed to the next fiscal year. The Auditor General's report said the surplus for 2005/06 ended up being $13.2 billion.
Reference: May 2006 Budget

But the did eventually succeed in killing it, and turning our surplus into a deficit. As of March 17th the debt was $562.8 billion, matching the all-tiem high in 1996/97. In just 5 years the Harper Conservatives have undone all the hard work by the Chrétein/Martin team to pay down the debt.
Image

cut income tax, not GST
All economists have repeatedly stated the economy will best benefit from cutting income taxes and capital taxes, not consumption taxes. Cutting the GST was a bad move. I said during the election campaign of 2005/2006 that we need to freeze GST and corporate income tax, abolish corporate capital tax, corporate surtax, and most importantly cut personal income tax. At least the Conservatives didn't undo the Liberal bill to abolish corporate capital tax, but they did try to take credit for it. To give them due credit, Conservatives did abolish corporate surtax. Unfortunately they didn't stop there, they cut the GST and deeply corporate income tax. We need to undo these Conservative cuts, put the GST back to 7%, corporate income tax back to 19%, and cut personal income tax by 2% for all tax brackets.

2% up / 2% down
In the summer of 2006 I had asked Stéphane Dion to do this, actually that was before the Conservatives cut corporate income tax so increasing GST alone could only afford a cut personal income tax by 2% for the lowest income bracket, and 1% for each of the other two brackets. I said we had to present this very simply to the media, but we had to quote numbers: 2% increase to GST, 2% cut to income tax. Two per cent up, two per cent down. Keep it simple. Unfortunately what came out was a suggestion to increase GST by 2% with a vague cut to income tax; the public will only hear the part that has hard numbers attached so we got painted as wanting to increase the GST. Then when the Green Plan came out, it was far too complicated. It included a cut to personal income tax of only 1.5% to the lowest income bracket, and 1% to the other two, and a carbon tax that no voter understands. They didn't see how that would financially impact them. I am still willing to stand before the cameras and state that I am the one who wants to increase the GST, but if I do so I will emphasize that can only come with a cut to personal income tax by the same 2%. Income tax is applied to all income while GST is only applied to some things, so this is a net tax cut for voters.

GST Credit
As listed in the summary, the total plan to completely abolish personal income tax has a couple other items needed to balance the books. First, replace the GST credit with an income tax credit. Everyone who currently qualifies for the GST credit will still qualify, same rules, but the amount will be double the current credit. Instead of mailing a cheque, it will be pro-rated to income tax withholding from each and every paycheque. The increase will be paid by eliminating the expense of administering the GST credit system, it will simply be a line item on income tax returns. So instead of taking taxes with one hand only to give half of it back with the other, we won't take it in the first place.

Dividends
The other item is dividends. These used to be double taxed; both corporate and personal income tax. That was fixed by making dividends deductible from taxable income for the purpose of corporate income tax. So they are now charged personal income tax but not corporate. Reverse that: make dividends no longer deductible from taxable income for the purpose of corporate income tax, but not included in taxable income for personal income tax.

These two items would be applied the first year, in the first budget of a Liberal government, along with GST, personal income tax, and corporate income tax adjustments. From then on, all tax cuts will be made to personal income tax. Since corporate income tax is at a lower rate than the highest personal income bracket, the dividend shift will be an immediate tax cut; however, since all further tax cuts will be to personal, they will not apply to dividends. And when personal income tax is abolished all together, they will also not apply to dividends.

EI & CPP
Of course EI and CPP premiums pay for those programs, so they will have to stay. And provincial income tax is under the authority of provincial governments, so there's nothing the federal government can do about that, but federal personal income tax will be abolished. I could mention how Manitoba could abolish provincial personal income tax, but that's another discussion.

High paid workers to Canada
One effect of abolishing income tax is to attract high paid, knowledge based workers. Instead of losing our most talented, the world's most talented will come here.

Efficiency reduces taxes
The real reason to eliminate income tax is to benefit Canadians. It is far more efficient to pay a small number of taxes; not only to reduce the cost of collections, but more importantly the expense involved with filing returns. One small businessman pointed out he pays more money in accountant fees keeping track of the GST than he pays in GST itself. That same principle applies to other taxes; we need to reduce the expense of filing. That includes the expense of keeping track of all those receipts and other items involved with taxes. Let Canadians focus on earning an income rather than obsessing about paperwork for taxes. Reducing tax rates but keeping all the many taxes in place will retain both the cost of collections and cost of filing. As a proportion of taxes collected, the cost of collections increases as we cut tax rates but retain a broad number of taxes. Improving efficiency dictates we reduce the number of times taxpayers have to file.

To this end will have employers, not employees, file the annual return for EI and CPP premiums. Employers have to file a return for tax withholding anyway, this will simply be another form filled out at the same time. It is far more efficient for an employer to file one single return for all employees rather than each employee to file separately. In fact, we don't have to shift returns to employers until we are ready to abolish federal personal income tax all together. Employers have to file a return for EI and CPP withholding right now anyway, so it really isn't a paperwork increase for employers.

Income tax was first established as the "Temporary War Income Tax" during World War 1. It was intended to be temporary, to pay for the war effort. Unfortunately we still have it today. Both corporate and personal income tax were established under that act, but today we have universal health care and some other expenses, so we can't afford to get rid of both. In fact, today 90% of all federal revenue comes from 3 taxes: personal income tax, corporate income tax, and GST. If we completely pay off the debt we can get rid of one of them, but only one. And if we don't pay off the debt we can't get rid of any; we will be stuck with all the taxes we have now.

Debt was paid
An historical note: Canada incurred debt during World War 1, but completely paid it off before World War 2. However, the debt from World War 2 was never repaid, it remains part of our debt today. Secondly, during Paul Martin's tenure as Finance Minister, Canada enjoyed the longest continuous period of strong economy in our country's history. That period of economic strength was while we were paying down the debt and cutting taxes.


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PostPosted: Mon Mar 28, 2011 3:59 pm
 


Winnipegger Winnipegger:
Debt was paid
An historical note: Canada incurred debt during World War 1, but completely paid it off before World War 2. However, the debt from World War 2 was never repaid, it remains part of our debt today. Secondly, during Paul Martin's tenure as Finance Minister, Canada enjoyed the longest continuous period of strong economy in our country's history. That period of economic strength was while we were paying down the debt and cutting taxes.


While they did repay some of the debt they ran up, The National debt under Chretien and Martin increased, not decreased.


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PostPosted: Mon Mar 28, 2011 4:21 pm
 


OnTheIce OnTheIce:
While they did repay some of the debt they ran up, The National debt under Chretien and Martin increased, not decreased.

Did you see the chart?

For those paying attention, the deficit when the Liberals were elected in 1993 was $42 billion. The 1996 budget had the first surplus. Those surplusses paid down the debt. The previous all-time high was 1996/97, it was reduced every year thereafter until the Harper Conservatives were elected. As of this year, it's back to its all-time high.





PostPosted: Mon Mar 28, 2011 4:27 pm
 


OnTheIce OnTheIce:
Winnipegger Winnipegger:
Debt was paid
An historical note: Canada incurred debt during World War 1, but completely paid it off before World War 2. However, the debt from World War 2 was never repaid, it remains part of our debt today. Secondly, during Paul Martin's tenure as Finance Minister, Canada enjoyed the longest continuous period of strong economy in our country's history. That period of economic strength was while we were paying down the debt and cutting taxes.


While they did repay some of the debt they ran up, The National debt under Chretien and Martin increased, not decreased.


I think you're thinking of Mulroney. The debt peaked in 1996. It was Mulroney who doubled the debt.

FEDERAL DEFICIT: CHANGING TRENDS
$1:
1982-83 136,671 (millions)
1983-84 169,549
1984-85 207,986 (Mulroney)
1985-86 242,581
1986-87 273,323
1987-88
1988-89
1989-90
1990-91 390,820
1991-92 425,177
1992-93 466,198
1993-94 508,210
1994-95 545,672 (Chretien)
1995-96 574,289
1996-97 583,186 (Peak ... Until Harper)
1997-98 579,708


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PostPosted: Mon Mar 28, 2011 4:29 pm
 


OnTheIce OnTheIce:
While they did repay some of the debt they ran up, The National debt under Chretien and Martin increased, not decreased.

That's bullshit and I proved it was bullshit the last time you said it. I provided the StatsCan data then and here it is again:

YEAR DEBT
1980 - $90B
1985 - $175B
1990 - $377B
1995 - $550B
2000 - $511B
2005 - $450B
2010 - $525B

Canada's national debt when Chretien left office was about $450B, which is virtually the same number that it was when he took office. As a percentage of GDP, however, debt FELL during Chretien's term in office by about 1/3. On the other hand, Mulroney's term in office saw the debt balloon from $150B to $450B...it TRIPLED under Mulroney. Since Harper took office, the debt has climbed by another $100B and counting.


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PostPosted: Mon Mar 28, 2011 4:31 pm
 


Winnipegger Winnipegger:
OnTheIce OnTheIce:
While they did repay some of the debt they ran up, The National debt under Chretien and Martin increased, not decreased.

Did you see the chart?

For those paying attention, the deficit when the Liberals were elected in 1993 was $42 billion. The 1996 budget had the first surplus. Those surplusses paid down the debt. The previous all-time high was 1996/97, it was reduced every year thereafter until the Harper Conservatives were elected. As of this year, it's back to its all-time high.


Wrong, the Conservatives have paid down the debt evey year with possably the exception of the last few since being elected(I can't say for sure because the offical numbers aren't out). The Libs eliminated the deficit, and koddos to them for doing so but net debt increased under their watch. Mind you I believe they did start chipping it down towards the end but over all it increased.

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PostPosted: Mon Mar 28, 2011 4:46 pm
 


Your proposal is an intresting idea though, not sure if it would work but intresting non the less.


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PostPosted: Mon Mar 28, 2011 5:18 pm
 


Curtman Curtman:
I think you're thinking of Mulroney. The debt peaked in 1996. It was Mulroney who doubled the debt.


Mulroney was saddled with the aftermath of Trudeau era economic policies. I really can't remember what it was termed but the idea was "if we borrow $100 now in 20 years time it will seem like chump change to pay it back because of inflation". Trudeau championed and drove that policy created one of the largest debts in Canadian history. Now mind you he wasn't alone in the world in that thinking, many nations shared that philosophy. It wasn't until much later that it became painfully obvious how flawed that line of thinking was. Mullroney was left with the after math of those policies. I think the following quote sums it up nicely:

$1:
Trudeau's Conservative successor, Brian Mulroney, balanced Canada's operating budget after 1984. But to squeeze out Trudeau-era inflation, the Bank of Canada had raised real interest rates very high. Mulroney could not keep up with the debt payments. The debt compounded, the deficits grew, the Bank hiked rates again -and Canada toppled into an even worse recession in 1992. By 1993, default on Trudeau's debt loomed as a real possibility. Trudeau's next successors, Liberals this time, squeezed even tighter, raising taxes, and leaving Canadians through the 1990s working harder and harder with no real increase in their standard of living.


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PostPosted: Mon Mar 28, 2011 5:35 pm
 


You have to be careful with terms. The government (both parties) have engaged in obfuscation. The term "net debt" means they take the debt then subtract the current market value of every personal computer, phone, desk, chair, building, land, and everything else the government owns. To use a mortgage analogy, that's like taking the current balance of your mortgage and subtracting the market value of your house. No, you don't owe just the balance. And if it's negative, that means you have a negative net worth. If any individual had that, they would be bankrupt.

Still, the "Federal government net financial debt" table shown ends at 2008. That's when it starting going up.


Last edited by Winnipegger on Sun Apr 03, 2011 9:07 pm, edited 1 time in total.

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PostPosted: Mon Mar 28, 2011 5:41 pm
 


Winnipegger Winnipegger:
You have to be careful with terms. The government (both parties) have engaged in obfuscation. The term "net debt" means they take the debt then subtract the current market value of every personal computer, phone, desk, chair, building, land, and everything else the government owns. To use a mortgage analogy, that's like taking the current balance of your mortgage and subtracting the market value of your house. No, you don't own just the balance. And if it's negative, that means you have a negative net worth. If any individual had that, they would be bankrupt.

Still, the "Federal government net financial debt" table shown ends at 2008. That's when it starting going up.

The chart also seems to overshoot the current debt based on 2005, 523 billion vs 450 billion.


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PostPosted: Mon Mar 28, 2011 5:46 pm
 


Winnipegger Winnipegger:
You have to be careful with terms. The government (both parties) have engaged in obfuscation. The term "net debt" means they take the debt then subtract the current market value of every personal computer, phone, desk, chair, building, land, and everything else the government owns. To use a mortgage analogy, that's like taking the current balance of your mortgage and subtracting the market value of your house. No, you don't own just the balance. And if it's negative, that means you have a negative net worth. If any individual had that, they would be bankrupt.

Still, the "Federal government net financial debt" table shown ends at 2008. That's when it starting going up.


Gross is clearly shown on that chart as well. And that's the way you bank figures out personal debt loads so no it isn't unusual to take your gross debt minus assets to figure out your debt load.

As for debt increasing after 2008, did you miss the little thing called a world wide recession?

By the way, where did you get your chart, could you provide the source please.


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PostPosted: Mon Mar 28, 2011 6:02 pm
 


dino_bobba_renno dino_bobba_renno:
By the way, where did you get your chart, could you provide the source please.

Media release from the Liberal Party of Canada. It's a lot easier than me taking figures from federal budgets, then summarizing it in a chart myself.

To be fair, budgets under the Chrétien/Martin administration drastically reduced the deficit. But the first balanced budget was 1995. That was the budget, it took some time to come into effect. That's why the debt for 1996 was the all-time high. Someone at the Liberal Party office didn't want to show the debt rising until 1996.


Last edited by Winnipegger on Mon Mar 28, 2011 6:05 pm, edited 1 time in total.

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PostPosted: Mon Mar 28, 2011 6:04 pm
 


Oh forget it , I found your chart. It's at "Liberal.ca". Nothing bias there even though the numbers shown aren't supported any where else. :wink:

This is a much better graph and probably much more accurate. It includes both debt and %GDP:


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PostPosted: Mon Mar 28, 2011 6:16 pm
 


Lemmy Lemmy:
Mulroney's term in office saw the debt balloon from $150B to $450B...it TRIPLED under Mulroney.

Could you please provide a link. I haven't been able to get documentation to back that up. I read that as well, but many people questions that figure. I would need documentation before once again stating that Mulroney tripled the debt.


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PostPosted: Mon Mar 28, 2011 6:47 pm
 


Winnipegger Winnipegger:
Could you please provide a link. I haven't been able to get documentation to back that up. I read that as well, but many people questions that figure. I would need documentation before once again stating that Mulroney tripled the debt.

As a professional economist, I have access to StatsCan data that most folks don't without paying, but I'm sure there must be a chart available somewhere at statcan.ca. It's a bit of an unruly site to navigate but I'm sure you could find it with a little hunting about. If I can find something more user friendly than a CanSim series, I'll post it, but my numbers are accurate. I've used them in publications and would stake my professional credibility on them.


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