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PostPosted: Mon May 09, 2016 4:14 pm
 


It’s tax time again in Canada, which makes it a good time to think about politicians’ comments on taxes. Many politicians, especially conservative ones, have talked about tax relief, offering all kinds of tax cuts and rebates for everything from fitness to children’s art programs. Oftentimes, they also guarantee that these tax cuts can be paid for without reducing frontline services or major programs. If anything, they also talk about other kinds of spending, whether taking the fight to ISIS in the Middle East, getting tougher on crime, and upgrading the military’s equipment.

In all the talk about taxes, though, nobody seems to ever want to discuss what an acceptable minimum for taxes might be. If conservative politicians think that taxes are too high, then what is an acceptable minimum tax rate that people should have to pay? Conservative political programs and goals cost tax dollars too.

Unfortunately, this never seems to come up. Author Alex Himmelfarb, in his book Tax Is Not A Four Letter Word, talks about the ‘free lunch’ mentality that has taken root in a lot of modern political talk. We can supposedly have all the tax credits and cuts we want, without ever having to give anything up in terms of essential services. Rob Ford exploited this with his claim of “no service cuts, guaranteed”, while Jim Flaherty claimed that the Harper Conservatives “did not balance the budget on the backs of Canadians”. Both these claims turned out to be lies, but they illustrate the point well.

Many of the conservative projects mentioned above are good and important ones. We should be contributing to the fight against ISIS, the army deserves better equipment than the antiquated junk they’re often stuck with, and the longer violent criminals stay behind bars, the better. However, they cost money, and it’s not always clear where the money will come from if the tax base is constantly and endlessly reduced.

Say what you will about progressive politicians and parties, but they at least have some sort of idea where the money to finance programs and projects will come from when they talk about tax increases. On the other hand, when conservatives continually promise more tax cuts and spending on their own programs, all while promising to keep the books balanced, one is left to wonder where the breaking point is.

Back in the 1990s, conservative politicians like Ralph Klein, Mike Harris and Preston Manning showed a lot of courage with the blunt honesty they gave to Canadians. They were up front about the fact that the results of the cuts needed to keep Canada and the provinces from going broke were not going to be pretty. Politicians like Rob Ford and Stephen Harper lack much of the same courage, having played to the ‘free lunch’ mentality described above.

There’s obviously a limit to how high taxes should go, and that limit will change from time to time. But doesn’t that also mean that there should be a minimum level of taxation?
And if so, what is it?


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PostPosted: Mon May 09, 2016 4:17 pm
 


What Is The Right Amount Of Tax?

Andy wrote:
All of it.


Posted that for you, Andy! [B-o]


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PostPosted: Mon May 09, 2016 7:36 pm
 


I seriously pushed a proposal during the election of 2006. My idea was to treat the federal debt as a mortgage, pay the whole damn thing off, then once it's gone completely abolish federal personal income tax. EI and CPP premiums pay for those programs, so the premiums would have to stay. (for Bart, that's Canadian equivalent to Social Security) Provincial tax is under authority of provincial governments, so anyone who wants to change that would have to talk to their provincial politicians. Some provinces have a health insurance premium, that's also under authority of provincial governments. In fact, if you look at your pay stub, look at the box that says "Federal Income Tax". That's the only thing that would be gone; all the other boxes would remain the same.

If we did this in January 2006, we wouldn't have had to increase any taxes or cut any spending. We would have had to freeze both GST and corporate income tax at the level they were at that time. Corporate capital tax and corporate surtax could be abolished, but corporate income tax itself would have to be frozen. In fact Liberals had passed a law to abolish corporate capital tax just before the 2006 election. The effective date was after the election, they weren't expecting the election that soon, but it was passed into law.

Spending didn't need a cut either. New spending promised from the November 2005 fiscal update would have to be postponed by about 3 years, but only postponed, no cuts. And that was January 2006, so that spending would have happened by now. According to the May 2006 budget, the first budget by Conservative finance minister Jim Flaherty, the "status quo" surplus for 2005-2006 was $17.4 billion. The Canadian federal government's fiscal year is April 1 - March 31. And "status quo" meant if Conservatives hadn't messed with it, that's what the budget would have been. I could rant about reckless spending by Conservatives, but first my point.

Apply that $17.4 billion surplus to the principle of the debt. Then take the total of that payment to principle plus interest charges, make that total a fixed total every year. As we pay down the debt, interest charges will come down. For every dollar of reduced interest, increase the payment to principle by the same dollar. That's how the mortgage of a house works. So treat the debt as a mortgage. If we started in January 2006, it would have required 15 years to pay off the debt. That means effective January 1st, 2021, no federal income tax deducted from your paycheque. You would have to file an income tax in 2021 because that would be for year 2020, but that would be the last tax return you ever file.

Unfortunately that didn't happen. Harper got elected. He ran us further into debt. Now the debt is much bigger. If we started with a $24 billion surplus effective January 1st of this year, it would require 18 years. That means no federal income tax effective January 1st 2034. But Trudeau Liberals are running up the deficit. So that means more years of income tax.

To do this today
  • January 1st 2017: cut the 1st, 3rd, and 4th income tax brackets by 2% each. Liberals cut the 2nd bracket by 1.5%, so cut that one a further 0.5%. That means all 4 brackets will be cut by 2% vs what they were on election day. The lowest from 15% to 13%, the second from 20.5% to 20.0%, the 3rd from 26% to 24%, the 4th from 29% to 27%. The new bracket they created for those who earn over $200,000/year would be left as-is: 33%.
  • pay for this by increasing GST by 2%. You pay income tax on all your income, but only pay GST on some things, so this is a tax cut. But to ensure it's a cut, the increase in GST will be delayed. April 1st 2017: GST increased by 1%, from 5% to 6%. Then July 1st increase it the other 1%, from 6% to 7%. That's what it was, so once it's back, never touch it again!
  • April 1st 2017: Shift GST credit from a cheque that's mailed out to a line on your paycheque. Instead of taking the total you get per year, dividing by 4 and mailing a cheque every 3rd month, instead divide the total you get per year by the number of paycheques you get, add that to every paycheque. The total you get per year will double! That's because administration expenses to prepare and process the cheques will be reduced. Employers will net out income tax withholding with GST credit. A page on the CRA website will tell each employer how much to add to each employee's paycheque. Employers need your SIN number anyway for income tax, and employers will only be permitted to look up employees who are registered with CRA as working for them. If you aren't employed, it'll be added to your EI cheque. If you're not employed and not getting EI, but retired, it'll be added to your CPP cheque. If your not employed, not getting EI or CPP, but on welfare, it'll be added to your welfare cheque. If you're not employed and don't get any of that, it'll be added to next year's income tax refund.
    When personal income tax is abolished all together, GST credit will too. On the same day.
  • Tax on dividends shift from personal income tax to corporate. Currently corporations are allowed to deduct what they pay out in dividends from taxable income. Effective January 1st 2017, they won't be allowed to do that. That effectively charges corporate income tax on dividends. On the same day, any dividend cheque will not be included in taxable income for personal income tax. But only if you get a tax "T" slip with the dividend cheque. That proves the corporation paid corporate income tax to Canada. Foreign corporations don't pay income tax to Canada, so dividends from foreign corporations will still be included in taxable income. The reason for this is when personal income tax is abolished all together, dividends will stay taxed.
  • All that has to be paid for somehow, so effective January 1st 2017, corporate income tax will increase by 1%, from 15% to 16%.
  • The next year, January 1st 2018:
    Personal income tax cut by 2% in each of the 4 tax brackets. The lowest from 13% to 11%, the 4th from 27% to 25%. Again don't cut the new bracket.
    This time pay for it by increasing corporate income tax by 2% on the same day: from 16% to 18%.
  • And the following year, January 1st 2019:
    Personal income tax cut by 1% this time in each of the 4 brackets. Lowest from 11% to 10%. That's a tithe! Again don't cut the new bracket.
    Pay for this by increasing corporate income tax by the same 1%, on the same day: from 18% to 19%.
Corporate income tax on election day 1993 was 28% plus surtax which added 1.14% for a total of 29.14%. Today it's 15%, no surtax or capital tax. So corporate tax has been cut in half. Personal income tax was 17% in the lowest bracket, 29% in the highest bracket. Liberals cut the lowest bracket to 15.5% by 2005, and the November 2005 fiscal update cut it to 15.0%. That update was voted down, that's what caused the election. Conservatives brought that same cut back a year later, for 2007. So they cancelled a Liberal tax cut, then brought it back a year later and claimed they cut taxes! That's not a cut. Instead they cut corporate taxes deeply. Today it's 15% in the lowest bracket, and the 4th bracket is still 29%. So this re-balances tax: cut personal income tax to 10% in the lowest bracket, 17% in the second, 21% in the third, 24% in the 4th bracket, and increase corporate income tax to 19%.

Note that corporate income tax in the United States is 35%, however many corporations actually pay 19%. So what I propose would equal the US. Germany currently has 15% corporate income tax, UK has 23% but has promised to cut that to 19% by 2018, and all other G7 countries have higher corporate income tax rates.

This lays the groundwork to balance the federal budget without any federal personal income tax. GST would stay at 7%, corporate income tax at 19%, dividends stay taxed, GST credit would be abolished. The last bit is tax on marijuana. Either legalize marijuana and tax it, or increase corporate income tax by 2% from 19% to 21% on the day federal personal income tax is abolished. (Say that and see how fast corporate executives argue to legalize marijuana!)

If anyone doesn't like the fact my plan doesn't cut the new bracket at all: that bracket only applies to those who earn over $200,000/year. That's the top 1% of income earners in Canada. And that bracket will be abolished as well when all federal personal income tax is abolished.

But the biggest catch of all is the entire federal debt has to be paid off. Only when that's done can we abolish federal personal income tax. That won't be quick, that's a mortgage.

Provincial

JaredMilne: You asked what is the appropriate level of tax. Total tax means federal, provincial, city, and school tax. Remember school tax is set by the school board, not the province. So that's 4 levels of government. Technically under Canadian law, cities are corporations, not a level of government. But they charge municipal property tax. And school boards are authorized by provincial law to charge school tax.

We just had an election in Manitoba. The incoming premier promised to roll back the last PST hike. So it will be 7% instead of 8%. However, when I was a preschooler that wasn't any PST. When the national healthcare system was created, provinces had authority to decide how they would pay for it. Ontario and Alberta created a health insurance premium. Manitoba had a debate whether to charge a premium, but the NDP government of the day decided to create a 5% PST. It was on manufactured goods only, did not apply to steel toe work boots because they were a necessity for work, no tax on services or groceries or restaurant meals or various other things. And the PST would only go to healthcare, nothing but healthcare. Now it goes to general revenue. It's charged on hard toe footwear (including work boots), and services, etc. They didn't even pretend the last hike went to healthcare; it paid for an increase in salary of the Premier, cabinet ministers, MLAs, senior bureaucrats including judges, and an exemption to seniors for school tax, primarily their cottage. Misappropriation of funds and buying votes.

I would actually propose leaving PST at 7% (not 8%). And replace provincial personal income tax with a health insurance premium. Copy what Ontario did. Some years ago when Bob Rae got elected, Ontario had a health insurance premium. It was paid 2/3 by employer, 1/3 by employee. But an increasing number of employers cheated: they forced employees to pay both. That was illegal, any employer who got caught was in deep trouble, but employers threatened to fire anyone who turned them in. Bob Rae fixed this by replacing the health insurance premium with a payroll tax. That means employers pay all of it! That'll learn 'em! When Ontario Liberals got elected again, they changed it. They kept the payroll tax, but made it the employer's portion. Then introduced a premium paid by employees only. Separating it into two taxes meant employers couldn't cheat. One union tried to force employers to pay the premium, but the court said no. Manitoba has a payroll tax now. I would keep that payroll tax and make it the employer's portion. Restructure it to exactly copy Ontario's. That means some employers will pay a little more, some a little less, on average employers would pay 4% more than they are now. And replace Manitoba personal income tax with a health insurance premium, paid exclusively by individuals. Copy Ontario's current premium. That means the majority of Manitobans will pay less tax.

This solves a couple problems. When the federal government cut personal income tax, Manitoba increased personal income tax. So the total tax stayed the same. Eliminating provincial income tax means the province can't do that again. It also means we can see exactly where our tax money is going.

City

When the city of Winnipeg unified with surrounding communities in 1972, city councillors were paid $10,000/year with no budget for staff, no "discretionary" budget, or anything else. Inflation makes that $60,000/year in today's dollars. Cut their salaries to that, abolish the discretionary budget, and give them a secretarial pool for the entire council, not staff for each one. Also cut the mayor's salary to what it was in 1972 plus inflation. Our tax dollars are for roads, sewar, garbage collection, and other city services; not for them to pocket!

Got my property tax bill for this year. It's up again!


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PostPosted: Mon May 09, 2016 9:35 pm
 


Debt is not like a mortgage. It's nothing like a mortgage. Like at all.

Government "Debt" is primarily in the form of government bonds and T-bills that are sold on the market and mature over a preset period of time. In that sense, the debt is constantly getting paid off as these instruments mature. The payees are the Canadian citizens, companies and investment products that hold these bonds. If you own mutual funds for example, you are probably invested in government debt as government bonds are typically found in many portfolios. Debt is primarily money that is borrowed from, and paid back to, Canadian investors. Invesors who want to buy government bonds because they are stable and reliable.

As for the OP, I've been asking Conservatives the same question for years, they don't have an answer. They act as if they would be happy, if only the tax rate would simply decrease from x to y...but when that decrease actually happens, they're back next year claiming tax rate y is outrageous, taxes keep going up, they're taxed to death, and the rate needs to be decreased to z. Even if the tax rate was 0.0000001% I think they would still be shrieking. It's not the rate that matters to them, it's the act of cutting. They have no clue what the services they do value cost anyway. They have totally unrealistic expectations as we saw here recently when a cla member incorrectly thought the Detroit Chief of Police is paid a mere $85k and that would be a reasonable salary for other cities to follow.


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PostPosted: Mon May 09, 2016 9:44 pm
 


BeaverFever wrote:
Debt is not like a mortgage. It's nothing like a mortgage. Like at all.

Government "Debt" is primarily in the form of government bonds and T-bills that are sold on the market and mature over a preset period of time. In that sense, the debt is constantly getting paid off as these instruments mature.


Not if they make new debt to pay off the old debt. Like I used to pay off a credit card with another credit card right? That didn't mean my debt got smaller


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PostPosted: Tue May 10, 2016 5:08 am
 


Theoretically, the 'right' amount of tax is just enough to fund the programs the population needs/desires. :wink:

The problem is that there are two sides to that coin and it's impossible for everyone to agree, so we wind up with this back and forth dichotomy where one side spends a fortune on the stuff they like and neglects the stuff they don't, then 5-10 years later, the other side gets elected and does the opposite, funding what they like and neglecting the other's side's stuff.

Thus, in reality, the right amount of tax is dictated by which political party is in power: right leaning governments want lower taxes and services, while left leaning governments want more spending and more services.

Sorry for being so obtuse! [B-o]


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PostPosted: Tue May 10, 2016 5:48 am
 


Ahh, the freerider problem. Such anger. Gimmie, gimmie, gimmie!!!


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PostPosted: Tue May 10, 2016 1:20 pm
 


MeganC wrote:
BeaverFever wrote:
Debt is not like a mortgage. It's nothing like a mortgage. Like at all.

Government "Debt" is primarily in the form of government bonds and T-bills that are sold on the market and mature over a preset period of time. In that sense, the debt is constantly getting paid off as these instruments mature.


Not if they make new debt to pay off the old debt. Like I used to pay off a credit card with another credit card right? That didn't mean my debt got smaller


It doesn't have to get smaller, the government, unlike people, has no need to be "debt free". The debt just has to remain manageable.

To compare government debt to personal debt, imagine the government is a person who:
- Lives forever
- Is never unemployed
- Has income that always goes up (at least in the long-term),
- Can print as much money as they want
- Regulates the financial markets and sets interest rates


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PostPosted: Tue May 10, 2016 1:44 pm
 


Debt = Income Tax
As long as there is government debt, you will pay income tax.

Debt service charges (aka interest) is significant. During Mulroney years it consumed 36% of all federal taxes you paid: income tax, GST, excise tax on air conditioners, etc. Interest rates are lower now, but they will go up. Now is the time to reduce debt, while interest rates are low so we can afford to.

There is also cost of tax collectors. Last figures I read in the budget, CRA receives $3 billion per year. Do you want to pay tax just to pay salaries for tax collectors?

There are a lot of irresponsible brats elected to government. They want to borrow money to spend, with no intention of ever paying it back. How can you call it "borrowing" when you have no intention to pay it back? That's fraud. There are too many MPs who just want to spend and charge it on Daddy's credit card. Well, you the taxpayer are the one paying that credit card.

And printing money? Really? If they just print money to pay the debt, you realize that causes the value of the dollar to drop. Printing money does not increase the total value of the economy. If you print so much money that the total number of Canadian dollars increases by 25%, then the value of the dollar drops that much so the total value of goods that can be purchased by all that money remains the same. So money you have saved in the bank for your retirement, or your children's university or whatever, all drops. That makes everyone poor. Let me say this another way, printing so much money that it increases total currency by 25% will cause inflation to increase the price of everything by 25%. So total after adjusting for inflation did not go up. Is that really what you're asking for?

As for regulating financial markets: the US federal government tried to mess with that to their own benefit prior to 2008. That really worked out well, didn't it?


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