Death and Taxes...

And apparently supreme ruler, Stevie Harper only believes in death.

You know, there's two schools in economics on this. One is that there are some good taxes and the other is that no taxes are good taxes. I'm in the latter category. I don't believe that any taxes are good taxes.

Harper

10 July, 2009

Yeah... there's black and white. Pure neo-con bullshit.

Jeffery Simpson feels the same way I do.

This assertion, from an interview the Prime Minister gave The Globe and Mail after the G8 summit in Italy, is one of the most stunning, revealing and, frankly, ignorant statements ever made by a prime minister, let alone one who keeps purporting to be an economist, despite doing so many things that economists deplore.

Think about it: The prime minister of a country is saying, “I don't believe that any taxes are good taxes.”

There is no “school,” to use Stephen Harper's word, anywhere in economics that says “no taxes are good taxes.” Not even Milton Friedman and the Chicago school think that. Nor do Mr. Harper's former mentors at the University of Calgary.

And it just keeps getting better.

Bonus! Jennifer explains what Harper doesn't get.

Dan explains that killing taxes starts at home - Harper's home. (I would completely agree to selling off 24 Sussex Drive and forcing the prime minister to find his/her own accommodation. The PM is more than amply compensated. We taxpayers provide an office - provide your own friggin' house.)

By the way, when the Conservatives favourite ambulance chaser-turned-finance minister did a review of assets and announced that so many of them were now surplus, how come the various PM's residences didn't go to the chopping block?

Could the economists have been right?

You'd have had to look under rocks in the most obscure places to find an economist in Canada who agreed with the Harper government reduction of the GST. Most addressed it for what it was: An expensive maneouvre designed to do one thing - gain votes.

Via Impolitical comes a report from the Canadian Centre for Policy Alternatives that suggests Canadians might have been much better off if the GST had remained at its pre-Harper levels.

The basic premise for their observations is that Canadians get a lot of value for their tax dollars - maybe the best deal they will ever get for an equivalent amount of money.

I tend to read CCPA information with a bit of weather eye. I'm always wary of their starting position just as much as I am with the Fraser Institute, but this analysis appears to echo a throng of economists who were dead-set against the GST cut when it was introduced. The fact sheet CCPA issues with the report is consistent, clear and accurate.

The bottom line is that cutting that particular tax could only have one effect: The cutting of services.

Of course, that is exactly what Harper and his reformers want. This is nicely underscored by the latest shot taken at universal health care by a squaloring Preston Manning. By cutting taxes (Good, says Manning) the economy is being stimulated. That's the same voodoo economics of Ronald Reagan. In truth, cutting taxes means less government revenue and that gives the reformers an excuse to hold universal health care out and declare it "too expensive" - we'll have to devise another model. You middle-class folks will just have to get health coverage from one of the newly authorized health management companies...

This would require provincial and federal leadership to create a two track system, public and private, for health care insurance, financing, and delivery — replacing several billions per year of public health-care dollars with private dollars while still preserving universal coverage for all citizens.

And where does Manning propose those private dollars come from? He doesn't actually say it, but count on it being your pocket. He then proceeds to perpetuate a myth:

This is what most European countries have done, resulting in better health care outcomes at lower cost than Canada.

False on two counts.

Manning hasn't produced an example of the European system because it doesn't fit his narrative. In truth, the European system is still a single-payer model. Where there is a "two-track system" (to use Manning's term) there is a plethora of complaints from those accessing the public side of the track about preferential treatment for the wealthy. Not that it matters because very few European countries actually have that kind of system.

What actually exists is similar to the Canadian system but with a patient centered model. Hospitals and services do not receive bulk funding - they are paid for services provided. That's not "two track"; that's efficiency. It's also not what Manning is calling for.

The "lower cost" he continually blusters on about is also mythical. His convenient ommission of Canada's next door neighbour is a disingenuous attempt to obscure a reality: The reason Canada's health care costs are higher per patient than those of Europe happens to be because of our proximity to the US, where health care costs are substantially higher than equivalent care in Europe. Canada is forced into a system of higher compensation in order to prevent the best skills from crossing the border. What Manning doesn't include is that the cost of branded prescription medications in Canada is substantially lower than the US and Europe.

It is worth keeping in mind that as Harper keeps offering tax cuts as an incentive to vote for his party, the cost is higher than most Canadians are willing to accept and the result would likely be something much worse than Manning has fabricated on behalf of his party leader.

Added: Manning said this:

At Canada's high levels of taxation...

That's starting the paragraph with a lie. The OECD Centre for Tax Policy and Administration has pegged Canada's tax levels at well below the OECD average before the Harper GST cuts. Manning is inventing something he can't substantiate.

Gimmicks?

The Harperites are all about gimmicks. (My emphasis)

It was obvious from the outset that the federal tax credit for users of public transit was more about political aims than environmental ones. The initiative seemed to be more about wooing suburban commuters than about easing “traffic congestion and the harmful greenhouse gas emissions that come with it,” as the government claimed in its 2006 budget. A report by the federal environment commissioner, released last week, has given substance to this impression. [...] If the Conservatives wanted to reduce emissions, there were far more effective measures available to them – including funding for public-transit development to make it a more attractive option. And if they wished to provide savings to “hard-working Canadians,” which Environment Minister Jim Prentice said last week was the credit's second purpose, they should have focused on comprehensive tax cuts – not social spending dressed up as tax relief. Devised with the apparent sole purpose of putting money in the hands of a targeted group of voters, the public-transit tax credit is a failure as public policy and an example of what happens when governments fall back on gimmicks.

I might make a prediction here: You ain't seen nothin' yet.

Harper's latest promise is empty

Oh good, another Conservative tax credit scheme.

Harper announced a Conservative government would offer first-time homebuyers a tax credit of up to $5,000 to help defray the closing costs on a new or resale home purchase.

Speaking at a construction site in Kitchener, Ont., Harper said the tax credit will help make home ownership more affordable and will help spur construction jobs.

"Our plan is simple, modest and practical," he said.

And just a little less believable than, oh, say, promising not to tax income trusts.

Before you get carried away, this isn't a $5000 return to you. It's a tax credit, so it's only really about $750 at best. And it's not applied to the cost of a house - it's applied to the closing costs - the fees associated with completing the sale such as paying for lawyers, mortgage fees, etc.

Then of course, there was a little more information flowing from the cavities of Harper's entourage. (Emphasis mine)

Conservative advisers travelling with Harper say the homebuyers tax credit is a modest proposal that will be phased in over four years which means, should Harper win another minority, there is little guarantee his government would survive that long to implement it.

Wheatsheaf has more and a very apt comparison.

Fair Enough . . . .

From Reuters today:

IRS to start economic stimulus payments May 2
Mon Mar 17, 2008 1:05pm EDT

WASHINGTON (Reuters) - The Internal Revenue Service said on Monday it would begin sending out the first of more than 130 million economic stimulus payments on May 2 and expects to complete the first round of payments by early July.

The IRS said the payments -- tax rebates of about $600 for most middle-income individuals and $1,200 for middle-income couples -- will be sent out in the order of the last two digits of the taxpayer's Social Security number. Taxpayers must file a 2007 tax return in order to receive a payment.

Let's see now.

The average Joe Schmoe gets $600.

The hedge funds, banks, lending institutions, financiers, etc., will no doubt get bailed out to the tune of billion$ or even trillion$ for their pie-in-the-sky shenanigans. Plus the CEO's of same keep their outrageous salaries,bonuses and options.

Sounds fair enough . . . .

(Cross-posted from Moving to Vancouver)

An unnecessary message from Gordon O'Connor

This morning, along with a corporate tax form, this little piece of information arrived in the mail. (Click to enlarge)

I don't mind information, but the propaganda nature of this little blue slip of paper is more than just factual information.

The Canada Revenue Agency, in its role of dealing with taxpayers, cannot assume a position of determining what does or does not benefit those taxpayers.

It implements policy; It does not judge its worth.

I would have had no problem with an information bulletin which announced the changes in a matter-of-fact manner.

This little blue slip however, is a policy statement accompanied by political propaganda.

If this is to become routine, O'Connor might want to include, above his signature, that most economists disagree with the reduction of the GST as sound tax policy.

It's a first. Brought to you by the perpetual election campaign of the Steve Harper Party of Canada.

Update from Cheryl: Being in the accounting business, I'm inundated with mail from CRA detailing changes in tax laws, updates, etc. This ridiculous insert was in a GST news bulletin I received today. When Dave saw my slack-jawed reaction, I told him that this was an absolute first in all my 25 years of receiving mail from CRA. Stevie baby does it again (maybe the most surprising thing was that they didn't blame the Liberals for something or another in the insert)

Following in the footsteps of failure.

It's bad enough that we have Canadian Defence Minister Peter MacKay channeling disgraced former US Secretary of Defense Donald Rumsfeld right down to using the same approach of intentionally insulting anyone who questions a dubious war. It's worse, however, that the Conservatives keep aping the words and policy ambitions of one of the worst US presidential administrations in history.

BCer in TO picked this one out the swill and it's not only disgusting, but even a banker disagrees with the premise put forward by Canadian Finance Minister Jim Flaherty. (Emphasis mine)

Finance Minister Jim Flaherty raised the prospect yesterday of cutting income taxes for high-paid workers to keep them in Canada.

The man who has often been described as the populist Finance Minister suggested that it would not be an easy thing for politicians to do. But he said banks and other companies are being lobbied by foreign governments to move chunks of their operations to jurisdictions with better income-tax rates.

"We need to do more on the personal income-tax side because we still have marginal rates that are disproportionately high when I look at our competition," Mr. Flaherty told reporters in Oshawa. "And one of the things that politically is more difficult to do but it still needs to be done and that is in the higher earning categories between $100,000 and $200,000 a year in income."

Well, isn't that special. His concern is a category that pays federal tax at a rate of either 26% or 29%.

"Our competition"? Who's that? Flaherty didn't bother to provide an example which suggests it is a statement he intentionally pulled right out of his ass.

The most obvious "competition" would be the United States. So, making that obvious assumption let's look at the US federal tax rates for that general income category.

Hmmm... the US has six tax brackets as opposed to Canada's four. For the category of someone earning $100,000 annually the federal tax rate is 28% - 2 percent higher than that same wage earner in Canada.

For someone earning $200,000 annually in the US the federal tax rate is 33% - 4 percent higher than the equivalent Canadian. Keep in mind that in all categories, Canadians receive universal health care from taxes. Americans must either negotiate it as an "employer-pay" benefit or pay for it out of their income.

So, which jurisdiction precisely is it that Flaherty considers "competition"? France? I think not. Germany? Hardly. Maybe, Britain? Well, no, since British income tax is higher at the wage level described by Flaherty but much lower at the low and middle income brackets. It would appear that Canadian federal tax rates at the wage levels described by Flaherty are already some of the lowest in the developed world.

That would mean Flaherty is tossing out a deliberate falsehood since he neither identified nor described the "competition". Not that I'm calling Flaherty a liar, although I'm fairly certain he would have serious difficulty defending himself against such a charge, but he is being highly deceptive.

It seems the US Republican advisors hired by the Harperites are feeding the Canadian Conservative Party the same line of crap they feed the Bush administration. And Flaherty is more than happy to regurgitate the Bush administration line that top-end tax cuts will fuel the economy and provide jobs. Given the state of the US economy, that doesn't seem to have worked quite the way Bush, Greenspan and Paulson had hoped.

Even a leading banker doesn't believe that cutting taxes for top wage earners is as important as cutting taxes at the lower end of the wage scale.

Don Drummond, chief economist of Toronto-Dominion Bank, joked that he "would never want to dissuade anyone from providing tax relief to bankers. That is a great idea that should be supported by all Canadians."

But, he said, "if it's marginal personal income tax rates one is concerned about, the gaze should fall at lower income levels. There we truly have impaired the incentives to work, save and invest, because once various benefits are clawed back, individuals and particularly families keep very little from that last dollar earned."

Chief economist of a Canadian chartered bank. Believes Flaherty has it wrong. Disagrees with major think tank.

William Robson, president of the C. D. Howe Institute, believes tax cuts at the top end of the income scale are a good thing. "We are a high-tax jurisdiction for the people in the $150,000 range," he said.

And the reason Drummond can make a statement which flies in the face of Flaherty's assessment and the repetitive whine of the C.D. Howe Institute is because both Flaherty and the C.D. Howe Institute are full of shit.

Thought you got a tax cut? You'd better be a corporate CEO then.

Back here, and in previous posts, I have argued that our income tax system is regressive due to too narrow a margin between tax brackets and too few tax brackets. Some disagreed with me, and I'm sure still do, however, it only takes a few minutes of running numbers through a decent tax program to discover that the wealthy have a better chance of paying a lower percentage of their pre-tax income in taxes than the lower-middle class wage earner.

It appears I'm not alone in my observation.

The tax burden for the richest Canadians is falling while the poorest are paying more, according to a new study.

After years of tax cuts, the top 1 per cent of families was by 2005 paying a lower percentage of their income to governments than those at the bottom of the income scale, according to analysis of the tax system published today by the Canadian Centre for Policy Alternatives.

"Canada's tax system now fails a basic test of fairness," said Marc Lee, a senior economist with the Ottawa-based think tank.

"Canada's upper income earners are not paying their fair share in taxes compared to 15 years ago."

The policy centre said the trend is eating away at the concept that underpins the tax system – the notion of progressiveness that says those with a greater ability to pay should contribute more than others.

Lee's analysis tracks the percentage of all earnings Canadians in different income brackets send to federal, provincial and local governments in the form of income, payroll and property taxes and in fees.

It finds that the rich, with annual incomes of more than $265,000, saw their tax rate decline dramatically between 1990 and 2005 by nearly 4 percentage points to 30.5 per cent.

To be clear here, and fair, this trend is not the fault of the Harper government. It goes back to the Mulroney government and then subsequent Liberal governments which perpetuated an already flawed system. But that's only the federal side of the story. The fact is, right-wing provincial governments have an impact which can be far greater.

But middle-income families still pay about 6 percentage points more in total taxes than a family in the top 1 per cent.

"We've lost progressivity, particularly at the very top of the earnings distribution, and we should be aiming to have a tax system where the most able, the most affluent in our society, are paying a greater share of their income in taxes," Lee said in an interview.

He said this development over 15 years owes much to provincial income tax cuts such as those brought in by the governments of Mike Harris when he was Ontario premier from 1995 until 2002.

One of the reasons for that is the limits placed on other forms of taxation. The effect of the maximum allowable CPP/QPP contribution on a middle wage earner is significantly greater than that of a high wage earner, just as an example.

Lee said this shift can only pick up steam as a result of the six-year, $14 billion cut in corporate taxes decreed in the Harper government's Oct. 30 mini-budget because those who benefit from corporate earnings tend to be at the upper end of the earnings scale.

"Essentially, it's a fairly large upper-income tax cut," he said, adding that it means the whole system will likely become more unfair.

"This is going to make that trend of the regressive pattern at the very top all the worse."

And if you need to put that into perspective, small business is getting a tax reduction from 13.5% to 11%. A 2.5% reduction. Large corporations however, are getting a reduction from 22.1% to 15%. That means there is a greater amount of money from profit to be distributed among shareholders. Aside from pension funds, mutual funds and similar instruments, the wealthiest of the population hold the largest blocks of shares in large corporations providing even more of a return and an increase in personal wealth. There are, of course, a multitude of complications, but when large corporations provide bonuses in the form of stock options to top executives they are actually distributing a large portion of the wealth generated by a company to the highest paid employees of that company. That doesn't even begin to explore the profit sharing plans that many large companies offer top executives as an incentive to make the company more profitable.

So, while the system of income taxation and its regressive nature cannot be placed squarely on the shoulders of the current government, they can be held responsible for making it more unfair as the system moves through the years. They could have, but did not, reform the tax system in favour of the low to middle wage earner.

But then, you probably knew that, didn't you.

Deja Vu. We've had this tax cut before. Updated

OK, I've been asked if I am going to comment on the economic update/mini-budget/cynical vote-buying event produced by Flaherty.

My immediate reaction to the question is to say, "No." However, there are a couple of points which I'll make quickly.

First, the income tax cuts announced by Flaherty are virtually the same ones we had before the Conservatives came to power. Rational Reasons has expressed, just about perfectly, all I could say on the matter.

Secondly, (and I am not going to take a lot of time or space to spell this out), cutting the GST another point to make it a 5 percent consumption tax is just about the dumbest and most unfair way to lower taxes I can think of.

The GST is a progressive proportional tax. Those spending the most money pay the most tax. It's cheap to collect and it's virtually self-policing. Anybody with a reasoning mind can see that a value-added sales tax makes eminently more sense than the alternative: regressive income taxes.

By announcing that the GST will be reduced on January 1st, 2008, Flaherty has probably done some not-so-insignificant economic damage to small business in this country as consumers wait until after Christmas to make big-ticket purchases. But then, no one ever accused Flaherty of being very bright.

Notwithstanding that, Flaherty could have seriously slashed income taxes, left the GST alone, increased the basic personal exemption much more significantly and instituted a guaranteed minimum income.

He could have made taxation fairer. Instead he pandered to the base instincts of those who don't and won't understand which taxes hurt them the most.


Update: The Wingnuterer weighs in. Thanks Zorpheous!

Harper's equalization formula is stealing from somebody else's rice bowl.

Woman at Mile O has a couple of good posts on Flaherty's purchase of Quebec budget.

One of the articles she linked pointed to a very dangerous element in the new equalization formula worked out by Flaherty and Harper. The federal government is now in the property tax game. Not directly, but in the game nonetheless.

Now, when working out equalization payments, property values within a province will also be a part of the formula to determine levels of transfer. In short, what that means is that even if the economy of a province slumps, but property values take their time decreasing, those inflated housing and land prices will prevent a federal transfer from meeting the program requirements of the province.

David Emerson demonstrated that, not only is he a political piece of pond-scum, but he doesn't have a clue how property taxation actually works.

But Emerson said the new formula for sharing wealth with "have-not" provinces is based on firm principles.

"Everybody in the world knows that high real estate prices translate into de facto wealth, which is taxed by local governments amongst others. So I don't know why that wouldn't be part of the calculation."

WRONG!!!

That illuminates the unbelievable stupidity of David Emerson. Property taxes are based on the value of the property alright, but the levy is based on a mill rate. If the actual tax levy rose with the value of the property in British Columbia, nobody would be able to afford the taxes and local government would be swimming in surplus cash.

There is a process which clearly escapes the self-absorbed minds of David Emerson, Steve Harper and Flaherty. All property is assessed for value, local government sets a budget, the amount of money required is determined, the mill rate is established and taxes are paid based on both the property value and the mill rate.

[BC Premier Gordon] Campbell argued last week that the inclusion of property values would probably deny B.C., which won't receive equalization in 2007-08 thanks to a booming economy, future access the program during an economic slump.

"Anyone that says that your property values are in direct relation of your ability to pay doesn't frankly know a lot about what they're talking about," Campbell said last week.

"The fact of the matter is, property values in British Columbia went up by about 24 per cent last year. Peoples' ability to pay did not go up by 24 per cent last year."

I don't normally agree with much of what Gordon Campbell has to offer, but in this instance, he's dead on.

And now, you have the federal government, quite incorrectly, playing a tax game around property values.

Nailing Flaherty's BS. Check your tax return.

The Canadian income tax landscape changed when the Harper government's finance minister decided to try and prove how wonderful the Conservatives were by implementing a new set of tax credits. (You'll notice your income taxes went UP).

In any case, accountants at this time of year become a little frazzled and it didn't help that a whole new, and not so easy to understand, tax rules came into play.

Now accountants are generally pretty staid about these things. Yes, changes mean extra work and a lot of study, but they do it because it's a part of the job. They tend NOT to comment on the mechanics of a tax regulation as long as it makes sense and they can do their best for their clients.

I know this for a fact. I live with one.

Each year a publication is written to give the nitty-gritty on preparing income tax returns. It's a massive thing and, this year it is 1,509 pages of small print on bible-style paper. Amazingly enough, this consummate guide to income tax preparation is called Preparing Your Income Tax Returns® published by CCH Canadian Limited and edited by Michael G. Mallin, MA, JD. If you are suffering from insomnia you should try reading this book. It's dry, straightforward and just plain difficult. But it's got everything you need to know about income tax in Canada.

I know, you're thinking accountants would love it, being humourless, etc. And, they would never criticize the law around taxes themselves. Nor would they, in such a publication, point out something totally ludicrous.

Wrong. On page 765: (emphasis mine)

For 2006, and later years, a new "textbook" amount is added to the education amounts above. The textbook amount is $65 per month for each month in the year for which you were entitled to the $400 full-time student amount above, and $20 per month for each month in the year you were entitled to the $120 part-time student amount above. The quick-witted will observe that the same result would have been achieved if the $400 and $120 education amounts had been increased to $465 and $140, and a fair amount of ink saved in the process. It would appear political advisors felt that a new credit would sound better to the public than an increase in the old credit. Probably this is true, if depressing.

That is a comment on Flaherty's methods from the most respected tax preparation publications in the country.

Did I once say "smoke and mirrors"? Now the accountants are saying it.

Stuff that in your pocket protector, Flaherty.

Credit: Technically speaking, this should have been Cheryl's post. She, of course, discovered the pertinent paragraph. I would have no reason to actually look at a tax publication. However, during tax season she has an aversion to keyboards for any purpose outside work. Booze helps.

Update by Cheryl: LOTS of booze!!!!

Just a reminder

It's January and that means "tax season" is upon us.

This is just a reminder to collect your slips and file your return. Thanks to Rick Mercer.