Flat Tax

[geo]

Thuc...
Mr Flaherty pulled a boner when he reduced the GST / HST by 1%.
Per a "MARKETPLACE" survey done between Dec & Jan, merchants & Municipal govt's simply plowed the 1% into their profit margin.
So the little guy, who was supposed to benefit from the GST reduction gets it in the neck once again... Wonderful!

 

[a_majoor]

It is not the responsibility of the Government to determine what the tax cut goes to. You could make the argument that the extra profit margin keeps some business afloat and allows others to expand, increasing employment.

As for consumers, it is your responsibility to shop around for the best deal. If you don't like what a vendor is doing, find another. In the Internet age there are no excuses for not being able to do so.

 

[geo]

Ummm....  for the most part, we're talking pennies per transaction - and no one will bother to do much work to find another supplier
but it's the principle of the thing.

Government services have also gouged the consumer....
Marketplace figures that the city of Toronto would gather an additional 1-2 million $ from parking meters over the 1st year...

If Mr Flaherty wanted the individual consumer to get the $$ he should have applied it to generalized reductions to the Income tax - both personal & corporate.

Do you truly believe employers will expand their workforce with the additional ?

 

[Reccesoldier]

Ummm....  for the most part, we're talking pennies per transaction - and no one will bother to do much work to find another supplier
but it's the principle of the thing.

Government services have also gouged the consumer....
Marketplace figures that the city of Toronto would gather an additional 1-2 million $ from parking meters over the 1st year...

If Mr Flaherty wanted the individual consumer to get the $$ he should have applied it to generalized reductions to the Income tax - both personal & corporate.

Do you truly believe employers will expand their workforce with the additional ?

Sounds selective to me.  Taking the parking meter "gouge' how much money do you think it would cost a City the size of Toronto to change the price on each and every parking meter?  How many other examples of services like this were considered for the poll?

As for the average business the tax is added at the register and to gouge that 1% would mean the repricing of each and every product sold.  So hopw many business' would spend that time and money?

I think I'm hearing an axe being ground.

 

[geo]

What axe
Mr Flaherty said I was entitled to having my consumption tax reduced by 1%
I figure I am entitled to receive the benefit Mr Flaherty claims I am entitled to get...

By plowing the 1% back into corporate profits, the Gov't will bring it back into it's coffers all over again....

SO, If they want to give me back some $$$ - do it at the source and don't take so much money outa my pay.

 

[Reccesoldier]

What axe
Mr Flaherty said I was entitled to having my consumption tax reduced by 1%
I figure I am entitled to receive the benefit Mr Flaherty claims I am entitled to get...

By plowing the 1% back into corporate profits, the Gov't will bring it back into it's coffers all over again....

SO, If they want to give me back some $$$ - do it at the source and don't take so much money outa my pay.

I didn't mean you Geo, I meant that the poll was scewed by including things that would be excessively cost prohibitive/manpower intensive to reprice to take off a hidden 1% of GST (like the parking meters)

 

[a_majoor]

Geo, the two % reduction in GST is not going to show remarkable results in an instant, but you can't have cake and eat it as well either. If the GST reduction will not appreciably increase investment or employment, then it will not make a drastic change in your lifestyle either. (Actually, your individual circumstances might not change, but the cumulative effect of the tax cut will be noticeable on the supply side).

For people in very low income brackets, the GST cut will provide a small measure of relief (since they probably do not pay income taxes anyway). You are entirely correct in supporting a broad based income tax cut (welcome to the club!), but given the political climate of Canada and the constraints of operating a minority government, I suspect the GST cut and a small income tax reduction or streamlining is all we can expect for the foreseeable future. Even if the government falls on the budget, the best we could hope for is another conservative minority, with equally limited room to move.

 

[geo]

... a larger "small income tax reduction" instead of a GST reduction woulda fit the ticket to the majority of the electorate.

 

[Edward Campbell]

The 2% GST reduction is a very good thing, not for its effects on either people or the economy (significant cuts to individual income and a complete elimination of the silly 'corporate' income tax (an inefficient sales tax) would have done much more for both), but for its effects on the size of government. Less revenue means less capacity to spend. Cutting inflexible taxes like the GST is always good because politicians, being gutless, are afraid to reimpose previously cut taxes (watch our American neighbours try to wrestle with Bush's temporary tax cuts!) and now, in Canada, they are (temporarily, at least) afraid to run deficits so all that is left is to cut spending.

Now, being politicians, they will try to cut essential spending, like defence, education and infrastructure, and retain wasteful social spending but, eventually, they will have their noses rubbed into the error of their ways - albeit only after all of us have suffered for their bad decisions.

 

[geo]

The 2% GST reduction is a very good thing, not for its effects on either people or the economy, but for its effects on the size of government.

Huh ???

A reduction in income tax - individual income tax / corporate' income tax would have done much more for both .

my point exactly!

Translating the intended "budget surplus $$" transfer back to the people into an income tax reduction woulda made sure the taxpayers of Canada would have gotten their "due" - the one Mr Flaherty promissed us.  As it is, it's pert much being plowed back into the corporate coffers.

 

[Edward Campbell]

The 2% GST reduction is a very good thing, not for its effects on either people or the economy, but for its effects on the size of government.

Huh  ???

Any time we can constrain government spending, by denying government the right to tax us, we have made things better. Less money = less government = better government (always, without fail, even in wartime).

 

[geo]

... I agree with you 100%
but, by reducing Income taxes - you do it more efficiently than by slashing GST.

As the GST reduction is not being passed back to the consumer, the corporations are adding it to their bottom line - their profit line... which is being taxed... which returns same said $$$ right back to the Revenue people....

 

[Edward Campbell]

C'mon geo; we both lived through the Trudeau, Mulroney and Chrétien eras. We know that smarmy, conniving politicians can manipulate the hideously complex income tax system to impose all manner of hidden and not so hidden surtaxes and ‘targeted’ exemptions which have the effect of raising more and more tax revenue even as tax cuts are implemented.

The genius of the GST is its inflexibility. With a handful of unnecessary exceptions it’s a case of: if you use your money you pay a tax. Cutting inflexible taxes works; cutting flexible (complex) taxes always leaves room for improvisation and fiscal slight of hand.

In a perfect world we would have only a very few, totally inflexible taxes – focused, primarily on taxing consumption rather than saving and investment, but ... that brings us back to the topic of a flat tax.

 

[a_majoor]

This should also go under the Media and CBC bias thread as well......

http://www.officiallyscrewed.com/blog/?p=904

CBC Bias Rears It’s Ugly Head … Again
Filed under: Politics-Federal, Business, MSM Bias, News and Media, CBC Cowchips, Numbers Don't Lie — TrustOnlyMulder @ 12:43 pm

I just finished watching Marketplace on CBC this Sunday afternoon. That’s what happens when CTV cancels this weeks edition of Question Period.

The last 10 minutes of Marketplace was dedicated to seeing if consumers were really seeing the GST cut that the Tories have brought in.

They start off with a Tim Horton’s coffee and confirm that Tim’s is, indeed, passing on the GST cut by cutting the cost of coffee. I can confirm this because the price of an XL coffee used to be $1.59 and after the 2 point cut it is now $1.56. Yay Timmy’s!!!

But every other price they looked at was for a set price item. i.e. prices that have traditionally been rounded to a dollar (or half dollar).

They start off with a Saturday Toronto Star. $2.00 before and $2.00 after. Since a large portion of newspaper sales are via the box on the street corner, this one is a given as an item that would not change in price. Who the heck is going to want to put $1.98 into a newspaper box slot?

They then proceeded with Parking machines, parking meters, Live Theatre tickets, taxi cab fares and movie tickets. All of which have stayed the same with the base rate of the product going up meaning no cost savings to the consumer.

I don’t know about you, but I have noticed the tax saving on restaurant food, where the tax is added in AFTER the cost of the meal. I have noticed the tax savings in my grocery bill which far outweighs any money I put into movies, cabs, or parking. I have also noticed it anywhere the price of the item is set with the tax being added after the fact. Store owners did NOT go around the store bumping that $3.99 box of cereal to $4.03.

This was simply a poor reporting job by the CBC. The sad part about something like this is that most of the items they looked at were items that lower income Canadians do not typically use.

Lower income earners ride the bus over taking a taxi or paying for parking. The Conservatives put in a tax credit for the bus riders. Lower income earners might go to the movies occasionally, but more often than not they do not go see a $120 show at the Royal Alex in Toronto as the Marketplace segment showed. In fact, video rentals add tax AFTER the fact so that $3.99 rental that cost $4.59 after tax is now only $4.51. Thank you for my 8 cents!!!

Chalk this one up to that left wing bias our publicly funded network is known for.

 

[Reccesoldier]

This should also go under the Media and CBC bias thread as well......

http://www.officiallyscrewed.com/blog/?p=904

I knew it!

Sounds selective to me.  Taking the parking meter "gouge' how much money do you think it would cost a City the size of Toronto to change the price on each and every parking meter?  How many other examples of services like this were considered for the poll?

As for the average business the tax is added at the register and to gouge that 1% would mean the repricing of each and every product sold.  So hopw many business' would spend that time and money?

I think I'm hearing an axe being ground.

 

[a_majoor]

Canadians now seem comfortable with classical economic ideas like "supply side" economics and the Laffer Curve, according to this poll:

http://unambig.blogspot.com/2008/02/ipsos-reid-poll-confirms-need-for-tax.html

Tuesday, February 26, 2008
Ipsos Reid Poll Confirms Need For Tax Cuts

I originally caught the news line from National Newswatch that the National Post was reporting that Canadians want taxes cut, even if it means running a federal deficit. I wrote about this need yesterday, backed up by economists and the Canadian Taxpayers Federation. Unfortunately the National Post, and most mass media, have a terrible job of documenting their sources. They simply quoted some numbers, unsubstantiated by any linkage to the source article. But I think I've nailed it down to be the Ipsos Reid Poll released yesterday, despite the fact the National Post makes no mention of the polling company they used. It's interesting, because the poll rather contradicts itself at one point, with 45% saying they think tax cuts have been "enough", but then in a later question 37% saying they should cut more taxes. Of course, poll contradictions like this are quite common, and would suggest that while Canadians are satisfied with the current level of tax cuts, they would be in favour of more cuts under certain conditions. Let's glance at the actual poll:

    1. In terms of the current economic conditions in this country as a whole, how would you describe the overall state of the Canadian economy right now?

    Very Good or Good 85%
    Very Poor or Poor 14%

    4. Of the three main federal parties, who do you have the most confidence in to best manage the national economy?

    Harper Conservatives 45%
    Dion Liberals 26%
    Layton NDP 16%

    [Raphael: Of note here is 14% who "don't know", which could be undecideds or even Green voters (who should have been included). Note that a "Harper" government garners better polling in the scope of the economy.]

    7. As you may know, prior to the conservatives coming into power two years ago, previous Liberal governments ran up very large surpluses of taxpayer's money. Last fall, Federal Finance Minister Jim Flaherty cut personal and business taxes by roughly $60-billion over six years which included reductions in the GST from 7% to 5%. As a result, there is very little surplus now for the government to spend on other initiatives. Do you think?

    Tax cuts are balanced and right 45%
    Tax cuts have gone too far 28%
    More tax cuts needed 24%

    [Raphael: Now watch how this is contradicted by the next question]

    8A. Now, some are suggesting that if there is a downturn in the economy and the federal government has fewer tax dollars to spend, there are a few things it could do. If you were the Finance Minister and had to make a choice, which would you choose?

    Cut taxes to stimulate growth 37%
    Freeze government spending 26%
    Raise taxes 14%

    [Raphael: Even when asked in question 8B what their second choice would be, cutting taxes was still first at 22% with freeze spending at 21%, and raising taxes was fourth at 18%. This is amalgamated in 8A/B later in the survey]

The survey also goes on to show that 53% of Canadians would be comfortable running a deficit in an economic downturn. The extra billion dollars Jim Flaherty "magically" found in the budget was also in the survey, with 53% saying it should be spend on poverty reduction. In all, Ipsos Reid shows that Canadians are confident in the economy, have a general confidence in the government, feel tax cuts have been good, but would also support more cuts for economic stimulus. Canadians also feel something should be done for manufacturing, and more spending on poverty. Jim Flaherty, take note.

modified to add link

 

[a_majoor]

As was once said: When America sneezes, Canada catches a cold. Should the Democrats win the White House, perhaps we should pre emptively cut taxes in order to attract American investment and job creation:

http://www.anamericanfrontporch.com/2008/02/capital-gains.html

Friday, February 29, 2008
Capital Gains

Politicians don't scare me. The reality of our democracy is that very few of the real fringe ideas ever come close to legislation. This is why Dennis Kucinich will never do anything on a national scale. He's a kook. But, Wednesday, for the first time in a few years, I heard something from the mouth of a mainstream candidate that actually frightened me. I'm not sure of the location or even the question that prompted her response but Mrs. Clinton hinted at her intent to raise capital gains tax rates once in the White House. I contend that this is a terrible, terrible, terrible idea but even her shrill voice could sell it as "making the rich pay their fair share in taxes".

Capital gains are gains earned on the sale of capital assets. For most of us, this includes our homes and any stocks we own. Currently, 250k of gain is excluded from capital gains tax on the sale of your home if you've lived in the house for 2 years. So, we are left with capital gains being the profits made from buying and selling stock. Mrs. Clinton would lead us to believe that only rich people take part in the buying and selling of publicly owned securities and she has a point. President Bush's tax cuts took the capital gains tax rate from 20% to 15% (for most of us). This is what Mrs. Clinton, and all the Democrats for that matter, have labeled as "tax breaks for the rich". The undeniable truth is that lowering capital gains rates always (and I mean always - even in times of war) increases the nation's treasury revenue. This is somewhat counter-intuitive but the numbers don't lie.

Lowering capital gains rates entices investors, including the money managers directing your 401k, to invest in non-government enterprise. The flood of investment capital on Wall Street, allows the largest domestic companies and even the small cap entities to expand their holdings or, as has been seen in the last 6 years, hire additional workers. More jobs means more people have more income. More income means more tax revenue for the government. Maybe my President was paying attention in some of those Ivy League MBA classes.

In the next few years, the capital gains rates will either go back to where they were or the sitting President will convince the American people that it is a good idea to raise the rates even more. This action will cause investors to move their funds into municipal bonds, which are tax free. Domestic corporations will be forced into mass layoffs and those who keep their jobs will see minimal returns and even losses on their retirement dollars.

This isn't doomsday, mass hysteria stuff but double digit unemployment and inflation are very real possibilities. Educate yourself and don't let your Congresspersons be bullied by the masses who bight on the lies.

Posted by Alan Gable at 9:01 AM 

 

[a_majoor]

Well we are moving a bit beyond "Flat Tax", but it seems the CPC have transformed the Canadian tax system without too many people noticing it!:

http://www.canada.com/montrealgazette/news/editorial/story.html?id=056a196e-051a-41a6-80fb-57b5f542cc35&p=2

Flaherty budget transforms the way Ottawa taxes
The decision to exempt savings from tax represents a sea change for Canada

WILLIAM WATSON
Freelance

Tuesday, March 04, 2008

One measure of a budget's success is how quickly people stop talking about it. Some budgets - Walter Gordon's in 1963, John Crosbie's in 1979 and Allan MacEachen's in 1981- were loudly discussed political disasters. Gordon and MacEachen quickly backed off, saving their governments. Crosbie didn't and the voters ended Joe Clark's government after just nine months.

Of course, the more important measure of a budget is whether it makes sensible changes for the long run.

Finance Minister Jim Flaherty's budget of last Tuesday looks as if it passes on both counts. I was out of the country at the end of last week and when I got back I went looking for discussion of the budget. I couldn't find any. If a politician's first rule, like a physician's, is "Do no harm," it looks as if Flaherty has provided sound medicine.

What comment I did find suggests the budget's success is due to its not doing much. Not doing much? It transforms our tax system.

The budget sleeper, and a great step forward for the country, is the new tax-free savings account. Starting next year, Canadians 18 or over will be able to contribute up to $5,000 a year to a registered savings account and not pay any tax on the interest or capital gains they've earned when, later on, they withdraw the funds to spend them. And unused room carries forward.

Why is this a good idea? As the GST came down over the last two years we heard a lot about how retrograde it was - and how stupid the Conservatives were - to lower taxes on consumption. "We should tax consumption, not penalize Canadians who save. More savings enable more investment and in the long run that's what raises living standards. Reducing the GST threatens Canadian living standards."

Mind you, the other main criticism of the GST cuts were that they were so small - just a nickel on a cup of coffee - as to be inconsequential. But if they're inconsequential, there won't be any consequences to worry about.

During the debate, lots of people have come to realize we would be better off replacing the income tax with a consumption tax. One way would be to ditch the income tax and raise the GST to 24 per cent or so, as one economist suggested. A more acceptable route to a consumption tax would be to keep the income tax but exempt savings. The tax-free savings account (TFSA) puts us very close to that.

Much of the reaction to the TFSA was in the order of "Who has $5,000 a year to save?" But that's just a backhanded way of saying the limits are so generous that almost all Canadians will now be able to shelter all their savings from tax.

A consumption tax is usually sold on eat-your-peas efficiency grounds: Saving is good for the economy. But there's also a strong fairness argument: ending the "double taxation of savings."

Say you and I both earn $1,000 of after-tax income. I spend my $1,000 right away and pay GST and provincial sales tax. You save your $1,000 for a few years and then spend it. You pay GST and provincial sales tax, as I did, but you also pay income tax on the return on your saving.

We were in exactly the same situation to begin with. We each had $1,000 of after-tax income. But because I chose to consume my income, I paid less tax in total.

How is that fair?

The solution is to tax saving just once. We can either let people delay paying income tax until they use their savings - as registered retirement savings plans do.

Or we can tax them on their wage income when it's earned but, if they choose to save it, not tax them on any return on that saving - as TFSPs will do. With three big saving shelters available - RRSPs, TFSPs and also Registered Education Savings Plans - most Canadians should now avoid the double taxation of savings. Consumption tax here we come.

A minority government with little fiscal room introduces a forgettable budget that transforms our tax system.

These guys are good.

William Watson teaches economics at McGill University.
© The Gazette (Montreal) 2008

 

[a_majoor]

The Tax Free Savings Account is a sly and very broad based way to stimulate the economy, monies can be taken out and used for any purpose whatsoever (you pick the economic winners and losers, not some bureaucrat in Ottawa). Since different plans work better according to your circumstances, here is some more details to help plan:

http://www.nationalpost.com/news/story.html?id=344610

RRSPs versus TFSAs: The math

Jamie Golombek,  Financial Post  Published: Monday, March 03, 2008

Starting next year, you'll be able to contribute $5,000 annually to a Tax Free Savings Account (TFSA), courtesy of the new Conservative federal budget.

No doubt, this new savings account was introduced so that the Conservatives could at least be shown to be partially addressing their 2006 pre-election promise to eliminate capital gains tax when the proceeds are reinvested.

The TFSA is essentially a "tax prepaid savings plan" -- the term used by the Liberal government when it announced in its 2003 budget that it was studying the merits of such a plan. (That government never followed through.) "Pre-paid" refers to the fact that the tax on the contributions is paid in advance.

The move addresses the double taxation problem associated with savings in Canada: You pay tax when you earn income and then pay tax again on the appreciated income or growth when it's time to spend it.

The No. 1 question on everyone's mind is: Assuming you've got limited funds, which one do you choose --TFSA or RRSP?

The two plans are meant to be tax-neutral. The chart above compares the after-tax accumulation over 20 years of $5,000 in employment or business income earned by an individual, subsequently invested through a TFSA or an RRSP.

In the TFSA scenario, the $5,000 is taxed upfront, when earned, at the individual's marginal tax rate (assumed to be 40%) and the aftertax amount of $3,000 is invested in the TFSA. Since this tax is literally "pre-paid" and since the earnings and growth inside the TFSA are not taxed during the accumulation phase, nor are they taxed upon withdrawal, the after-tax value after 20 years, assuming a 6% growth rate, is $9,621.

In comparison, take the example of $5,000 of income that you don't pay tax on because it is put into your RRSP and a deduction is claimed for it. The $5,000 invested grows to $16,036 and is ultimately taxed upon withdrawal in 20 years at 40%. You net exactly the same amount aftertax, or $9,621.

So, while it appears that the two plans produce the same results, that only holds true if your upfront tax rate is the same as your tax rate later on.

RRSPs will make more sense when the tax rate upon withdrawal is expected to be lower than the tax rate upon original contribution. Conversely, TFSAs will work out better if your tax rate (including the effect of RRSP withdrawals on benefits such as the Guaranteed Income Supplement or the Old Age Security, which are clawed back based on income) will be higher upon withdrawal than it was when you contributed.

But the math doesn't tell the full story, since TFSAs are much more flexible. For example, the savings withdrawn can be re-contributed back into the TFSA later on. This can't be done with RRSPs.

-Jamie Golombek, CA, CPA, CFP, CLU, TEP, is the vice-president, taxation and estate planning, at AIM Trimark Investments in Toronto.

Jamie.Golombek@aimtrimark.com

Copyright © 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.

 

[a_majoor]

A different view on income splitting. I am not entirely sure I agree with this, but will have to read the report and see what it says:

http://www.nationalpost.com/opinion/columnists/story.html?id=edaa0073-8723-4568-8928-6e82cf140db3&k=51171

A scholar writes on income splitting

Arthur Drache,  Financial Post  Published: Tuesday, March 25, 2008

A recent study published by the Institute for Public Policy Research has concluded that general income splitting between spouses is a bad idea, though it suggests the new rules that allow income splitting of pension income make sense.

Though it may be counterintuitive, the study finds that the higher tax burden on single-earner families where one spouse stays at home with the kids is appropriate.

Income Splitting and Joint Taxation of Couples: What's Fair? was written by one of Canada's most respected tax economists, Jonathan Kesselman. One of his earlier papers, written with Finn Poschmann of the C.D. Howe Institute in 2001, was the intellectual basis of the new Tax Free Savings Account proposed in last month's federal budget.

The current government, in other words, pays attention to what Kesselman writes.

The one-earner family has significant benefits over the two-earner family. First, in dual-earner couples, the second earner has additional work-related expenses (such as transportation, clothing and personal care, unions and professional fees) that a single-earner couple does not incur.

Second, dual-earner couples have much less time to devote to household duties, and often must purchase services such as child care, housecleaning, gardening and laundering. As a result, single-earner couples are in fact better off than dual-earner couples with the same total income, and empirical studies suggest that the gap is in the order of 30% for childless couples and 60% for couples with children.

This inequity has been recognized by economists and tax analysts for decades, and it is the fundamental reason why it is, in fact, fair for single-earner couples to pay more total tax than dual-earner couples with the same income.

Irrespective of one's views on child care, Kesselman notes that income splitting is a blunt instrument for encouraging parental child care. Its benefits would accrue disproportionately to higher-income couples, including childless ones. And many other policy tools could address this issue directly -- such as enriching parental leave benefits or increasing the universal child care benefit.

It is worth noting that Kesselman is in favour of efforts to allow splitting of pension and investment income, because the current system contains important inequities that need to be corrected. With respect to pension income, splitting is justified because it addresses the inequity between couples who have access to spousal RRSPs (and can thus transfer income from one spouse to another) and those whose access is restricted due to employer pension plans. However, Kesselman argues that the 2006 law should limit the amount of splitting allowed and prevent the use of splitting to avoid the clawback of Old Age Security benefits.

The study will enrage ideologues, but serious students of tax policy should view this paper as an important contribution, from a scholar whose work is based on empirical study, not ideology. The full paper can be viewed or downloaded free from www.irpp.org.

On a personal note, this is my last piece in the Financial Post. After more than 31 years and 1,657 articles, we have come to a parting of the ways. I didn't want to end without saying thank you to those who have read my stuff over the years and who have taken the time to write to me, usually to explain my errors or misguided views. Your reactions have always been most welcome.

--- - Arthur Drache, CM, QC, is an Ottawa-based lawyer at Drache Associates LLP and is associate counsel to Miller Thompson LLP.

Copyright © 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.