The Trudeau Liberals 2016 Tax Plans

[McG]

Here is some fun with numbers.  See the actual difference over a continuous range of incomes for the  2015 and new 2016 tax models.  Then (maybe) design your own tax system and compare it against the two. 

This is best viewed in newer versions of excel that allow you to right-click on charts and "select data" to show or hide the data sets you are not playing with.

 

[a_majoor]

While Kilo may think that TFSA's are only to benefit the well off, there are several threads on Army.ca, including mathematical models, which argues that this is not so. (The only people who do not benefit from TFSA's are people who do not get them).

On a more macro scale, the argument isn't so much who benefits from tax cuts, savings vehicles and so on, but rather what do the people who receive them do with their gains. The chief argument of nay sayers implies that the people who get money from tax cuts will preferentially hide the money under a mattress, which is counter to the way capitalist, free market systems work.

While you can indeed hide money under a mattress, Capitalism is about the accumulation and use of capital. People who hoard their capital simply have dead capital (or in physics terms you might think of this as potential energy). However, even people who put their saving into a bank are using their capital in an admittedly low risk/low reward fashion, since the money is lent to others to pursue their goals. People who have accumulated more capital have more choices, and if they are more willing to take risk, they can potentially leverage their capital to create more wealth (in physics terms again, this is adding kinetic energy).

This is the argument for tax cuts, since capital in the hands of a large munger of people in the market provides more opportunities to attempt more things across a broad economic base, rather than having capital flow through the hands of bureaucrats and politicians who are both limited in time and knowledge to seek out the best rates of return, have no incentives to do so (their capital comes from your hands, not theirs) and do have incentives to reward cronies and clients rather than steer capital to more productive uses.

At any rate, these arguments are moot at this point in time, as Gerald Butts' vision of Canada is Canadians are to be milked for the benefit of the LPC and their cronies, and even theoretical tax "cuts" will be rapidly overtaken by ever increasing "carbon" and "green" taxes and fees. Since the tax system is not going to be streamlined or simplified, the people with the connections and resources will be able to access tools to game the system, leaving an increasing tax burden on the rest of us. I will continue to remind you that the average Canadian family of 4 sends 40-45% of their income on taxes and fees, which leaves very little left over for savings and investment. Canada's anemic economic performance over the years can be largely traced back to the fundamental lack of capital in people's hands, and this tax burden is the primary cause.

 

[The Bread Guy]

This from the Info-machine:

The Honourable Gordon O'Connor, Minister of National Revenue, today announced the appointment of Mr. Paul Dubé as Canada's first Taxpayers' Ombudsman. The Taxpayers' Ombudsman will operate independently from the Canada Revenue Agency (CRA) and will ensure that the CRA is more accountable to Canadians.

"Today's announcement, when combined with last year's introduction of the Taxpayers' Bill of Rights, clearly demonstrates our government commitment to strong accountability and tax fairness," said Minister O'Connor. "The Taxpayers' Ombudsman will ensure that Canadians receive a high standard of service from CRA."

"My goal is to help ensure that Canada continues to have one of the fairest, efficient and open system of tax and benefit administration possible," said Mr. Dubé. "I am dedicated to do my part to help CRA enhance accountability and service to the public, and provide taxpayers with assurance that they will be treated fairly and with respect."

As an independent and impartial officer, the Taxpayers' Ombudsman will ensure that the service rights outlined in the Taxpayer Bill of Rights are being upheld and respected. The Ombudsman's responsibilities will include:

    ensuring that the CRA upholds the Taxpayer Bill of Rights' service-related provisions;
    determining whether the CRA has properly handled a service complaint, in situations where taxpayers feel they have not been treated fairly or appropriately;
    identifying systemic and emerging service-related issues that have a negative impact on taxpayers; and
    providing advice and recommendations to the Minister of National Revenue about service-related matters in the CRA.

The appointment of the Taxpayers' Ombudsman is one of several accountability initiatives that have been introduced by the Government of Canada, as it moves to strengthen Canada's democratic institutions, increase transparency and accountability, and to ensure fair and equitable treatment to all Canadians ...

More @ the new 'budman's page here.

 

[McG]

Looks like more tax changes may be coming.  An end to boutique tax incentives would be a positive step.

Morneau signals review of targeted tax breaks is coming
Bruce Cheadle, The Canadian Press
CTV News
25 Mar 2016

Finance Minister Bill Morneau says the Liberal government has only begun to clean up the tax code with his first federal budget and that a more detailed review is coming.

Morneau's big-spending, big-borrowing blueprint has fiscal hawks complaining that spiralling debt, increased taxes or both will be the inevitable outcome of projected deficits in the $100-billion range over the next four years.

Last week's budget, cheerily titled "Growing the Middle Class," includes speculative nods to increasing revenues through tougher tax enforcement, particularly for high-income tax avoidance schemes. There's also a hike in federal tax rates for Canadians earning more than $200,000 a year, more than offset by a tax cut for middle-income earners.

Overall federal revenues are forecast to fall slightly in 2016-17 compared with the current tax year that ends this Thursday.

"We're going to embark on looking at the tax expenditures in the code and making sure they are all consistent with our approach to tax fairness," Morneau told The Canadian Press in a roundtable interview.

"Tax expenditures," for those unfamiliar with government parlance, are targeted tax breaks -- in effect, spending by another name on specific, favoured groups.

Morneau pointed to the new Canada child benefit, coming July 1, which consolidates, boosts and re-targets four family benefits. His first budget also eliminated popular Conservative "boutique" tax breaks for children's arts and fitness, but added a new boutique credit for teachers who buy classroom supplies.

The Liberals announced last month that Dominic Barton, the head of international consulting giant McKinsey & Co., will head a new advisory council on economic growth. But the government has provided no hint as to how its tax study will be structured.

"We'll move forward on a tax expenditure review and as we have more details on how we're doing that, we'll be transparent," said Morneau.

If the Liberals really have the stomach for the first comprehensive look at Canada's tax code in half a century, they'll be cheered by a broad spectrum of tax analysts.

Budget 2016 provided mixed signals on disentangling a tax system that successive governments have loved to gum up with politically useful goodies.

Tax expert Jack Mintz of the University of Calgary said he's always been an advocate of a tax base as broad as possible, which then allows for lower overall tax rates.

"This budget is kind of a mixed bag," Mintz said in an interview from New York.

The budget gets rid of income splitting for families with young children but leaves in place pension splitting.

While Mintz said he supports Liberal increases in the GIS for low-income seniors, his research shows that up to income levels of $60,000, Canada's elderly actually pay negative taxes, once government transfers are factored in.

"We have a tax system today that is really geared to the elderly," he said, and with an aging population, "we're going to have to address these issues."

Mintz penned the federal government's last deep look at the business tax structure almost two decades ago in a report delivered in April 1998. But the overall tax system hasn't been fully examined since the 1966 Royal Commission on Taxation.

A fundamental rethink is overdue, agree Dennis Howlett and Aaron Wudrick, tax experts who tend to come at tax issues from ideologically opposite directions.

Howlett, of the advocacy group Canadians for Tax Fairness, said tax breaks tend not to get the scrutiny of direct government spending, although they amount to the same thing.

He's pushing MPs to use the Commons finance committee to study the tax system.

His group pegs "unfair and ineffective" tax expenditures at about $10 billion annually. It's the "obvious solution," said Howlett, to the revenue shortfalls the Liberals face with their deficit spending.

Ending the very favourable tax treatment of stock options, which the Liberals have backed away from despite a campaign promise to roll back the break, would have been a good place to start, he said.

Wudrick of the Canadian Taxpayers' Federation said his group always advocates for lower taxes, "but we also push simpler taxes."

"We don't think Canadians should have to hire an expert to do their own taxes," he said.

"Simpler taxes also mean a more level playing field. When you have all these boutique measures -- the previous government was a big fan of these things -- they tend by their nature to be politically driven."

Wudrick said simpler taxation also leads to greater tax compliance -- taxes paid in full and on time. He notes the millions of dollars in the latest budget to help the Canada Revenue Agency pursue tax shelters might be saved if the tax system was less complicated, a point shared by Howlett.

"I certainly welcome a top-to-bottom look at the tax system as a whole," said Wudrick.

"There might be a way to generate the same kind of revenue they have today with a much simpler system and with far fewer distortions to the economy at large."   

http://www.ctvnews.ca/politics/morneau-signals-review-of-targeted-tax-breaks-is-coming-1.2832229

 

[McG]

More talk of ending the boutique tax cuts.  This prediction is not optimistic, but hopefully wrong in its pessimism.  Ending the boutiques would be the start point to finance across the board tax cuts.

Liberals talk about curbing tax giveaways. Good luck with that
Ottawa doles out some $100 billion in tax expenditures, gifts to special interests, annually
By Neil Macdonald, CBC News
03 Apr 2016

Governments are mountebanks. Grift is in their nature.

Desiring re-election above all, governments constantly pick winners and reward favourites, using other people's money to do it.

Fairness is relative; language is perverted. (Note that governments never spend or bail out anymore, they only ever "invest," or "provide relief.")

But there is no shell game bigger than what economists dryly refer to as tax expenditures.

Politicians rarely use that term, preferring to call them "targeted tax cuts," because really, what finance minister, even on the political left, doesn't want to be portrayed as cutting the taxes of average folks?

Tax expenditures, though, are not tax cuts. They're spending by another name.

Tax expenditures are the aggregate of all the dosh doled out by governments, often to pet constituencies of voters.

They take the form of exemptions (exemption for child care, exemption for tuition, exemption for hospital parking), deductions (deduction of union dues, deduction of charitable donations), credits (child tax credit, caregiver credit), rebates (rebate for new housing, rebate for poppies and wreaths) and shelters (tax free savings plan, registered education savings plan, registered pension plan), etc, etc.

Some are chump change, some are enormous tax drains.

And each of them, big and small, distorts the system, because for everybody who's excused from paying some tax, somebody else has to dig down and pay more.

The Stephen Harper government was particularly adept at inventing "boutique credits," sometimes using focus groups to identify the desires of Conservative faithful.

But every government over the last few decades has done its bit.

So these tax expenditures pile up, until the bloated sum of them becomes so distortionary, and so unmanageable, and so impervious to official reckoning, that they can become a barrier to proper governance, which is what some believe has happened in Canada.

Our reality is that tax expenditures at the federal level, which of course have an impact on provincial revenues, too, now amount to $100 billion annually.

To put that in perspective, the federal government spends roughly $35 billion a year on health care. Total federal government operating expenses amount to about $83 billion a year.

In other words, the government is dishing out, to what amount to special interests, about three times what it spends on health care and $17 billion more than it spends on actual programs like operating the military.

It gets worse. A guiding principle of parliamentary democracy is that spending by the Crown must be scrutinized and ratified by elected MPs.

But because tax expenditures are portrayed as tax reductions, they receive no formal scrutiny. They just keep accumulating over the years, like sludge in a canal.

And in many cases, the data just isn't there to examine.

That's blatantly evident in Ottawa's annual "Report of Federal Tax Expenditures: Concepts, estimates and evaluations," a document the federal government has been issuing annually for decades (except, for some weird reason, 2015).

Here's the link to the 2016 document. But really, don't bother going there because it is so littered with "no data available to support a meaningful estimate or projection" that it defies even people like Sahir Khan, formerly of the Parliamentary Budget Office.

With great understatement, he calls it an "information gap.

Khan, when he worked at the PBO, took a crack at assessing Canada's roiling mass of tax expenditures.

Among other things, he concluded that most of them (there are 396 at present, the vast majority designed for individual taxpayers rather than corporations) are progressive, meaning that they disproportionately benefit lower-income people.

They also tend to favor baby boomers, who just happen to be the richest demographic cohort in human history.

But Khan questions whether it is appropriate for such a vast amount of spending to remain free of scrutiny in a democracy; and he also asks whether these expenditures actually influence behaviour, or just reward it.

The perfect example is the Children's Arts Tax Credit, introduced by the Conservatives, which provided a 15 per cent credit on the cost of art lessons up to a maximum of $500.

So, if you were in a particular tax bracket, you basically received up to $75 from the government if you sent your kid to art lessons.

Khan points out that, in all likelihood, if you are going to send your kid to art lessons, you'll do it whether you get $75 from the government or not.

And of course money is fungible, so you can easily spend it on something else once you get it back — say, a bottle of champagne or some nice oysters. So exactly what kind of behaviour is this tax break meant to encourage?

In any event, the current government seems to understand tax expenditures are out of control.

Finance Minister Bill Morneau has announced a review of the tax code, particularly its hundreds of targeted tax breaks.

He hasn't given many details, but he told the Canadian Press he wants to ensure the code is "consistent with our approach to tax fairness."

Good luck with that. The Liberals have already begun to phase out a few of the Conservatives' "boutique" credits, like the one on children's art, but rolling back a mountain range of preferences, some dating far back into the last century, will not be particularly popular.

Even finding a few billion to save will likely provoke howls. (And this government needs a few billion — those boomers are starting to require a lot of medical care.)

People tend to be against any tax break, except for the ones that apply to them. And unless this government is radically different, it will be sensitive to the wishes of Liberal voters.

The dream of most economists would be to eliminate all tax breaks, period. And to broaden the taxpaying base as much as possible, and lower the tax rate while still maintaining progressive brackets, keeping most of the burden on high earners.

Khan says Morneau's review, if comprehensive, would be "historic."

Or not. This government probably wants to be re-elected.

http://www.cbc.ca/news/politics/tax-expenditures-giveaways-neil-macdonald-1.3515484

 

[Brad Sallows]

Although the article cites a large number overall ($100 billion), much of that is tied up in high value items that aren't likely to disappear from the T1.

For example, from Final Statistics 2015 edition (for the 2013 tax year), the totals for RPP and RRSP deductions are $19,507,836,000 and $39,145,913,000.  That's $58.5 billion, all of it deducted from net income to determine taxable income, so its value to taxpayers is likely much greater than the 15% of the non-refundable tax credits.  You can drill into the table by income class to get a finer grained estimate, but I suppose it is worth something north of 23% (the rate that kicks in for taxable incomes in the mid $40Ks); I estimate the cost is well north of $15 billion for those two items alone.

From the same tables, you can drill into some of the "boutique" items if you wish.  They are basically chump change (tens or hundreds of millions of dollars of total value to taxpayers for a particular item).  But, they would at least offset some of the chump change restraint/cuts the new government is restoring.

Note that total income assessed (line 150) is $1,226,271,866,000 and taxable income assessed is $1,092,325,095,000.  So $134 billion of potentially taxable income, worth the marginal rate of each taxpayer, disappears before you even get to tax credits.  15% of that is about $20 billion; I suppose the actual value to taxpayers is considerably higher.