How to get more money

[jdobbin]

Interesting article from Neil Reynolds in the Globe.

http://www.globeinvestor.com/servlet/story...olds07/GIStory/

Finance Minister Jim Flaherty says the country needs to give high-income Canadians a break on their federal income taxes or risk losing them "to our competition"- which is, presumably, the United States. But high-income Americans pay a much bigger share of federal income taxes than high-income Canadians. Forget nominal tax rates. Forget marginal tax rates. Look at the share of income taxes that high-income people actually pay. Statistics Canada says high-income Canadians (defined as the top 5 per cent of taxpayers) pay 36 per cent of Canada's federal income taxes. The Internal Revenue Service says high-income Americans (comparably defined) pay 60 per cent. By this indicator, Canada should be swamped with fugitives from U.S. income taxes.

High-income Americans have paid progressively more of the U.S. federal income taxes since former president Ronald Reagan cut tax rates across the board in 1981 - when the top 1 per cent of taxpayers were paying 18 per cent of income tax revenue. By 1988, the top 1 per cent were paying 28 per cent. Last year, the IRS reported that the top 1 per cent were paying 36 per cent; this year (based on the 2005 tax year), it reported that the top 1 per cent were now paying 40 per cent. Thus the top 1 per cent of U.S. taxpayers pays a greater share of national income taxes than does the top 5 per cent of Canadian taxpayers. (The top category in the U.S. - the top 1 per cent - consists of people who earned more than $328,000 in gross incomes.) This kind of heavy lifting by high-income U.S. taxpayers isn't restricted to the rich, either. The top 5 per cent (defined as people who earn more than $137,000 in gross income) now pay 60 per cent of all income tax revenue. The top 10 per cent (more than $99,000) pay 70 per cent. The top 25 per cent (more than $60,000) pay 85 per cent. The top 50 per cent (more than $30,000) pay - correct to the second decimal - 96.70 per cent.

Flaherty is often over his head when it comes to Canada's finances. This is just another example of that.

The rich don't need a tax break compared to the U.S.

What Canada needs is a fair tax and a very large personal exemption for low incomes.

Edited December 9, 2007 by jdobbin

[Michael Hardner]

I'm all for taxing the rich, storming the castle and so forth but these stats sound bad to me.

Why 'forget the tax rates' ? Looking at the percentage of federal revenue from a certain percentage of wage earners seems flawed to me as you're comparing the system in its entirely.

[jdobbin]

I'm all for taxing the rich, storming the castle and so forth but these stats sound bad to me.

Why 'forget the tax rates' ? Looking at the percentage of federal revenue from a certain percentage of wage earners seems flawed to me as you're comparing the system in its entirely.

There have been many people arguing for a flat tax for years and a larger personal exemption. The present system is filled with a lot of loopholes. It is confusing and in a lot of cases unfair. Flaherty's idea of taxing the rich less makes no sense when even Reagan ended up taxing the rich more.

[August1991]

The Quebec government can tax its rich because they have nowhere else to go. Where can Pierre-Karl go?

ROC - federal and provincial governments face a different problem - English Canadians can leave. For example, Conrad Black.

Collecting a government tax is harder and harder.

[Michael Hardner]

There have been many people arguing for a flat tax for years and a larger personal exemption. The present system is filled with a lot of loopholes. It is confusing and in a lot of cases unfair. Flaherty's idea of taxing the rich less makes no sense when even Reagan ended up taxing the rich more.

jdobbin - That's what I'm talking about. Reagan didn't tax the rich more, he cut tax rates. To say they're paying a higher percentage of revenue doesn't mean they're paying more.

[capricorn]

In his very first sentence, Reynolds "presumes" that Flaherty's comments about "our competition" is a reference to the US. How does he now that? Flaherty's comments were made off the cuff and cannot be examined. If Reynolds' presumption is false, then the rest of his article and his conclusions are based on this false assumption and are questionable.

The rich don't need a tax break compared to the U.S.

For tax purposes, what is considered rich today?

What Canada needs is a fair tax and a very large personal exemption for low incomes.

We will never reach a tax system where we all agree it is fair. Someone will always feel badly done by.

I disagree about an incremental scale for personal exemption linked to income. It is fair that we all have the same basic personal exemption and it is increased every year. There are already additional personal exemptions for dependants and disability, and on the basis of age. These exemptions serve to recognize the special circumstances of a large segment of Canadians.

IMO, the fairest income tax system would be a flat tax. Canadians at the highest income levels are the ones who invest their money; investment by these Canadians is one of the major contributors to our healthy economy. The more money left in their pockets the more they will invest.

Edited December 9, 2007 by capricorn

[Michael Hardner]

The Quebec government can tax its rich because they have nowhere else to go. Where can Pierre-Karl go?

ROC - federal and provincial governments face a different problem - English Canadians can leave. For example, Conrad Black.

Collecting a government tax is harder and harder.

Pierre can go to Florida where there are many many other Quebecois.

Any Canadian can leave, but there's a curve. Raising taxes 10% won't cause 10% of them to leave, I'll bet.

[jdobbin]

In his very first sentence, Reynolds "presumes" that Flaherty's comments about "our competition" is a reference to the US. How does he now that? Flaherty's comments were made off the cuff and cannot be examined. If Reynolds' presumption is false, then the rest of his article and his conclusions are based on this false assumption and are questionable.

For tax purposes, what is considered rich today?

We will never reach a tax system where we all agree it is fair. Someone will always feel badly done by.

I disagree about an incremental scale for personal exemption linked to income. It is fair that we all have the same basic personal exemption and it is increased every year. There are already additional personal exemptions for dependants and disability, and on the basis of age. These exemptions serve to recognize the special circumstances of a large segment of Canadians.

IMO, the fairest income tax system would be a flat tax. Canadians at the highest income levels are the ones who invest their money; investment by these Canadians is one of the major contributors to our healthy economy. The more money left in their pockets the more they will invest.

Reynold was likely speaking about Flaherty's several speeches in the last weeks where he explicitly compares U.S. to Canada on income taxes and the rich.

This is just one of many speeches he has made. Flaherty has been describing what he thinks is rich for a while now.

http://www.canada.com/topics/news/story.ht...12-53e20d780468

Reynolds concluded that the flat tax would take more income out rich pockets. It is in the link I just posted.

[jdobbin]

jdobbin - That's what I'm talking about. Reagan didn't tax the rich more, he cut tax rates. To say they're paying a higher percentage of revenue doesn't mean they're paying more.

This is from the article and confirmed when checked against the numbers. My reference was that the rich paid more of the income tax burden as an overall percentage of the population.

High-income Americans have paid progressively more of the U.S. federal income taxes since former president Ronald Reagan cut tax rates across the board in 1981 - when the top 1 per cent of taxpayers were paying 18 per cent of income tax revenue. By 1988, the top 1 per cent were paying 28 per cent.

[Michael Hardner]

Are expenditures lower per capita ? Are there other sources of revenue ? Are there other levels of government collecting taxes, and if so what are their rates and expenditures ?

[jdobbin]

Are expenditures lower per capita ? Are there other sources of revenue ? Are there other levels of government collecting taxes, and if so what are their rates and expenditures ?

There are local, state, federal excise taxes and the like. There are different expenditures in every jurisdiction.

The OECD tries to compare apples to apples and oranges to oranges though, does it not?

[Topaz]

I was listening to this guy in the US and he wanted to change the tax system over there by not being tax on the money you MAKE but how much you SPEND! You wouldn't have an income tax but would have tax on everything you buy. Thoughts? Also, our minister said he was going to cut taxes for the $100,000-200,000 group. So he is saying he is going to give themselves a cut??

[sharkman]

Interesting article from Neil Reynolds in the Globe.

http://www.globeinvestor.com/servlet/story...olds07/GIStory/

Flaherty is often over his head when it comes to Canada's finances. This is just another example of that.

The rich don't need a tax break compared to the U.S.

What Canada needs is a fair tax and a very large personal exemption for low incomes.

The argument set forth in this article sounds flawed. The reporter is comparing the tax burden of the rich in Canada vs the States, but Americans have a higher percentage of rich people than we do. So it makes sense that they would pay a higher percentage of the tax burden. Their government also provides fewer services than ours so their taxes are indeed less than ours.

This is common knowledge. Nurses, doctors and other professionals move south to work because of the more friendly tax system.

[Keepitsimple]

Flat tax of 15% on everybody and every source of income. Tax exemption on the first $20,000. Sounds fair to me and helps the low-income......but imagine how many tax lawyers, accountants, and revenue Canada people would be out of work - that's why it will never happen. But man, I would just love to see it. How simple.

[Wild Bill]

Pierre can go to Florida where there are many many other Quebecois.

Any Canadian can leave, but there's a curve. Raising taxes 10% won't cause 10% of them to leave, I'll bet.

Ah, the old "fixed pie" concept! Thought that had been discredited years ago.

No, 10% will not leave but they may well throttle back their plans for further investment. Lower taxes encourages investment, resulting in more taxable revenue. Higher taxes discourage investment, leaving less taxable profits.

In effect, one approach results in more pie being baked and the other in less. People invest to get a return, not because of some inherent genetic programming that you can take for granted.

My career was mostly in electronic part sales to manufacturing, an industry which has virtually collapsed over the past six or so years. Many of my former mega accounts have left the country. Some of the production went to China of course but a surprising amount has fled to Ireland. Why? Less taxes and a LOT less red tape! Ireland is now an economic powerhouse and for the first time in over a century has more immigration than emigration.

[jdobbin]

The argument set forth in this article sounds flawed. The reporter is comparing the tax burden of the rich in Canada vs the States, but Americans have a higher percentage of rich people than we do. So it makes sense that they would pay a higher percentage of the tax burden. Their government also provides fewer services than ours so their taxes are indeed less than ours.

This is common knowledge. Nurses, doctors and other professionals move south to work because of the more friendly tax system.

The flow of professionals south has not been solely because of the tax system. Nurses flowed south in large numbers because of the cuts in healthcare in Canada. Many couldn't get a job. That dynamic has changed. Canadian doctors flowed south for the dollar, better work conditions and the ability to be paid a lot more. If last years stats on people flowing south is any indication, Canada has become a lot more attractive for both professions to stay.

It is Flaherty that framing the argument that Canada's rich are being taxed more. It is up to him to provide figures to determine if this is actually true and if it represents a problem. The premise of the article is sound that mere tinkering with the tax system is not necessarily going to be an improvement.

I've stated numerous times that Canada's income tax should be cut. How those cuts happen has to be in the context of what will be best for the entire country.

[jdobbin]

Flat tax of 15% on everybody and every source of income. Tax exemption on the first $20,000. Sounds fair to me and helps the low-income......but imagine how many tax lawyers, accountants, and revenue Canada people would be out of work - that's why it will never happen. But man, I would just love to see it. How simple.

There would always be room for those professionals. Their careers are not just about a complicated tax system.

I agree that a simpler tax system would be a better one. I hope Flaherty doesn't merely tinker with the tax code. The system of credits is more complicated than it needs to be.

[Wilber]

The biggest difference between the Canadian and US systems is the definition of rich. Canada (Martin) reduced the number of tax brackets to three which resulted in a windfall for the federal treasury. Anyone who has ever got a raise and seen their after tax income go down will know what I mean. The US still has five brackets which makes the increase in rates more gradual. A Canadian reaches the top bracket with a taxable income of 120K. An American doesn't reach it until they hit 350K. That is an incentive for highly paid professionals to go south.

[Michael Hardner]

Will Bill,

This is astute:

Ah, the old "fixed pie" concept! Thought that had been discredited years ago.

No, 10% will not leave but they may well throttle back their plans for further investment. Lower taxes encourages investment, resulting in more taxable revenue. Higher taxes discourage investment, leaving less taxable profits.

In effect, one approach results in more pie being baked and the other in less. People invest to get a return, not because of some inherent genetic programming that you can take for granted.

My career was mostly in electronic part sales to manufacturing, an industry which has virtually collapsed over the past six or so years. Many of my former mega accounts have left the country. Some of the production went to China of course but a surprising amount has fled to Ireland. Why? Less taxes and a LOT less red tape! Ireland is now an economic powerhouse and for the first time in over a century has more immigration than emigration.

But the title of the thread is how to get more money from 'the rich'.

I took it as an assumption that global investment capital is extremely portable. This thread appears to be about personal income tax.

[msj]

The biggest difference between the Canadian and US systems is the definition of rich. Canada (Martin) reduced the number of tax brackets to three which resulted in a windfall for the federal treasury. Anyone who has ever got a raise and seen their after tax income go down will know what I mean. The US still has five brackets which makes the increase in rates more gradual. A Canadian reaches the top bracket with a taxable income of 120K. An American doesn't reach it until they hit 350K. That is an incentive for highly paid professionals to go south.

1) Maybe Paul Martin reduced the number of tax brackets in the early to mid '90's but he increased the number of tax brackets from 3 to 4 back in the 2000 budget for the 2001 tax year. This had the benefit of actually reducing taxes for anyone making more than ~$61,000 because they now had a federal marginal tax rate of 26% rather than the former rate of 29% (which, for 2001, kicked in at $100,000 rather than the ~$60,000 in 2000).

2) As for your statement about getting a raise and seeing after tax income go down - unless you mean someone collecting welfare benefits who gets a job only to see his/her benefits cut off while he/she now pays income tax - well otherwise you have come up with a mathematical impossibility.

Even in the bad days of 54% marginal income tax rates (which includes provincial and federal rates) a person with a $1,000 pay raise would still see his/her after tax income go up by $460.

You would need a marginal tax rate over 100% in order have someone's net pay go down after a pay raise.

Well, I suppose an incompetent payroll administrator could also lead to less pay but you would get it back when you filed your tax return.

[Wild Bill]

2) As for your statement about getting a raise and seeing after tax income go down - unless you mean someone collecting welfare benefits who gets a job only to see his/her benefits cut off while he/she now pays income tax - well otherwise you have come up with a mathematical impossibility.

Even in the bad days of 54% marginal income tax rates (which includes provincial and federal rates) a person with a $1,000 pay raise would still see his/her after tax income go up by $460.

You would need a marginal tax rate over 100% in order have someone's net pay go down after a pay raise.

Well, I suppose an incompetent payroll administrator could also lead to less pay but you would get it back when you filed your tax return.

What about a pay raise that was just enough to kick you into a higher taxable rate? You get a raise of $1000 but now you're taxed at 22% instead of 18%, or whatever.

[msj]

What about a pay raise that was just enough to kick you into a higher taxable rate? You get a raise of $1000 but now you're taxed at 22% instead of 18%, or whatever.

Yes, it means that you are paying more tax but your pay cheque is still going to be bigger.

The reality is that a person who gets a pay raise will not see their net pay go down.

Yes, the pay raise may be taxed at a higher rate which means that on that part of pay your pay is reduced - i.e. you are getting $780 rather than $820. But your overall pay is not going down and you are still getting the raise.

But perhaps I'm just misreading Wilbur when he wrote "anyone who has ever got a raise and seen their after tax income go down will know what I mean."

I suppose he meant the increased tax on the portion of the raise rather than the person's entire pay cheque.

[Wilber]

1) Maybe Paul Martin reduced the number of tax brackets in the early to mid '90's but he increased the number of tax brackets from 3 to 4 back in the 2000 budget for the 2001 tax year. This had the benefit of actually reducing taxes for anyone making more than ~$61,000 because they now had a federal marginal tax rate of 26% rather than the former rate of 29% (which, for 2001, kicked in at $100,000 rather than the ~$60,000 in 2000).

My mistake. Canada has four brackets and the US has six, two more than Canada. The fact also remains that a US resident doesn't make it into the top bracket until they reach $350,000. A situation that encourages highly paid Canadians to go south. In the days of the 85 cent Canadian buck that was the equivalent of over $400,000 Canadian. Even more encouragement. If they happen to move to one of the states with no personal income tax, the incentive is even greater.