No more tax cuts

[Topaz]

First of all, there's no link because I heard this on the news while listening to the radio. The minister of Finance is saying now he's putting a halt to their tax cuts. Only time will show if cutting corporate taxes will be business in Canada. Unemployment is 6-13% from Ontario to NFLD but west of Ontario its less. Perhaps the government realizes that more people will be taking money out of the IE and that they won't have the use of the surplus there. My own area has suffered from companies moving out and the Con that represents this area will not be going back to Ottawa when the election comes.

[jdobbin]

http://www.ctv.ca/servlet/ArticleNews/stor...?hub=TopStories

It will take years before the federal government can bring in the kind of historic tax reductions for ordinary Canadians that it delivered for businesses in October, says Finance Minister Jim Flaherty.

In an interview with The Canadian Press in his 19th floor office in downtown Ottawa, the finance minister said he understands that Canadians expect a Conservative government to bring in "long-term change, long-term broad based tax reductions''.

But while his Oct. 30 mini-budget set Canadian companies on track to be among the least taxed in the G7, reducing the corporate income tax to 15 per cent by 2012, it will take time for ordinary Canadians to see that degree of tax relief, he said.

"What Canadians expert from the Conservative government is that we will bring in long-term change, long-term broad based tax reductions,'' Flaherty said. "We've done it on the business side, we've done some on the personal income tax side, with more to be done.''

However, the finance minister acknowledged that won't be possible in 2008 because he does not expect the government to enjoy huge surpluses in the next few years, particularly after setting aside $10 billion for debt reduction during this fiscal year.

"The next couple of years are closer to the line, given the more moderate expectations with respect to economic growth,'' he explained. "But I still think we have the potential to do more on the personal income tax side...long term.''

Most forecasts show the Canadian economy slowing to more modest growth of between two and 2.5 per cent in 2008, in part because the expected slowdown in the United States economy next year will squeeze demand for everything from autos, auto parts, metals and minerals to oil, petrochemicals, coal and lumber produced in Canada.

With slowing Canadian growth and an expected drop in business profits, the federal treasury will likely see hundreds of millions and possiblly billions of dollars in lower corporate and personal tax revenues.

For Ottawa, the key change on personal income taxes so far into the two-year government's term has been a reduction in the low income tax bracket from 15.5 per cent to 15 per cent, restoring a cut first introduced by the Liberal government of Paul Martin two years ago. The government has fulfilled its campaign pledge to cut the GST to five per cent from seven per cent, in stages, however.

While he offered few hints at what would be in his budget this spring, Flaherty said there would be no major rescue mission for the battered manufacturing and forestry sectors.

Confirming what Harper said already in year end speeches, Canada could be in for a tougher year financially. There won't be any big personal income tax cuts in March. The October deficit could very well be repeated if we see lower taxes from corporations doing less well in 2008.

Some manufacturers will see a tough year as the U.S. and world markets slow down.

Harper hinted at spending cuts in year end speeches but didn't indicate where he thought those were coming. It may be we see some of the large capital spending projects will have to be pushed back like some of the provinces have done on things such as highways, dam projects and the like.

The credit crunch world-wide continues to play havoc with the numbers and even though governments say they won't get involved, they have already committed $500 billion through federal banks just before Christmas. That might be the tip of the iceberg. We'll just have to see.

The GST cut comes in a few days. I'm not sure we'll see an explosion of consumer spending as a result so quickly after Christmas. There will probably be a little bit of hangover as the bills come in and as further insight of what 2008 might hold takes shape.

It is too bad we can't exchange the 1% cut in GST for the same amount in a personal income tax cut. If the economy is truly slowing, it would probably be more of a relief for taxpayers in 2008.

Edited December 27, 2007 by jdobbin

[Michael Bluth]

It is too bad we can't exchange the 1% cut in GST for the same amount in a personal income tax cut. If the economy is truly slowing, it would probably be more of a relief for taxpayers in 2008.

There was nothing stopping the Liberals from defeating the Conservtive budget on that issue.

Nothing stopping the Liberals from proposing an increase in the GST in the next election.

[charter.rights]

There was nothing stopping the Liberals from defeating the Conservtive budget on that issue.

Nothing stopping the Liberals from proposing an increase in the GST in the next election.

Dion has already indicated that the budget will not pass. He believes that it is time for Canadians to decide again.

[jdobbin]

Dion has already indicated that the budget will not pass. He believes that it is time for Canadians to decide again.

The Liberals were not about to defeat the last budget that restored the personal income tax deduction that they introduced in 2005 plus reduced corporate taxes which Dion himself had advocated.

The GST decrease will be Harper's burden to bear as revenues are expected to slow considerably. Flaherty says there will very little or no tax relief in this year's budget with tax money from corporate sources falling. Moreover, there will little relief or support for manufacturers due to the dollar rise from higher oil prices.

The good news budgets are behind them. If there is a burst of spending and tax cuts now, it is very possible that we will see more monthly deficits just as we saw this October.

Edited December 27, 2007 by jdobbin

[Michael Bluth]

Dion has already indicated that the budget will not pass. He believes that it is time for Canadians to decide again.

So that means no more abstentions from votes in Parliament? Good of the Liberals to do their job.

Will we make it to a budget?

[Pat Coghlan]

So that means no more abstentions from votes in Parliament? Good of the Liberals to do their job.

Will we make it to a budget?

I'm voting for the first party to commit to income-splitting for ALL families, not just retirees (who probably need the break less).

[jdobbin]

I'm voting for the first party to commit to income-splitting for ALL families, not just retirees (who probably need the break less).

And you won't vote before that?

I doubt we'll see much any income tax reductions in the next budget or for a while to come unless we are producing huge surpluses. The surpluses we have had are very likely to be reduced due to tax cuts and 2008's slowing economy.

[geoffrey]

I'm voting for the first party to commit to income-splitting for ALL families, not just retirees (who probably need the break less).

Why should the government support one lifestyle over another??

There is no justification to give a break to a $200k earner living with an unemployed person together than to give me a cut. It simply makes no sense. It encourages people not to work.

[BubberMiley]

There is no justification to give a break to a $200k earner living with an unemployed person together than to give me a cut. It simply makes no sense. It encourages people not to work.

It makes some sense in the case of a stay-at-home parent, but giving child tax credits is more effective.

And SSM opponents would probably hate the idea of subsidizing their marriages.

[jdobbin]

Jeffrey Simpson's column the other day featured the stupidity of the GST cut.

http://ago.mobile.globeandmail.com/generat...6/cosimp27.html

Who will be brave enough in 2008 to speak against – and promise to undo – the worst piece of fiscal policy in a quarter of a century?

Not since Allan MacEachen's budget of 1981 has a fiscal policy been as wrong-headed as the Harper government's two-point reduction in the GST. It did not impose actual harm on the economy, as did the Liberal measures 26 years ago, but it pre-empted all kinds of other things that could have been done with the $60-billion or so that the cut will cost over five years.

That's a huge chunk of change that should have been used to make the Canadian economy more competitive, productive, fair and green.

As almost every economist in Canada has said, the GST cut was the wrong way to use $60-billion and certainly the wrong way to cut taxes. It was not needed to stimulate an economy already rolling. It absorbed money that should have been used to cut further personal income taxes, especially high marginal ones on low-to moderate-income people.

It wasn't tied to Ottawa's getting something in return from the provinces such as a harmonized federal-provincial sales tax. It wasn't used as a solution to the mythical “fiscal imbalance,” in the sense of inviting the provinces to occupy the tax room vacated by Ottawa.

Some of the money could have been used to raise the level at which people pay the highest average rates, to pay down more debt, to invest in physical infrastructure, to put more money in research and development – or to make other kinds of investment that would improve the country's competitive position on which its future prosperity depends.

When Prime Minister Stephen Harper said in his year-end interview with The Globe and Mail that Canadians should not expect much in 2008 because the government's fiscal position was tight, he was conceding that his GST cut – the largest fiscal change by far since he was elected – had produced that situation.

The Harperites don't even try to defend the tax cut as economic policy, except to trot out their favourite cliché that lower taxes are a good thing. Privately, they concede the obvious: The GST reduction was 100-per-cent politics, the reasoning being that people could see, feel and appreciate this cut instead of, say, an income tax cut.

The cut, however, hasn't proved to be much of a political winner. The Conservatives, politically speaking, haven't gone anywhere since being elected. Their standing would presumably have soared, or at least improved, had this highly publicized and much ballyhooed cut been a political boon.

It would have been so much better to use some of the $60 billion towards income tax cuts.

I still think that raising the GST back up and slashing personal income taxes would be good policy. However, as Simpson mentions, just wait for the attack ads.

[Pat Coghlan]

Why should the government support one lifestyle over another??

There is no justification to give a break to a $200k earner living with an unemployed person together than to give me a cut. It simply makes no sense. It encourages people not to work.

If it's not justified, then wouldn't you agree it's EQUALLY not justified to lump a couple's income together to determine their eligibility for tax-delivered benefits? Shouldn't each spouse, then, be able to apply for a full 50% of each benefit based only on his/her income?

You're also making the assumption that the low-income spouse is a zero income spouse, which is often not the case. Most families are dual income, and the income is not split 50/50 between the spouses.

In the US, all families with the same income pay the same taxes, regardless of who earns it. This is the right approach, because the family is the economic unit that spends the money, not the individuals.

Finally, they've done it for retirees, so I think the genie is out of the bottle and the first party to offer to implement a joint-income tax return will probably ensure themselves a victory.

[jdobbin]

Finally, they've done it for retirees, so I think the genie is out of the bottle and the first party to offer to implement a joint-income tax return will probably ensure themselves a victory.

I think if they do offer split income that the government will have no choice but to restore the GST. It is a hugely expensive proposition and I still think it probably isn't the fairest way an income tax cut can be delivered.

[Pat Coghlan]

I think if they do offer split income that the government will have no choice but to restore the GST. It is a hugely expensive proposition and I still think it probably isn't the fairest way an income tax cut can be delivered.

I'd classify it as tax reform, not a tax cut. The goal is to make the tax system fair, and that means all families with the same income paying the same taxes...in the same way that they are deemed to entitled to equal benefit payments. Taxes are supposedly based on ability to pay, and that should mean that families with the same combined income (and number of dependents) should be treated identically from a tax/benefit point of view.

Currenly, they are only treated the same w.r.t. benefit eligibility.

If the government doesn't want to do that, then they should let each spouse apply for benefits based solely on his/her income...or would you be against that too?

[jdobbin]

I'd classify it as tax reform, not a tax cut. The goal is to make the tax system fair, and that means all families with the same income paying the same taxes...in the same way that they are deemed to entitled to equal benefit payments. Taxes are supposedly based on ability to pay, and that should mean that families with the same combined income (and number of dependents) should be treated identically from a tax/benefit point of view.

Currenly, they are only treated the same w.r.t. benefit eligibility.

If the government doesn't want to do that, then they should let each spouse apply for benefits based solely on his/her income...or would you be against that too?

I don't know. Every analysis I've seen says that income splitting benefits the higher income brackets moreso than anyone else. It is hugely expensive and benefits men in a relationship more than the woman who has no guarantee that benefit will be shared with her in the marriage. It is a disincentive for some women to work which may be what some people want but in today's economy, it would have a very large impact.

I'd be very leery of the costs in this and it seems to be going against the grain where almost every other industrialized country is moving to the individual tax payer if they haven't already.

[Pat Coghlan]

I don't know. Every analysis I've seen says that income splitting benefits the higher income brackets moreso than anyone else. It is hugely expensive and benefits men in a relationship more than the woman who has no guarantee that benefit will be shared with her in the marriage. It is a disincentive for some women to work which may be what some people want but in today's economy, it would have a very large impact.

I'd be very leery of the costs in this and it seems to be going against the grain where almost every other industrialized country is moving to the individual tax payer if they haven't already.

The US system has a joint tax return. Same income, same taxes, regardless of who earns it. They're the biggest industrialized country.

In Canada we have a system of same income, same benefits, regardless of who earns it. We either need to do the same for taxes, or let each spouse claim 50% of available benefits based solely on his/her income, wouldn't you agree.

Personally, I like the US joint return vs simple income-splitting which, as you indicated, gives much more of a benefit to higher income couples. Income-splitting essentially creates tax brackets which are 200% as wide as those for singles. In the US system, joint-filers have tax brackets which are 175% as wide.

[Renegade]

The goal is to make the tax system fair,

"fair" by who's standard of fairness?

and that means all families with the same income paying the same taxes...in the same way that they are deemed to entitled to equal benefit payments. Taxes are supposedly based on ability to pay, and that should mean that families with the same combined income (and number of dependents) should be treated identically from a tax/benefit point of view.

Income-splitting doesn't do that. If you want to do that, you should advocate taxing family income instead of income splitting. What is the difference? If you taxed family income, famlies with a single adult would also benefit from the reduced tax on aggregated income.

If the government doesn't want to do that, then they should let each spouse apply for benefits based solely on his/her income...or would you be against that too?

Yes I agree, the government should at least be consiistant.

[jdobbin]

The US system has a joint tax return. Same income, same taxes, regardless of who earns it. They're the biggest industrialized country.

In Canada we have a system of same income, same benefits, regardless of who earns it. We either need to do the same for taxes, or let each spouse claim 50% of available benefits based solely on his/her income, wouldn't you agree.

Personally, I like the US joint return vs simple income-splitting which, as you indicated, gives much more of a benefit to higher income couples. Income-splitting essentially creates tax brackets which are 200% as wide as those for singles. In the US system, joint-filers have tax brackets which are 175% as wide.

There are still problems with the joint tax return system. If one of the spouses intends to stay out of the workforce forever, it may work. However, if she or he returned to the workforce, their income would be added to the the spouse's rate and they would be taxed at the higher margin than if they had filed separately. Since most spouses return to work at some point, this can be a problem. This is why the idea has been looked at and abandoned several times in Canada.

In the U.S., one of the main issues is liability. With one out of every two marriages breaking up, the joint tax return becomes one of the main problems in a clean break. Divorce lawyers rubs their hands at this one. And the IRS simply holds both people responsible for the taxes even though one of them may not have been involved.

There are rising numbers of singles in Canada as well. The margins you mention are a measure of unfairness that can't be overlooked.

[Pat Coghlan]

There are still problems with the joint tax return system. If one of the spouses intends to stay out of the workforce forever, it may work. However, if she or he returned to the workforce, their income would be added to the the spouse's rate and they would be taxed at the higher margin than if they had filed separately. Since most spouses return to work at some point, this can be a problem. This is why the idea has been looked at and abandoned several times in Canada.

In the U.S., one of the main issues is liability. With one out of every two marriages breaking up, the joint tax return becomes one of the main problems in a clean break. Divorce lawyers rubs their hands at this one. And the IRS simply holds both people responsible for the taxes even though one of them may not have been involved.

There are rising numbers of singles in Canada as well. The margins you mention are a measure of unfairness that can't be overlooked.

The spouse's rate is the joint rate, which is 175% as wide as the single filer rate. I don't see a problem here. It's just more income taxed at the rate which has been set for joint filers.

Looked at and abandoned, by who? I haven't seen any changes proposed since the Carter Royal Commission in 1969 which said that "a buck is a buck" and that the economic unit should be taxed, not the individual, with the unit being the family.

Since benefits are clawed back by the current system, you end up with a professional (e.g. engineer) supporting a spouse and 2-3 kids and paying essentially the same taxes as a single person with no dependents. Basically, if the government considers you to be wealthy, you don't receive any benefits.

If you want to keep pushing the individual approach, I'm all for it, provided we let each spouse claim 50% of all available benefits based solely on his/her income. There is something like $1,400/child in CCTB and supplements available, so if you agree that a stay-at-home spouse with 4 kids should be entitled to 50% of $5,600 (i.e. a cheque for $2,800) based on his/her income of $0, I'd view this as a reasonable compromise.

Just FYI, family income is used just about everywhere (qualifying for student loans, applying for a mortgage etc.) except tax liability.

As the previous poster pointed out, the government is not being consistent in its tax+benefit treatment of individuals. They tie each spouse to the family income for benefits, but separate the individuals for tax purposes.

[Pat Coghlan]

If I had my way, I'd have just 2 tax rates and an exemption (based on number of family members), with the 2nd tax rate kicking in at the income level deemed to be above what is needed for basics like food and shelter.

The current 3-4 brackets are meaningless, and have nothing to do with ability to pay, especially when it comes to families.

[Michael Bluth]

If I had my way, I'd have just 2 tax rates and an exemption (based on number of family members), with the 2nd tax rate kicking in at the income level deemed to be above what is needed for basics like food and shelter.

The current 3-4 brackets are meaningless, and have nothing to do with ability to pay, especially when it comes to families.

In essence you are arguing for a flat tax.

A high basic personal exemption, where the tax rate is zero.

The second rate is the flat tax. Very interesting.

[jdobbin]

The spouse's rate is the joint rate, which is 175% as wide as the single filer rate. I don't see a problem here. It's just more income taxed at the rate which has been set for joint filers.

Looked at and abandoned, by who? I haven't seen any changes proposed since the Carter Royal Commission in 1969 which said that "a buck is a buck" and that the economic unit should be taxed, not the individual, with the unit being the family.

Since benefits are clawed back by the current system, you end up with a professional (e.g. engineer) supporting a spouse and 2-3 kids and paying essentially the same taxes as a single person with no dependents. Basically, if the government considers you to be wealthy, you don't receive any benefits.

If you want to keep pushing the individual approach, I'm all for it, provided we let each spouse claim 50% of all available benefits based solely on his/her income. There is something like $1,400/child in CCTB and supplements available, so if you agree that a stay-at-home spouse with 4 kids should be entitled to 50% of $5,600 (i.e. a cheque for $2,800) based on his/her income of $0, I'd view this as a reasonable compromise.

Just FYI, family income is used just about everywhere (qualifying for student loans, applying for a mortgage etc.) except tax liability.

As the previous poster pointed out, the government is not being consistent in its tax+benefit treatment of individuals. They tie each spouse to the family income for benefits, but separate the individuals for tax purposes.

I've seen a number of reports that Revenue Canada has looked at the tax rates a few times and decided that the individual tax rate is the fairest. The last report I saw was this one but there have been others:

http://www.caledoninst.org/Publications/PDF/609ENG.pdf

I have no problem looking at delivering fairness in taxation. I'm convinced though that income splitting isn't the way to do it and joint tax returns often have undesirable consequences .

[Pat Coghlan]

In essence you are arguing for a flat tax.

A high basic personal exemption, where the tax rate is zero.

The second rate is the flat tax. Very interesting.

No, the way I envision it working is:

• No tax on the amount exempt from tax
  
• (lower) Tax rate A on non-luxury income (i.e. housing)
  
• (higher) Tax rate B on luxury income (i.e. for that BMW)
  

The examptions and tax brackets are dependent on family class (one for singles, another for couples, another for couples with <n> children etc.).

[Michael Bluth]

No, the way I envision it working is:

• No tax on the amount exempt from tax
  
• (lower) Tax rate A on non-luxury income (i.e. housing)
  
• (higher) Tax rate B on luxury income (i.e. for that BMW)
  

The examptions and tax brackets are dependent on family class (one for singles, another for couples, another for couples with <n> children etc.).

So by 'tax brackets' you are proposing that people with children pay a lower amount of tax on ALL their taxable income?

What you have proposed doesn't match with your desire for two tax brackets.

How can you match income tax rates to the money it will be used to buy. Would that mean somebody in rural saskatchewan would pay different rates on the same level of income than someone living in downtown Toronto? That would follow if you tried to tax income using for housing at one rate and 'luxury' items at a different rate.

And people think the current tax system is too complex....

Edited December 29, 2007 by Michael Bluth

[BubberMiley]

Doesn't the current system of tax brackets already account for taxing "luxury" income at a higher rate? The child tax credit already provides tax relief for those with children. So the only real change called for is a sort of tax credit for married people with disparate incomes, but I'm not certain why the government would consider that a priority.