Federal Tax Reform: A Serious CTF Proposal

[Pat Coghlan]

There should only be one tax with one tax bracket. Either an income source tax or a consumption tax. Choose.

Income.

The percentage is not important for the sake of this discussion...20%, 30%, 99%...that is for the tax department and government to decide with voters. Why would we have anything else? Some posters don't think wealth should be concentrated with the few; why not? Others feel that investments should be taxed lower; why? By the way, investment in the stock market and business DOES create jobs. Where the hell does everyone think the corporate money comes from to hire people and pay salaries? If I have enough income to invest in stock, then if it makes money I still get to keep 80% of it (or whatever amount). Good for me. If a company's investments aren't paying enough dividends to prevent investors from taking their money overseas or across the border, then they better do something about it. It is not the taxpayer's of Canada that should be on the hook by offering tax breaks.

Wouldn't it be great if the Finance department was having this debate re: needed reforms?

Investing in the stock market creates jobs when a company needs that money to grow, however, these are not the companies that pay dividends, generally. Many blue chip companies are buying back their own stock these days.

It sickens me when people feel they have a right to other's earned income. If Bill Gates has $50 billion dollars, he earned it. Did he run a backhoe? No, but he took a risk with his money and was smart enough to find other people's money from investment. Doctor's don't run backhoe's either, but nobody's bitching about their income. P.S. Accountants and CEO's don't dig ditches either.

There should be no other incentive for RRSP's/GIC's/RPP's than the knowledge that you have money for retirement. No tax advantages. I'm sure someone will pipe up that "Well, if there's no tax advantage how do we ensure that people will put money away?"

It's okay for people to have lots of wealth...provided others have an opportunity to move up to the wealth class as well.

I think you can understand the problem better if we use 1% as the tax rate on dividends/capital gains and 80% on salaried income. Clearly, the salaried individual doesn't have a hope of moving up to the wealth class, as he needs all of his income just to survive.

While this is an extreme example, is it valid to charge twice the tax rate on salaried income as we do on investment income?

Who cares? It's not my problem if people are too stupid to look into the future. Incidentally, if those people are truly that stupid they aren't putting any money away tax advantage or no tax advantage. Don't like it? Then make it a mandatory deduction at source (but no tax deferral).

I know this isn't a touchy-feely-liberal-do-gooder approach to things. "Society is judged by how it treats it's weakest links." Not in my world. Society should be judged by how many stupid people it has, not by how much of a nanny-state it is. "But the poor wage earners aren't getting ahead!" Again, who cares? Because Billy-Bob can't make $50,000 a year is not my concern. Not everyone is destined for greatness. Some people will be fry cooks until they are promoted to grill. That's life...deal with it.

Progressive taxation is regressive. Socialism.

Well, as long as the have-nots vote, there will always be wealth redistribution. The only thing that is debatable is the extent to which we will do it.

[Pat Coghlan]

Look, if you think that the taxes on salaried employees are so terrible compared to those of business owener, start your own business if you think it's such a great deal.

Simple really.

Wealthy people are entitled to a certain level of wealth and Pat Coughlin will be right along once he deems what that certain level is. Sounds like a place I would like to live....

Small business owners don't receive their revenue in the form of capital gains and dividends. I know they are heavily taxed, just like wage earners.

I'd like to see both wage earners and business owners have tax rates which are more in line with those for dividends and capital gains.

The "place" that I'm descdribing is not one in which all wealth is confiscated, only that we treat all forms of income similarly and not provide an excessive advantage to those who have already "made it".

If the poor old seniors need special tax treatment for their dividend income, cap it at $50K, and let the person with $500K in dividend income pay rates which are in line with salaried incomes.

[Hydraboss]

It's okay for people to have lots of wealth...provided others have an opportunity to move up to the wealth class as well.

Who says they can't? My making money is not preventing them from doing the same.

I think you can understand the problem better if we use 1% as the tax rate on dividends/capital gains and 80% on salaried income. Clearly, the salaried individual doesn't have a hope of moving up to the wealth class, as he needs all of his income just to survive.

While this is an extreme example, is it valid to charge twice the tax rate on salaried income as we do on investment income?

They should be absolutely no difference in tax rate. Income is income.

Well, as long as the have-nots vote, there will always be wealth redistribution. The only thing that is debatable is the extent to which we will do it.

That is a BS statement. There will always be wealth redistribution as long as there are bleeding hearts and socialism.

If a single-rate tax structure was put in place, say 40%, one level only (fed, prov), no consumption taxes of any kind, and you gave an exemption ceiling of $20,000, you would have a lot less bitching and moaning from the have-nots. Of course if they still complain, who cares? The number of people in Canada that are below the threshold where this scheme would cost them more out of pocket is not that great I'd wager.

(And before anyone rips my numbers apart, remember they're for demonstration purposes only. Do not try to calculate this at home. No animals were harmed in the making of these equations.)

[August1991]

If a single-rate tax structure was put in place, say 40%, one level only (fed, prov), no consumption taxes of any kind, and you gave an exemption ceiling of $20,000, you would have a lot less bitching and moaning from the have-nots. Of course if they still complain, who cares? The number of people in Canada that are below the threshold where this scheme would cost them more out of pocket is not that great I'd wager.

Hydraboss, if you went back to the OP, that's more or less what the CTF is proposing. In addition, the CTF proposal is even politically palatable.

The CTF wants a $15,000 per adult exemption and then two (not one) tax rates. Critically (and something that you don't mention), teh CTF wants to eliminate many popular tax exemptions.

I'd like to see both wage earners and business owners have tax rates which are more in line with those for dividends and capital gains.

Would you include the capital gain on a principal residence in that calculation? How about the capital gain on a farm or a fishing boat?

Canadians consider it sacrosanct that if they make money on their home, they get to keep 100% of the profit - no capital gain tax at all.

Brian Mulroney was crucified because he introduced the GST. Any politician that introduced a capital gains tax on homes comparable to income tax would be crucified and then sent to Hell.

Just imagine two families living next door to one another. Family A, a retired couple, have a family income of $100K, consisting mostly of the husband's pension from his former employer (Bell Canada, federal gov't etc.). Family B, a couple and their 3 children, also have a $100K income, consisting mostly of the husband's (or the wife's, take your pick) income. Family A have considerable assets but zero debt. Family B have a house with a big mortgage, a car loan and no other significant assets.

In spite of the fact that the couple with children are living paycheque-to-paycheque, their income tax burden will be many thousands of dollars more per year than the retired couple, since the retired couple can now split their income 50/50 to achieve the lowest possible tax liability.

A family with a spouse at home while the other works enjoy benefits that a family with two working spouse don't have. For example, the efforts of the at-home spouse are performed tax-free.

Now, if both spouses are at home and performing household tasks - effort that is all tax-free, why do they get a special tax exemption? I think people over 65 should pay higher taxes than the rest of us.

When you wash your own dishes or clean your own car, you're working under the table. You don't pay income tax on that work.

No one actually believes in Keynesian economics anymore. Your ideas are 20+ years out of date. And you don't even have the theory correct.

The thing is that as a very rough approximation, Keynesian ideas work. So while nobody believes them anymore, they still use his basic approach in theory and they even use it secretly for quick answers. Edited February 2, 2008 by August1991

[Pat Coghlan]

Would you include the capital gain on a principal residence in that calculation? How about the capital gain on a farm or a fishing boat?

I'd keep the principal residence exemption. Americans have a one-time exemption also.

A family with a spouse at home while the other works enjoy benefits that a family with two working spouse don't have. For example, the efforts of the at-home spouse are performed tax-free.

This is the biggest scam going. First off, while some DIFs (dual-income families) pay someone to clean their homes (under the table, I might add) the others do it outside of working hours.

Secondly, even DIFs are penalized w.r.t. taxes if one spouse earns most of the income. What benefit are they enjoying that warrants SIF-style taxation?

There are other benefits, e.g. the kids have a much more stress-free life, but since when do we tax that???

Now, if both spouses are at home and performing household tasks - effort that is all tax-free, why do they get a special tax exemption? I think people over 65 should pay higher taxes than the rest of us.

When you wash your own dishes or clean your own car, you're working under the table. You don't pay income tax on that work.

I don't pay income tax when I wipe my ass either. Like, where do you draw the line re: tax on labour?

As for taxing seniors, this merits some consideration. My parents have more pension income than my current salary. They put it all in the bank. OTOH, I spend every cent I make (and more) supporting my family (7 members).

Actually, I don't really think we need to hit seniors harder, but I don't believe that we should hit families with young families harder either, and we do.

We NEED tax breaks when we start out and have young children. Trust me on this one.

With the introduction of pension-splitting, we are giving a break to many seniors that probably don't need it, while we apply the top tax rate and claw back all benefit payments to an engineer trying to raise a family.

I was actually involved in the lobbying effort for pension-splitting. Why? Because I felt that tax reform would happen with seniors first, and set the stage for similar reforms for all families. Why? Because I knew that the same generation that pooh-poohed the idea of taxing family income while both spouses were in the work force would suddenly start screaming for horizontal equity once they discovered that they only had one decent pension between them and were paying much higher taxes. You can check back through my newsgroup postings from 12-15 years ago and see that this was exactly what I predicted.

Somebody needs to give his/her head a shake in the finance department and initiate some serious tax reform.

[Hydraboss]

Hydraboss, if you went back to the OP, that's more or less what the CTF is proposing. In addition, the CTF proposal is even politically palatable.

The CTF wants a $15,000 per adult exemption and then two (not one) tax rates. Critically (and something that you don't mention), teh CTF wants to eliminate many popular tax exemptions.

Perhaps YOU missed it, but in any discussion regarding taxation I have been involved in...I want to eliminate ALL tax exemptions. Why should I pay less tax on my income because I'm smart enough to put some of MY money away for MY retirement, and you're too stupid to think ahead (and therefore pay more tax)?

Would you include the capital gain on a principal residence in that calculation? How about the capital gain on a farm or a fishing boat?

Capital gains should be done away with. Income earned from more than your principle residence is already taxed as income...because you're either a real estate agent or investor.

Canadians consider it sacrosanct that if they make money on their home, they get to keep 100% of the profit - no capital gain tax at all.

And they should get to keep it. If I decide to buy and move into twelve houses a year, and just happen to make money each time I sell one...that's my money (non-taxable). I paid with the inconvenience of moving twelve times.

Brian Mulroney was crucified because he introduced the GST. Any politician that introduced a capital gains tax on homes comparable to income tax would be crucified and then sent to Hell.

What's your point...they're going there anyway. As a matter of fact, I'm going to save a couple of the more interesting ones a seat.

A family with a spouse at home while the other works enjoy benefits that a family with two working spouse don't have. For example, the efforts of the at-home spouse are performed tax-free.

And should I declare on my taxes that I flushed my own toilet? By your estimation, that's working under the table because another family may have to pay someone to do it. Ridiculous. The family unit (of any kind) is not an employer (of any kind) and therefore this does not and should not constitute taxable income.

Now, if both spouses are at home and performing household tasks - effort that is all tax-free, why do they get a special tax exemption? I think people over 65 should pay higher taxes than the rest of us.

I think (along with others) that ALL Canadians should pay the same. It's called fairness, not favoritism.

When you wash your own dishes or clean your own car, you're working under the table. You don't pay income tax on that work.

Nor should you.

The thing is that as a very rough approximation, Keynesian ideas work. So while nobody believes them anymore, they still use his basic approach in theory and they even use it secretly for quick answers.

Kinda like the Magic 8-Ball, huh?

[Hydraboss]

We NEED tax breaks when we start out and have young children. Trust me on this one.

This is where Canada is fundamentally wrong. NO ONE needs tax breaks (trust ME!). There is a basic exemption for low income earners, and that's enough.

If it isn't...maybe you should have considered it before you had five kids. They're not my responsibility to pay for...they're yours.

A major problem with income tax is that we just can't seem to agree on what "income" is. Income is money you are paid for doing a service but that service does not have to be physical. Investing your money in a company is a service you do for that company. It's income and should be taxed. If a husband and wife have sex, should one or the other be taxed on a market-value assessment of their skills (because either one could have hired someone to do it)?

[msj]

If a single-rate tax structure was put in place, say 40%, one level only (fed, prov), no consumption taxes of any kind, and you gave an exemption ceiling of $20,000, you would have a lot less bitching and moaning from the have-nots. Of course if they still complain, who cares? The number of people in Canada that are below the threshold where this scheme would cost them more out of pocket is not that great I'd wager.

(And before anyone rips my numbers apart, remember they're for demonstration purposes only. Do not try to calculate this at home. No animals were harmed in the making of these equations.)

For Hydraboss:

You little caveat does not excuse the fact that you ignore the government's desire to collect revenue to make their expenditures.

Not only do you ignore governments need/want for as much revenue as they can get away with but you make it worse with an idea that makes no sense for most people who make middle to upper-middle incomes:

A person making $40,000 of interest income (for simplicity sake) would pay about $6,688 of BC and federal income tax (using 2007 rates).

That person would pay $8,000 under your scenario.

$100,000? $27,337 versus $32,000 under your scenario.

$1,000,000? $420,011 versus $392,000 under your scenario.

And there's the rub - the problem with only one tax rate and exemption level is that, no matter how hard you try, those making the most bucks are going to see a tax cut while people making a decent living would see their taxes go up.

Most Canadians will not go for this because most Canadians earn, or think they are capable of one day earning, $50,000 to $100,000 rather than $1,000,000.

Which is why the CTF's and Pat's idea of two tax rates is better - it has a chance of being sold to most Canadians.

For all other people in this thread:

You are forgetting that governments need to consider revenue. They must collect hundreds of billions of dollars each year and there is no evidence that this fact is considered (at least the CTF study tries to consider it).

Everyone thinks that they can cut taxes and make it simpler. Try cutting taxes while maintaining a budget.

That's the real world, folks.

[Hydraboss]

msj,

First of all, my caveat is not supposed to excuse anyone of anything. The problem with government is that they decide what they want to do, and then tax to fund. What they should be doing is taxing and then budgeting from the money available. If there isn't enough money, then they have to raise taxes the following year. THE TAXES SHOULD SET THE BUDGET, not the other way around.

As for your calculations (and, no, I don't care what tax rate you choose to use), you fail to explain why the person making $1,000,000 should have to pay a higher percentage of his money for no apparent reason. The CTF proposal is just that - a proposal. So is mine. Neither one will ever see the light of day because eastern Canadians are socialists.

[msj]

msj,

As for your calculations (and, no, I don't care what tax rate you choose to use), you fail to explain why the person making $1,000,000 should have to pay a higher percentage of his money for no apparent reason.

The reason is very simple: because there are less people making $1,000,000 so it is politically easier to tax them at higher marginal tax rates (or at least make it look like they are taxed at higher marginal tax rates - perception for us pee-ons) while, in reality, providing them ways to minimize those marginal tax rates through the use of tax preferred income sources, tax deferrals, and income splitting vehicles like corporations and trusts.

[Visionseeker]

Visionseeker, it is interesting justifications you propose, however I'd like to see some backup that the suppositions are true.

For example, how do we know that wealth redistribution is a better mechanism for mitigating social upheaval then investing in police forces. Why for example are there societies like Hong Kong which do very little wealth restribution but yet doesn't seem in danger of social upheaval.

Your other justification is that the benefit is somehow the result of state expenditures and investments. How do you know? Perhaps in some cases it is true, but there maybe others where the state had nothing to do with income generated. It would seem that the more sensible way for the state to make wise expenditures and invesments is to charge for use of that infrastructure so that beneficiaries are the ones who pay back the state's outlay.

Thanks for the response and the invitation to clarify.

There are actually many, more compelling cases involving some pretty heavy mathematical arguments. These demonstrate how tax policy can be used to entice taxpayers into economic behaviours that produce wider benefits for the economy. But my post simply offers two lines of thought to justify progressive taxation from the perceptual angle of the payers. The intent was to point-out that flat-taxing is not necessarily "fair".

Unfortunately, I'm not sufficiently familiar with the Hong Kong case to play the comparison. In order for me to properly discuss their tax policies, I would require a much stronger understanding of HK’s socio-economic and political make-up.

But I can address your wealth redistribution versus law enforcement dichotomy. First, wealth redistribution can be seen as a preventative strategy. By alleviating some of the difficulties society's poor encounters in meeting basic needs like food and shelter, progressive tax policies reduce economic desperation and thereby prevent individuals from having to resort to crime in order to feed themselves or their families. The redistributed wealth provides the less advantaged with a greater opportunity of living legitimately.

Alternatively, investing in law enforcement as an alternative to wealth redistribution is a reactive enterprise. The economically desperate are more apt to resort to crimes of subsistence and, with a greater resources invested in law enforcement it follows that many of these “subsistence criminals” are caught and detained. Such detainment carries increased court and incarceration costs, as well as additional costs (economic and social) when the detainee has dependents (i.e. foster care placements). Law enforcement expenditures at the expense of wealth redistribution fuels criminality and growth in institutional populations (prisons and orphanages).

So, if increasing criminality increases cost, does it not follow that decreasing criminality would reduce it? I say yes: which is why I am a proponent for the decriminalization and institution of control for both narcotics and prostitution. The economic rationale for doing so is self-evident. But I digress…

As for my other justification, I invite you to show me an example of income generation that is entirely free from any reliance on state expenditures or outputs. I may be wrong, but I don’t think you’ll succeed.

Lastly, I will say that I agree in principle with your assertion that user fees are a “more sensible way” for beneficiaries to pony-up for the advantages they receive from state assets and expenditures, but I suspect that you’ll admit that it is not always realistic to adopt a user-fee approach. Consider this: does a senior whose kids are grown or someone who has no kids have a legitimate argument against paying school taxes?

[Renegade]

There are actually many, more compelling cases involving some pretty heavy mathematical arguments. These demonstrate how tax policy can be used to entice taxpayers into economic behaviours that produce wider benefits for the economy. But my post simply offers two lines of thought to justify progressive taxation from the perceptual angle of the payers. The intent was to point-out that flat-taxing is not necessarily "fair".

I'd be interested in seeing those mathematical arguments you reference. Of course I agree that tax policy can be use to entice behaviours which produce wider effects to the economy but is that even the reason to tax? It is impossible to dispute what is "fair" because unless everyone has an agreed on definition of what "fairness" is, "fair" remains a subjective term.

But I can address your wealth redistribution versus law enforcement dichotomy. First, wealth redistribution can be seen as a preventative strategy. By alleviating some of the difficulties society's poor encounters in meeting basic needs like food and shelter, progressive tax policies reduce economic desperation and thereby prevent individuals from having to resort to crime in order to feed themselves or their families. The redistributed wealth provides the less advantaged with a greater opportunity of living legitimately.

Alternatively, investing in law enforcement as an alternative to wealth redistribution is a reactive enterprise. The economically desperate are more apt to resort to crimes of subsistence and, with a greater resources invested in law enforcement it follows that many of these “subsistence criminals” are caught and detained. Such detainment carries increased court and incarceration costs, as well as additional costs (economic and social) when the detainee has dependents (i.e. foster care placements). Law enforcement expenditures at the expense of wealth redistribution fuels criminality and growth in institutional populations (prisons and orphanages).

So, if increasing criminality increases cost, does it not follow that decreasing criminality would reduce it? I say yes: which is why I am a proponent for the decriminalization and institution of control for both narcotics and prostitution. The economic rationale for doing so is self-evident. But I digress…

All you have reasonablly deduced is that wealth redistribution may be preventative to criminality. What you do not show is that it more economically efficient to placate the ecomomically desparate than to to invest in reacting to the criminality. For example if in order to preserve social and economic order it cost $1B investment in law and order, or alternatively $20B of wealth redistributon, is it not better to spend the funds on law and order?

As for my other justification, I invite you to show me an example of income generation that is entirely free from any reliance on state expenditures or outputs. I may be wrong, but I don’t think you’ll succeed.

The fact is it is impossible to know ALL the reasons behind income generation. There are a multitude of factors some of whch (such as luck) which are beyond anyone's control, but it is pretty much impossible to prove one way or another. In some cases it is easy to show correlation between income and government investment, however in other cases there may be no apparent link.

I think since you made the claim of such justificaiton, the onus would lie with you to prove the link between the two rather than ask me to prove that there is no link.

Lastly, I will say that I agree in principle with your assertion that user fees are a “more sensible way” for beneficiaries to pony-up for the advantages they receive from state assets and expenditures, but I suspect that you’ll admit that it is not always realistic to adopt a user-fee approach.

Of course, it is not always possible or practical to measure usage, but I would say that when usage is measurable and it is practical, user fees should be used as the mechanism for raising revenue.

Consider this: does a senior whose kids are grown or someone who has no kids have a legitimate argument against paying school taxes?

Yes they do have a valid argument. If schools were funded from "user fees", the senior would have paid their share of fees while their kids were attending. As far as someone who had no kids, they would only pay the cost of schooling indirectly, by purchasing the cost of services of someone who has been educated.

Edited February 2, 2008 by Renegade

[Pliny]

I take a system-level view of taxation, and feel the system is failing salaried wage earners, especially in families in which one spouse earns most or all of the income. Two families with idential combined incomes qualify for identical benefit payments, but their tax liabilities can differ by up to $15,000.

BTW, RRSPs gains are not taxed while they remain in the plan.

Wealthy families are entitled to a certain amount of wealth. I just don't feel that most wealth should simply accrue to families that already have acquired wealth, due in large part to the fact that their investments are treated more favourably by the tax system than the salaries of wage earners.

All part of the plan.

I would like you to take a look at RRSP's from this perspective.

If say in 1960 I started an RRSP and kept it for 50 years. Now the purchasing power of my dollar at the time will obviously be more than the dollar fifty years later. The taxes I paid on my income was less than today. So I would be paying a greater percentage of my RRSP to taxes when I start to withdraw it then I would have fifty years earlier - creeping socialism, you know and it must be funded by government. So with loss of my purchasing power through inflation and higher taxes on my income later it makes little sense to invest in such a scheme. If I have a million dollars fifty years later. I might be able to live on that and I might not. If I or someone close to me contracts a disease that must be managed most of my savings will go to that and it will not last long at today's medical costs. Health care is not free like some people think. Drugs and many procedures must be paid for out of pocket or are only subsidized. So my financial security is not guaranteed but the government seems to act like it is and relentlessly takes half my earnings until and unless I don't have any.

[Pat Coghlan]

This is where Canada is fundamentally wrong. NO ONE needs tax breaks (trust ME!). There is a basic exemption for low income earners, and that's enough.

Wrong according to you. Apparently right according to virtually every western democratic government.

[Hydraboss]

Pat, just because it's being done does not make it right. The CTF proposal as well as mine are only proposals, and as I have said before, neither will ever see the light of day.

This entire thread is about what we think of the proposals, not whether they will be accepted because we all know they won't. Tax law is set for pandering and favoritism, not what is right.

Progressive tax law along with exemptions galore only ensures that the accounting profession and the tax law profession stay afloat. As long as the rules are fuzzy and convoluted, the governments of Canada can get away with anything they want. Conspiracy? No, just slight of hand. Perfectly legal in a corrupt way.

[Pat Coghlan]

Pat, just because it's being done does not make it right. The CTF proposal as well as mine are only proposals, and as I have said before, neither will ever see the light of day.

This entire thread is about what we think of the proposals, not whether they will be accepted because we all know they won't. Tax law is set for pandering and favoritism, not what is right.

Progressive tax law along with exemptions galore only ensures that the accounting profession and the tax law profession stay afloat. As long as the rules are fuzzy and convoluted, the governments of Canada can get away with anything they want. Conspiracy? No, just slight of hand. Perfectly legal in a corrupt way.

The thing is, how "wrong" is it to provide certain tax breaks, when the practice is universal.

I tend never to try and argue a position that is futile. I think tax reform is possible - but not along the lines of a flat tax.

We are about to enter a period of either stagflation or a hyperinflationary depression. Either way, income isn't going to go nearly as far, and we may see people screaming to keep more of their income.

[Hydraboss]

People have been "screaming" to keep more of their income since taxes were invented. Only when the media uses words like "inflation" and "recession" do politicians pay any breath to it.

As for tax breaks...just because it is nearly universal does not make it right. The beating of women was pretty much universal at one time. Doesn't make it right, just a reality. The same applies to redistribution of wealth. It is socialism and in it's most extreme form, communism.

You believe that tax reform can happen? Fine, but the government has a track record of decreasing "this" while at the same time increasing "that". Once again, slight of hand.

So do you want to discuss what is "right" or "what is likely to happen"? If it is the latter, might as well go back and delete the words "flat", "single" and "fair" from this thread.

[Renegade]

I'd like to see both wage earners and business owners have tax rates which are more in line with those for dividends and capital gains.

You miss the fact that dividends are give a reduced tax rate because they are double taxed. They are first taxed as corporate income, they are then taxed again when they are passed on to the shareholder.

This is the biggest scam going. First off, while some DIFs (dual-income families) pay someone to clean their homes (under the table, I might add) the others do it outside of working hours.

Should the overall tax paid to the government depend upon who earns the income? If a maid cleans the house should the same income which has already been taxed, be taxed again if the work is delegated to someone else.

One good way to distribute wealth (without coercion) is to exempt from taxation the amount which is paid to another individual who will then declare it as income. For example if one pays a maid $20,000 a year for domestic services, then the payor should be able to deduct that amount off their income. Not only does it encourage the delegation of work in a more efficient manner, it keeps everything over the table and encourages the voluntary distribution of wealth.

Edited February 4, 2008 by Renegade

[Pat Coghlan]

You miss the fact that dividends are give a reduced tax rate because they are double taxed. They are first taxed as corporate income, they are then taxed again when they are passed on to the shareholder.

Should the overall tax paid to the government depend upon who earns the income? If a maid cleans the house should the same income which has already been taxed, be taxed again if the work is delegated to someone else.

Yeah, but so what? This affects the company's earnings and the amount of dividends you receive - all of which you took into consideration when you bought the stock, right? The tax you pay on the dividends afterwards is only relevant to you and your decision to invest in dividend-paying stock.

Interesting point, though. There must be a formula which shows how much of an original $1 of earnings actually ends up as tax revenue for the government. Must be a hell of a percentage.

[Renegade]

Yeah, but so what? This affects the company's earnings and the amount of dividends you receive - all of which you took into consideration when you bought the stock, right? The tax you pay on the dividends afterwards is only relevant to you and your decision to invest in dividend-paying stock.

Sure, but what you also took into consideration when yu bought the stock, is the favourable treatment of dividends. It is disingenuous to think otherwise. If you truly feel that all income should be treated equally, then you should also favour dividend income being only taxed once in the same way the income trust structure previously allowed.

Let me ask if your logic of what investor "took into consideration when you bought the stock", extends to family income. Afterall a single-income earner, took the tax rates it into consideration when he married a non-working spouse or when that spouse stopped working, right?

Interesting point, though. There must be a formula which shows how much of an original $1 of earnings actually ends up as tax revenue for the government. Must be a hell of a percentage.

I wish I knew of a caclculation of the exact amount which overall goes to the government, but given that the government gets a cut of whatever is paid as income or when it is spent, as long as it stays in the country, you are right that the government gets a huge slice.

Edited February 5, 2008 by Renegade

[Pat Coghlan]

Let me ask if your logic of what investor "took into consideration when you bought the stock", extends to family income. Afterall a single-income earner, took the tax rates it into consideration when he married a non-working spouse or when that spouse stopped working, right?

Your point was that dividends need to be taxed less because the income has already been taxed once at the source. I'm saying this is mostly transparent to the investor. Companies aren't required to pay dividends.

Getting married doesn't substantially affect the tax on one's income, so there are really no tax considerations that factor into the decision. The government tries to treat everyone as an individual, except when it comes to calculating eligibility for benefits. I'd be happy if the government treated family income for TAX purposes the same way they do for BENEFIT purposes, that's all.

[Renegade]

Your point was that dividends need to be taxed less because the income has already been taxed once at the source. I'm saying this is mostly transparent to the investor. Companies aren't required to pay dividends.

I'm unclear on what you mean as being "mostly transparent" to the investor. Certainly an investor is aware the corporation pays tax. And certainly it impacts the investor because otherwise the dvidend would be larger. That is specificly why investors were attracted to income trusts.

Getting married doesn't substantially affect the tax on one's income, so there are really no tax considerations that factor into the decision. The government tries to treat everyone as an individual, except when it comes to calculating eligibility for benefits. I'd be happy if the government treated family income for TAX purposes the same way they do for BENEFIT purposes, that's all.

I suppose that depends upon what you mean by "substantially". Under the current tax structure I generally agree, the tax impact is minimal. Under what you are proposing however, the tax impact would be considerable. As with the investor, the participants in a marriage are aware (or should be) of the tax implications of a marriage. Why give certain households a tax-break simply because they pool income?

I agree with you that there is inconsistancy between how income is regarded for benefits vs tax and that should be rectified. IMV eiither benefits should be calculated based upon individual income or income tax should be taxed upon family income. BTW, family income is different than income splitting.

Personally I would favour a flat-tax no-exemption, minimal dedcuction system.

[Pat Coghlan]

I'm unclear on what you mean as being "mostly transparent" to the investor. Certainly an investor is aware the corporation pays tax. And certainly it impacts the investor because otherwise the dvidend would be larger. That is specificly why investors were attracted to income trusts.

I suppose that depends upon what you mean by "substantially". Under the current tax structure I generally agree, the tax impact is minimal. Under what you are proposing however, the tax impact would be considerable. As with the investor, the participants in a marriage are aware (or should be) of the tax implications of a marriage. Why give certain households a tax-break simply because they pool income?

Well, you could start by reading the report by the 1967 Carter Royal Commission On Taxation, which recommended taxing family income since it is the family - not the individual - that spends the money.

I agree with you that there is inconsistancy between how income is regarded for benefits vs tax and that should be rectified. IMV eiither benefits should be calculated based upon individual income or income tax should be taxed upon family income. BTW, family income is different than income splitting.

Yes, in that there would be a different set of tax brackets which are wider.

If you don't like the idea of taxing family income, you must HATE pension-splitting, as retired couples essentially have tax brackets which are 200% as wide as those for singles. While families need wider tax brackets, they don't need brackets which are twice as wide as the brackets for singles.

[Renegade]

Well, you could start by reading the report by the 1967 Carter Royal Commission On Taxation, which recommended taxing family income since it is the family - not the individual - that spends the money.

Yeah I could, but I highly doubt that it should take 2700 pages of reading to answer a relatively simple question. I don't think it is accurate to say that the family spends the money. Correct me if I'm wrong, but I think you mean that the decisions to spend the money are made by the family rather than the individual constitutents. But so what? Our income tax is constructed on who earns the money, not who spends it.

Would you consider a single parent with kids a "family" who should aggreate income for tax purposes? What about a single individual, is that a family of one?

If you don't like the idea of taxing family income, you must HATE pension-splitting, as retired couples essentially have tax brackets which are 200% as wide as those for singles. While families need wider tax brackets, they don't need brackets which are twice as wide as the brackets for singles.

I'm not against taxing family income so long as all families are considered as a single economic unit, and there is not discrimmination based upon the make-up of the family. IOW, a 2-parent family with kids should not be treated any differently than a single-parent, than a single individual, as according to the premis, each i an economic unit.

Yes I dislike pension-splitting because it is a discrimminatory benefit awarded a narrow tax-paying group for political purposes.

[Pat Coghlan]

Would you consider a single parent with kids a "family" who should aggreate income for tax purposes? What about a single individual, is that a family of one?

The government apparently feels the need to level the tax playing field for single-parent families. Perhaps you're familiar with the equivalent-to-spouse exemption. Like, what the hell is that?

I'm not against taxing family income so long as all families are considered as a single economic unit, and there is not discrimmination based upon the make-up of the family. IOW, a 2-parent family with kids should not be treated any differently than a single-parent, than a single individual, as according to the premis, each i an economic unit.

Yes I dislike pension-splitting because it is a discrimminatory benefit awarded a narrow tax-paying group for political purposes.

Okay, how about this. Every "family" gets a $10K exemption per family member, and all families pay the same tax on their combined incomes?

In my case, there are 7 in our family, so the first $70K of our income would be tax-exempt. We would not expect any other benefit payments or deductions.

You apparently want the same rules for all types of families, so how about that? Sign me up.