Tax Free Savings Accounts - TFSAs

[HistoryBuff44]

Canada already has a good debt payment plan is. Lowering the income tax would stimulate the economy and more tax would come in. Debt would continue to be paid off.

I agree with what your saying. Im just wondering if the govt's reaction to the predictions of economists explains their actions. Initially they were told we would be fine, so no need to stimulate the economy just keep paying off debt. Now its shown that we will not ride this out easily but they dont want to be the first government in 13 years to run a deficit.

Initially i wondered if you were hinting that paying off the debt wasnt a good choice. that 10 billion paid off means 500 million in interest savings.

[Wilber]

I agree with what your saying. Im just wondering if the govt's reaction to the predictions of economists explains their actions. Initially they were told we would be fine, so no need to stimulate the economy just keep paying off debt. Now its shown that we will not ride this out easily but they dont want to be the first government in 13 years to run a deficit.

Initially i wondered if you were hinting that paying off the debt wasnt a good choice. that 10 billion paid off means 500 million in interest savings.

When you go to a financial planner, they invariably tell you your first priority should be to pay down debt. Wonder why it is that so many think the same principle doesn't apply at a government level.

[August1991]

When you go to a financial planner, they invariably tell you your first priority should be to pay down debt. Wonder why it is that so many think the same principle doesn't apply at a government level.

I'm sorry but I just can't resist responding.

If you were never going to die, and were never going to retire, would it make sense to save? Canada the country (and its government) will live well after every Canadian alive now is dead. What applies to an individual most certainly does not apply to a country or a government.

Now then. At any given moment, many Canadians will be in debt because they are young and they just bought their first house. IOW, for Canada as a whole, there will always be debt. The same concept applies to the Canadian government. It shoudl always have debt.

Initially i wondered if you were hinting that paying off the debt wasnt a good choice. that 10 billion paid off means 500 million in interest savings.

In fact, the federal government now borrows at about 3.5% so the interest saving is closer to 350 million.

And any financial planner will tell you to pay off the high interest debt first - not the low interest debt. Does it make sense to you for the government to tax people who have mortgages at 6% to pay off a debt at 3.5% interest?

----

Much of the problem in discussing government debt is that people do as Wilber above and approach government finances the same way they approach their personal finances. Over the years, there has been much grief and poverty imposed on people because politicians and government officials made the same error.

A government is not like a family.

[jdobbin]

I agree with what your saying. Im just wondering if the govt's reaction to the predictions of economists explains their actions. Initially they were told we would be fine, so no need to stimulate the economy just keep paying off debt. Now its shown that we will not ride this out easily but they dont want to be the first government in 13 years to run a deficit.

Initially i wondered if you were hinting that paying off the debt wasnt a good choice. that 10 billion paid off means 500 million in interest savings.

I am happy with the present debt payment plan. It is a good one. But I also think we need broad-based tax cuts to help Canadians as a whole.

[blueblood]

How would the debt being completely gone be a bad thing?

[jdobbin]

How would the debt being completely gone be a bad thing?

When it is done and creates a deficit of another kind such as infrastructure, it can be a problem. It is like paying your house off and not doing general maintenance. The work needs to be done but because you waited there is a lot of it and because your demand and need of it is strong, it creates inflation for the materials and the workers to do the job.

Edited March 7, 2008 by jdobbin

[Leafless]

When it is done and creates a deficit of another kind such as infrastructure, it cane be a problem. It is like paying your house off and not doing general maintenance. The work needs to be done but because you waited there is a lot of it and because your demand and need of it is strong, it creates inflation for the materials and the workers to do the job.

What your saying is ridiculous.

If government acted responsibly relating to infrastructure rather that creating money pits like 'official bilingualism', the country would be doing fabulously well with no deficit.

Besides, what you are saying as always been the rule of thumb to something that has been ignored, ' PAY ME NOW OR PAY ME LATER, SUCKA'

Edited March 7, 2008 by Leafless

[jdobbin]

What your saying is ridiculous.

If government acted responsibly relating to infrastructure rather that creating money pits like 'official bilingualism', the country would be doing fabulously well with no deficit.

Canada has no deficit now. What we are talking about is the debt and how fast we pay it off.

I think we saw the problem of rushing to pay off the debt as fast as Alberta did. They paid it off quick but they had an infrastructure deficit that they are trying to remedy now. The problem is that when you do all this at once, it creates a problem with the supply of workers and Alberta has experienced inflation.

Klein himself said that it was an odd problem to face no debt, having money pour and not being able to get workers because the economy was rising faster than the ability to build roads, hospitals and houses was.

Greenspan wrote about this problem with Clinton where he said that the debt was being paid off too fast and and that it was better to spend it on national infrastructure while maintaining the old payment plan. Jeffrey Simpson has similarly written about it.

[Wilber]

If you were never going to die, and were never going to retire, would it make sense to save? Canada the country (and its government) will live well after every Canadian alive now is dead. What applies to an individual most certainly does not apply to a country or a government.

I'm not suggesting that as a country we save although a little cushion for emergencies isn't a bad idea, but debt is debt whether you are a country or an individual. It results in over taxation and siphons off resources that could be used for other things.

[socred]

How would the debt being completely gone be a bad thing?

Money = debt.

All money is created as a debt.

If there were no debt, there would be no money.

[Moonlight Graham]

Why correct the distortion at all? And how is it better than a basic income tax deduction?

I'm with you. Why make this savings account? I'd rather have a tax cut. Why even have RRSP's? I'd rather have a cut on income tax or capital gains.

I don't want the government "showing" me how to save. I know how to save, and i'm quite good with my money. Let us do with our money as we wish. If somebody has the $$$ to use this new savings account, but doesn't have the smarts to put a small % of their paycheck away for savings, then that is their own problem.

I'm certainly no conservative, i don't mind being taxed if the money is going to go to those who TRULY need it. But i'm also logical, and this is over the top IMO. Too "nanny state-ish".

Edited March 9, 2008 by Moonlight Graham

[Pliny]

I'm sorry but I just can't resist responding.

If you were never going to die, and were never going to retire, would it make sense to save?

It would not make sense to borrow either.

Canada the country (and its government) will live well after every Canadian alive now is dead. What applies to an individual most certainly does not apply to a country or a government.

A government that has debt that will not be paid until the next generation is not considering the future generation. They are committing their children to a contract to pay for what the previous generation spent.

I find that somewhat objectionable.

Now then. At any given moment, many Canadians will be in debt because they are young and they just bought their first house. IOW, for Canada as a whole, there will always be debt. The same concept applies to the Canadian government. It shoudl always have debt.

So government should approach their finances (debt) the same way we approach our personal finances (debt)?

Much of the problem in discussing government debt is that people do as Wilber above and approach government finances the same way they approach their personal finances. Over the years, there has been much grief and poverty imposed on people because politicians and government officials made the same error.

So we have all learned a lesson. Politicians and government make errors.

A government is not like a family.

Yeah! The government can spank you.

[Wilber]

OOPS

Edited March 9, 2008 by Wilber

[August1991]

So government should approach their finances (debt) the same way we approach our personal finances (debt)?

Pliny, I don't know far I want to get in to this discussion (again).

I stated that at any given moment, there will be young families in Canada who just bought a new home for the first time. They will be in deep debt. Those young families would be well advised to pay off their debt as soon as they can. If they receive a windfall gain, they might want to consider applying it against their mortgage.

For an individual, it makes sense to pay off your debts.

But now, consider the street where they live. Can we say the same? On the street, there will always be new, young families moving in who will assume a large debt. At any given moment, the street will have people in debt and indeed the total debt of everyone on the street may be constant as new people arrive. Yet, each individual family will be paying off its debt.

Good advice for an individual family is not necessarily good advice for a country or a government.

Edited March 9, 2008 by August1991

[Wilber]

I don't want the government "showing" me how to save. I know how to save, and i'm quite good with my money. Let us do with our money as we wish. If somebody has the $$$ to use this new savings account, but doesn't have the smarts to put a small % of their paycheck away for savings, then that is their own problem.

I don't see that they are showing anyone how to save. They are making saving more profitable which is a bonus to those who do have the smarts to put a small % of their paycheck away.

I'm certainly no conservative, i don't mind being taxed if the money is going to go to those who TRULY need it. But i'm also logical, and this is over the top IMO. Too "nanny state-ish".

All taxation is nanny-ish and as to who are TRULY in need has always been according to the leanings of the party in power. This initiative doesn't pick winners and losers any more than any other, because all taxation (or lack of) and how it is spent (or not) picks winners and losers.

[Pliny]

Pliny, I don't know far I want to get in to this discussion (again).

I stated that at any given moment, there will be young families in Canada who just bought a new home for the first time. They will be in deep debt. Those young families would be well advised to pay off their debt as soon as they can. If they receive a windfall gain, they might want to consider applying it against their mortgage.

For an individual, it makes sense to pay off your debts.

But now, consider the street where they live. Can we say the same? On the street, there will always be new, young families moving in who will assume a large debt. At any given moment, the street will have people in debt and indeed the total debt of everyone on the street may be constant as new people arrive. Yet, each individual family will be paying off its debt.

Good advice for an individual family is not necessarily good advice for a country or a government.

No need to go any further. You lost me already.

[socred]

Good advice for an individual family is not necessarily good advice for a country or a government.

Very true.

"A common cause of confusion to those unfamiliar with the technique of finance can be found in the excusable assumption that a statement which is true and obvious in regard to individual experience of money matters is equally true in regard to the money matters of a nation.

There are at least two assumptions made by those who argue in this way. The first is that the process by which a community obtains money is fundamentally similar to the process by which an individual obtains money. The second is the idea, alternatively, that money is limited in quantity by the laws of nature, or that it is always exactly equal in amount to the price values of the goods which it is supposed to represent.

Now, as a matter of fact, no one of these common assumptions is justified, as can easily be seen by anyone who will take the trouble to give the matter a little thought. All individuals obtain money by getting it from somebody else, i.e., so far as individuals are concerned, money is quite correctly defined as a medium of exchange (although not an invariable medium of exchange). But in the case of a sovereign community, this never is and never has been the case. Whether the power be delegated, as in the case of Great Britain to the Bank of England, or not, a sovereign community has the power of actually creating money--it is self-financing, a situation which in fact places the community and the individual in a position of technical opposition, the community and the individual always being on opposite sides of the ledger."

The Fallacy of a Balanced Budget

[Moonlight Graham]

I don't see that they are showing anyone how to save. They are making saving more profitable which is a bonus to those who do have the smarts to put a small % of their paycheck away.

Why don't they just cut the income tax? Then working will be more profitable.

[Wilber]

Why don't they just cut the income tax? Then working will be more profitable.

Because they want that revenue now.

[August1991]

I'm going to resurrect this thread to answer MG and because, no doubt, we'll soon face the bank ads about TFSAs.

I'm with you. Why make this savings account? I'd rather have a tax cut. Why even have RRSP's? I'd rather have a cut on income tax or capital gains.

I don't want the government "showing" me how to save. I know how to save, and i'm quite good with my money. Let us do with our money as we wish. If somebody has the $$$ to use this new savings account, but doesn't have the smarts to put a small % of their paycheck away for savings, then that is their own problem.

I'm certainly no conservative, i don't mind being taxed if the money is going to go to those who TRULY need it. But i'm also logical, and this is over the top IMO. Too "nanny state-ish".

I may be Conservative and conservative and I don't mind being taxed if the tax revenues contribute to a civilized society.

I object to taxes (or any government policy) that distort the real world choices people make and as a result, make society poorer. When a city makes it free to drive on its streets but has different fees and rules to park a car on a street, people drive around in circles looking for a parking spot. That's costly in gas, time and harms the environment. Why? City government policies distort a real choice.

So, what of TFSAs? RRSPs? Why not simply cut income taxes instead?

If you choose to save your money in a normal bank account, you will first pay income tax before you can deposit the money (using after tax dollars). Years pass, your savings grow. But the income generated by your saving is also taxed (and if you save carefully, the income generated can be large). In effect, your saving is taxed twice: once when you earn the initial money and again when it earns interest and grows. Because of this, people do several things. They buy a house because the capital gain is tax exempt. They buy shares that don't pay dividends because the capital gain is taxed at a lower rate. They save offshore where the tax man knows nothing about the income generated by their savings. Easiest of all, people spend the money now since that avoids the double taxation.

IOW, current income tax distorts the real choices of people. An income tax cut would not correct this distortion.

RRSPs correct for this problem of double taxation because the money is only taxed once - when it is withdrawn. TFSAs also correct for this problem because the money is only taxed once - when it is saved.

RRSPs and TFSAs are tax cuts, and they also correct for a distortion.

[August1991]

Bump.