Dion should support income-splitting

[Renegade]

Excellent question. My preference for the longest time is to define tax brackets for a few family *classes* (singles, single parents, couples, couples with children) and tax the family income. All families in the same class with the same income should pay the same amount of taxes.

My answer to your question, though, is no. While I would levy the same amount of taxes on all families with 2 kids and $X of income, I would not tax a couple with 1 child the same as a couple with several children.

Pat, there are close to an infininte variation in families and family situations. For example would you have a class of family for parents wth adult kids living at home? Would you have a class of family of people living together with extended family (parents, etc)? You are picking out one factor (ie family composure) in order to provide differentiated tax rates. There are many others which can also be targeted. For example should a family living in Vancouver pay the same taxes as a family living in rural New Brunswick?

[Renegade]

Simple income-splitting is not the answer, but we should handle tax liability the same way that family benefits are handled. Either tax individuals, and allow each spouse to claim 50% of available benefits based solely on his/her own income, or tax family income.

What is NOT acceptable is to force families to pool income for benefit calculations while preventing income pooling for tax purposes.

I agree that there is inconsistancy between how benfiits are assigned based upon income, but so what? There are so many definitions of income which are used for various calculations (eg gross income, net income, family income, etc). The tax code is only consistent in its inconsistency. If it were up to me, beneifts would either be eliminated or made universal and independant of income and income would be taxed at a flat rate, making your whole proposal moot.

BTW, you have used the word "fairness". As I asked previously,can you please define what you mean by "fairness".

[Pat Coghlan]

It always amazes me how people with children always think that they deserve to pay less taxes than people without children.

Well, the system is supposed to be based on ability to pay. You either subscribe to this idea or you don't. The benefit system certainly seems to be based on *need*, based on family income, which is why your benefits can be 100% clawed back if your family income is high enough.

Your children cost our system thousands of dollars per child every single year - and that's just for education.

So do the aging parents that we allow to immigrate into Canada. The question is, do we want/need more of either (aging immigrants or children born in Canada). I'll accept the answer, whatever it is, but I'd like to hear it at least.

Canada *pretends* that it wants more children, but few seem willing to support the kind of families that will allow 3+ kids.

Now, having said that, I still support your idea, in general: allow for a single bracket/tax rate and another for couples to help reduce some of the absurdities in our current system.

After all, it is hardly "fair" for a single earner of $150,000 per year to be paying more income tax than a dual income family where each spouse makes $75,000 each.

If the system is based on ability to pay, then yes, it does.

[Pat Coghlan]

BTW, you have used the word "fairness". As I asked previously,can you please define what you mean by "fairness".

I'm using the basic tenet that our tax system is based on ability to pay (and, in the case of benefits, need).

The latter is certainly true, given that most benefits are income-tested (against family income). However, with 5 kids I remember comparing my tax liability to a single person circa 2000 and saw that there was very little difference between my tax liability and a single person with zero dependents.

If this is the way that things are supposed to operate, then the government needs to post a NO KIDS REQUIRED IN CANADA sign somewhere...which would also mean the elimination of deductions for things like daycare.

Edited September 5, 2008 by Pat Coghlan

[Renegade]

I'm using the basic tenet that our tax system is based on ability to pay (and, in the case of benefits, need).

The latter is certainly true, given that most benefits are income-tested (against family income). However, with 5 kids I remember comparing my tax liability to a single person circa 2000 and saw that there was very little difference between my tax liability and a single person with zero dependents.

If this is the way that things are supposed to operate, then the government needs to post a NO KIDS REQUIRED IN CANADA sign somewhere...which would also mean the elimination of deductions for things like daycare.

I don't see that the tax system is based upon "ability to pay". It is based upon measured earnings with various measures thrown in there to incent behaviour. "Abiity to Pay" is never measured. For example does a newly graduated student who has $75000 in outstanding loans, renting in a high-cost location, and having high overall living cost, have the same ability to pay as someone retired and owning their own home, car and living in a low cost location (assuming they make the same income)? Obviously not.

If your argument is centered around making the system more reflective of "ability to pay" then it is self-defeating. Afterall families with one working spouse (who would benifit the most), "choose" to have that spouse stay home and are likely to have a better "ability to pay" than a family where both adults are forced to work.

The government has no need to post a sign. It should not be up to the government to support your kids. That buddy, is your job, afterall you choose to have them not the government.

[msj]

I don't see that the tax system is based upon "ability to pay". It is based upon measured earnings with various measures thrown in there to incent behaviour.

It is based on "ability to pay" in so far that we have progressive tax rates.

Paying 15%, 22%, 26% and 29% at various incremental tax bracket levels assumes that as one's taxable income is higher then one has a greater ability to pay tax and, therefore, one's tax liability is higher.

As for clawback of benefits - the assumption here too is that as one's income (whether single or family) increases then that person does not need to receive as much EI/OAS/GIS/CTB.

Once again, the "ability to pay" assumption is inherent in the system - you made over $48,000 last year while still collecting EI? Then you really didn't need all of that EI so we (as in the government) will take back 30% thank you very much (as an example).

[Renegade]

It is based on "ability to pay" in so far that we have progressive tax rates.

Paying 15%, 22%, 26% and 29% at various incremental tax bracket levels assumes that as one's taxable income is higher then one has a greater ability to pay tax and, therefore, one's tax liability is higher.

As for clawback of benefits - the assumption here too is that as one's income (whether single or family) increases then that person does not need to receive as much EI/OAS/GIS/CTB.

Once again, the "ability to pay" assumption is inherent in the system - you made over $48,000 last year while still collecting EI? Then you really didn't need all of that EI so we (as in the government) will take back 30% thank you very much (as an example).

1. As you point out it is based upon a set of *** assumptions ***. Asssumptions which may or may not be true.

2. I believe that the justfication of "ability to pay" is a facade. It is more like "the ability to collect". It is easier to collect more from people who earn more without them causing the government grief, so it does.

BTW, is EI a "benefit" or an insurance payout? If insurance companies worked on that principle they would only payout if they though the claimant needed the money.

[Pat Coghlan]

I don't see that the tax system is based upon "ability to pay". It is based upon measured earnings with various measures thrown in there to incent behaviour. "Abiity to Pay" is never measured. For example does a newly graduated student who has $75000 in outstanding loans, renting in a high-cost location, and having high overall living cost, have the same ability to pay as someone retired and owning their own home, car and living in a low cost location (assuming they make the same income)? Obviously not.

If your argument is centered around making the system more reflective of "ability to pay" then it is self-defeating. Afterall families with one working spouse (who would benifit the most), "choose" to have that spouse stay home and are likely to have a better "ability to pay" than a family where both adults are forced to work.

The government has no need to post a sign. It should not be up to the government to support your kids. That buddy, is your job, afterall you choose to have them not the government.

I believe the Cdn tax system is supposed to be based on ability to pay (horizontal equity, see http://books.google.ca/books?id=myG38h5oIv...&ct=result).

If you accept horizontal equity as an objective of the tax system, then you must accept that families in similar circumstances (e.g. family size and income) should pay similar amounts of tax.

If you study our tax system, it becomes clear that we don't put horizontal equity in practice.

[Pat Coghlan]

It is based on "ability to pay" in so far that we have progressive tax rates.

Paying 15%, 22%, 26% and 29% at various incremental tax bracket levels assumes that as one's taxable income is higher then one has a greater ability to pay tax and, therefore, one's tax liability is higher.

What you are referring to here is vertical equity. As one's income rises, so does the tax burden.

There is also horizontal equity, which means that those in similar circumstances and income level should pay similar amounts of tax. This breaks down in the Canadian system, since tax breaks for kids are removed if your income is high, resulting in there being almost no difference between someone supporting a family and a single person.

[msj]

What you are referring to here is vertical equity. As one's income rises, so does the tax burden.

There is also horizontal equity, which means that those in similar circumstances and income level should pay similar amounts of tax. This breaks down in the Canadian system, since tax breaks for kids are removed if your income is high, resulting in there being almost no difference between someone supporting a family and a single person.

Good points Pat re: vertical vs horizontal equity.

Ability to pay touches on both - as one's income increases one's ability to pay more in taxes also increases.

This is self-evident in that when I was a college student making $6,000 per year I did not have the ability to pay even a tiny fraction of the taxes I pay now as a self-employed professional.

Horizontal equity is important too, don't get me wrong. It's just that the government tends to screw this up badly by playing their little games.

Nevertheless, I disagree with making the system more complicated based on so many different family types/sizes.

Flatten the tax rates out significantly or allow complete income splitting between couples with adjustments to tax brackets (single versus couple tax brackets) and that would help reduce the gap I pointed out earlier between the single dude and the couple.

[msj]

1. As you point out it is based upon a set of *** assumptions ***. Asssumptions which may or may not be true.

2. I believe that the justfication of "ability to pay" is a facade. It is more like "the ability to collect". It is easier to collect more from people who earn more without them causing the government grief, so it does.

BTW, is EI a "benefit" or an insurance payout? If insurance companies worked on that principle they would only payout if they though the claimant needed the money.

1) Of course assumptions may or may not be true. Generally speaking, however, the more income one makes the more taxes one pays.

I know this to be true because I am a tax accountant who helps many people reduce their taxes. I also know just how much BS is spewed by people claiming that so and so made $X millions and didn't pay any income taxes on it.

2) Your point about ability to pay versus ability to collect proves the point - I make more money so I can pay more taxes (from the government's POV they can collect more taxes from me) . If I make less money then the government is trying to get blood from a stone. It all comes back to ability to pay.

3) EI is a government social program and not insurance.

It just shows how powerful government propaganda is when they call something a name and people actually believe it.

[Renegade]

I believe the Cdn tax system is supposed to be based on ability to pay

Some people agree with you, some don't.

If you accept horizontal equity as an objective of the tax system, then you must accept that families in similar circumstances (e.g. family size and income) should pay similar amounts of tax.

As per your cite:

Horizontal equity requires that

individuals

in similar circumstances pay similar levels of (or have similar exemptions from) taxation

It says nothing about that horizontal equity should be applied at the family level. The tax system is predicated on individual income and for the most part ignores the rest of the circumstance around his ability to pay. If the tax system is going to ignore the rest of an individual's circumstance, it should also disregard that individuals family status.

If you study our tax system, it becomes clear that we don't put horizontal equity in practice.

That really depends on your perspective doesn't it. What does individuals in "similar cirumstances" mean since no two individuals have identical circumstances.

Edited September 5, 2008 by Renegade

[Renegade]

2) Your point about ability to pay versus ability to collect proves the point - I make more money so I can pay more taxes (from the government's POV they can collect more taxes from me) . If I make less money then the government is trying to get blood from a stone. It all comes back to ability to pay.

I think you miss the differentiation. It is easy for the government to collect income tax by forcing companies to collect on their behalf at source. Other sources of income aren't quite so easy as tax may be circumvented. (eg dividends, cap gain). The point is that government taxes income because it is easy to tax, not because it is "fair" to tax. Same holds for GST. It is collected because it is relatively easy to collect.

3) EI is a government social program and not insurance.

Of course it is. None of the governent run programs (include) the taxation system are what they pretend to be.

It just shows how powerful government propaganda is when they call something a name and people actually believe it.

Exactly. So when the government advertises the tax system as a "fairness" system some people actually believe it. It is nothing more than a revenue generation system based upon what the government can collect. It is naive to demand that it be "fair" any more than anyone should demand that EI be "insurance"

[msj]

I think you miss the differentiation. It is easy for the government to collect income tax by forcing companies to collect on their behalf at source. Other sources of income aren't quite so easy as tax may be circumvented. (eg dividends, cap gain). The point is that government taxes income because it is easy to tax, not because it is "fair" to tax. Same holds for GST. It is collected because it is relatively easy to collect.

Of course I am talking about the intent of the system rather than any ease with which one may get away with tax evasion. No doubt the system is not perfect and that is not the issue to begin with.

Just because I may be able to commit tax evasion by not declaring all of my professional income (say by doing tax returns for cash) does not mean that the tax system is not intended to make those who make more money to pay more taxes.

You are right that the government taxes income because it is easy (among other reasons).

But once again, the government taxes on an ability to pay basis since it makes no sense for the government to try and take $5,000 from the guy who earns $15,000 while it makes lots of sense to take $47,000 from the guy who makes $150,000.

Whether it is for reasons of "fairness," easiness, or other reasons does not change the fact that income tax is based on an ability to pay basis.

If it wasn't then we would have riots in the street.

GST is also related to ability to pay.

After all, if I don't have the ability to pay the GST then I'm not going to be paying it, now am I?

And, no, stealing goods to avoid paying the GST is as much of a non-argument as income tax evasion - we are talking about what occurs to the vast majority of people the vast majority of time.

[Pat Coghlan]

Flatten the tax rates out significantly or allow complete income splitting between couples with adjustments to tax brackets (single versus couple tax brackets) and that would help reduce the gap I pointed out earlier between the single dude and the couple.

I agree with this. There should be only 2 tax brackets to distinguish between income needed for food and shelter and income which can be used for discretionary spending.

[Wilber]

3) EI is a government social program and not insurance.

EI is neither insurance nor a social program, it is a big slush fund the government uses at its discretion. Despite the fact it is named Insurance and every employee pays 1.98% of their income into it up to a max of $711 per year and their employer pays 2.42% of that employees income to a max or $955. It is a big fat lie.

Regarding income splitting and the Liberals. I see the tax benefit for couples on their Green Shift is based on income splitting. What's with that?

[msj]

EI is neither insurance nor a social program, it is a big slush fund the government uses at its discretion. Despite the fact it is named Insurance and every employee pays 1.98% of their income into it up to a max of $711 per year and their employer pays 2.42% of that employees income to a max or $955. It is a big fat lie.

Regarding income splitting and the Liberals. I see the tax benefit for couples on their Green Shift is based on income splitting. What's with that?

Aren't all government programs "slush funds?"

[Renegade]

But once again, the government taxes on an ability to pay basis since it makes no sense for the government to try and take $5,000 from the guy who earns $15,000 while it makes lots of sense to take $47,000 from the guy who makes $150,000.

Whether it is for reasons of "fairness," easiness, or other reasons does not change the fact that income tax is based on an ability to pay basis.

Again, "ability to pay" is never measured it is only assumed. The government assumes a person with more income has more ability to pay. This is not necessarily true. A true "ability to pay" system would measure an individual's ACTUAL discretionary income not ASSUMED dicretionary income. Since "ability to pay" is in fact never measured I therefore maintain that that government collects taxes based upon what is easiest to collect and will cause the least political upheval. Fairness never comes into it.

If it wasn't then we would have riots in the street.

See that's the thing, when poor people want to protest they riot in the streets. When rich people want to protest they hire tax accountants to shelter as much income as they can, they hire political lobbyists and they fund the opposing political movements. Neither the protest of the poor nor that of the rich are particularily palatable to the government so they mostly will hit those who can protest the least. (ie the middle class)

GST is also related to ability to pay.

After all, if I don't have the ability to pay the GST then I'm not going to be paying it, now am I?

And, no, stealing goods to avoid paying the GST is as much of a non-argument as income tax evasion - we are talking about what occurs to the vast majority of people the vast majority of time.

You seem to forget history and think the government can do so as well. Do you remember what happened when the government raised tobacco taxes so high that cigeratte smuggling was rampant? They were eventually forced to reduce the taxes to reduce the smuggling.

[Renegade]

... our family had one (high) income we were treated essentially like a single person with zero dependents, since all our CTB payments were essentially clawed back, which is a totally *&^%$#@!ed up way to run a tax system.

If an individual contracts to get an expensive sports car and it lowers his ability to pay, should he expect a tax break?

If an individual contracts to get a wife and kids and it lowers his ability to pay, should he expect a tax break?

If you didin't answer the same way for each, why the difference?

[msj]

Again, "ability to pay" is never measured it is only assumed. The government assumes a person with more income has more ability to pay. This is not necessarily true. A true "ability to pay" system would measure an individual's ACTUAL discretionary income not ASSUMED dicretionary income. Since "ability to pay" is in fact never measured I therefore maintain that that government collects taxes based upon what is easiest to collect and will cause the least political upheval. Fairness never comes into it.

Fairness is assumed in the very nature of progressive tax rates. Read Karl Marx (Not that he knew what was fair or anything - but progressive tax rates are based on the idea of vertical equity - it is fair for us to debate whether VE is fair but the point remains that the assumption inherent in progressive tax rates is that as one's income increases one's ability to pay taxes increases. Not always true, granted. But it is mostly true.)

As to the absurdity of your claim above - somehow I am assuming that as a person's income increases their ability to pay also increases but you are not assuming that as one's income increases then the ability for the government to collect also increases?

You honestly do not see how one's ability to pay is directly related to the government's ability to collect?

After all, a true ability to collect system would measure an individual's ACTUAL discretionary income not ASSUMED discretionary income....

One other thing about this - just because it is assumed does not mean that ability to pay (or ability to collect for that matter) are not concepts important to our tax system.

Our tax system is based on thousands of assumptions.

See that's the thing, when poor people want to protest they riot in the streets. When rich people want to protest they hire tax accountants to shelter as much income as they can, they hire political lobbyists and they fund the opposing political movements. Neither the protest of the poor nor that of the rich are particularily palatable to the government so they mostly will hit those who can protest the least. (ie the middle class)

You seem to forget history and think the government can do so as well. Do you remember what happened when the government raised tobacco taxes so high that cigeratte smuggling was rampant? They were eventually forced to reduce the taxes to reduce the smuggling.

Sure sure.

I have already stated in a post above as to why income splitting has taken and likely will take so long - it is because the top 3-9% of income earners pay a large amount of tax with which 90% of the population can be bribed.

The top 1-2% of course also pay a lot of tax. I happen to prepare tax returns for people who fit in this category and I know that while I can find ways to get their marginal tax rates lower than the maximum rate the reality is that in most years they are paying marginally higher tax rates as compared to Joe and Jane six-pack.

Very few people are in a position to live off of capital gains from small business corporations and/or have the appetite for risk to constantly invest in flow through structures and various other tax saving schemes.

The tax evasion/tax avoidance myths for which most people know so little about are not relevant to the vast majority of people whether they happen to be within the top 10% of earners of bottom 90%.

If the tax system taxed people on a basis that did not consider their ability to pay (i.e. taxed them at an excessive level) then the system would also be ignoring the government's ability to collect and there would be riots (assuming that the government was enforcing its "right" to collect).

Edited September 5, 2008 by msj

[Wilber]

Aren't all government programs "slush funds?"

Pretty much and ultimately the Green Shift will be no different because first and foremost it is just another tax.

[Pat Coghlan]

If an individual contracts to get an expensive sports car and it lowers his ability to pay, should he expect a tax break?

If an individual contracts to get a wife and kids and it lowers his ability to pay, should he expect a tax break?

If you didin't answer the same way for each, why the difference?

I don't think society places the same value on sports cars and children. Do you?

The government can't talk out of both sides of its mouth on this issue. Either we want to encourage larger families (to sustain our economy, create some mild inflation etc.) or we don't. If we don't, then scrap subsidies for things like daycare etc. At least people will know the government's position and can oblige them.

[August1991]

What a thread. I feel thoroughly misunderstood.

So you want the government to hire more government paid (and government efficient/effective) employees so they can somehow measure my income on a monthly basis so they can then invoice me for my taxes?

I'm self-employed so I would be interested to see what method they would use to invoice me.

Sure seems a lot simpler to ask me to pay installments during the year like we currently do.

msj, I think everyone should pay taxes the way you, as a self-employed person, do. Would this mean more government bureaucrats? Maybe. But it would also make it far more difficult for politicians and bureaucrats to get our money.

Withholding taxes make it too easy for people to have access to other people's money. msj, you have to think of life and the world differently.

Income tax is due when you earn the money - not on April 30th of the following year. Self-employed people must make quarterly installments based on their estimated annual income or face stiff interest penalties.

Fine Riverwind, we'll all make quarterly payments. I just want a fixed election date on the day of the quarterly payment.

A significant percentage of the population would end up with huge debts to the taxman and would end up having their wages garnished anyways.

Huh?

This is what I hate about Leftists in general - they think ordinary people are stupid, disorganized and need the help of the State. Riverwind, most ordinary people pay their bills on time. North America would not be the rich, civilized place it is if ordinary people were not like this. Only the State takes money from us without sending us an invoice or bill.

The maid is paid for labour which she makes available at an agreed upon rate which she would not otherwise want (or need) to provide to a stranger. If she doesn't get her wages, she can sue for them.

...

Child support payments are not taxable (or deductible), thanks to Ms. Thibodeau.

Pat, you have entirely, utterly missed the point of the maid example and the child support aspect.

I consider myself a patient person but in your case, I don't have the patience to explain properly. I'll try sexist quick. First) Maids pay income tax. (House)wives don't. Both offer the same service/effort to humanity. Second) To assess child support/alimony, only one person's income is examined - not the family. You want to change the basis of income tax assessment. Why not the basis of child support/alimony too?

Coghlan, if you want to wander into the minefield of tax policy, at least bring a sharp critical sense with you.

Am I so unclear? Gee whiz.

Edited September 6, 2008 by August1991

[Riverwind]

This is what I hate about Leftists in general - they think ordinary people are stupid, disorganized and need the help of the State. Riverwind, most ordinary people pay their bills on time. North America would not be the rich, civilized place it is if ordinary people were not like this. Only the State takes money from us without sending us an invoice or bill.

Well it has been a while since I was called a leftist but whatever. A significant proportion of the population is financially incompetent. Credit card companies, check cashing outlets and banks derive a great deal of profit from these financially incompetent people so you cannot say their numbers are insignificant. Anyone who carries a balance on a credit card would likely default on their income tax payments. The cost of chasing down these people would not be insignificant.

[August1991]

Well it has been a while since I was called a leftist but whatever. A significant proportion of the population is financially incompetent. Credit card companies, check cashing outlets and banks derive a great deal of profit from these financially incompetent people so you cannot say their numbers are insignificant. Anyone who carries a balance on a credit card would likely default on their income tax payments. The cost of chasing down these people would not be insignificant.

It depends how you define "significant".

But as I say, North America is a successful, rich, civilized society because the vast majority of the 350 million people living here manage their personal affairs reasonably well. We pay our bills on time.

If America or Canada works, it's because ordinary people get up every morning and go to work. A president or a PM doesn't "run" the country. We do.

----

Riverwind, you apparently enjoy the civilized lifestyle of North America and yet you don't give credit to the people who make it possible - your fellow citizens. In your mind, a "significant" number of them is "financially incompetent". If that were true Riverwind, how do you explain all the advanced benefits North Americans enjoy? If North Americans are so "financially incompetent", how can they organize a system where you and I communicate through this forum?

Edited September 6, 2008 by August1991