Harper's Best Fiscal Stimulus Package: Cut Taxes

[msj]

Simply. You are a corporate elitist who thinks that you have all the weight of the world on your shoulders, and whle you are in that frame of mind the little guys that actually do the work are mere pond scum. Business gets more tax breaks than individuals, and even so you complain that your burden is greater than theirs.

As I have already pointed out - the facts are, in this instance, that business pays more in EI than the employee does.

Take whatever the employee pays and times it by 1.4 and that is what the employer chips in for EI.

For CPP, the amount employers chip in is the same as what the employee has deducted.

So, it is, based on facts, obvious that employers are paying more than employees for EI and paying roughly as much on CPP.

When one nets out the tax savings to the employer (13% - 30% depending on the corporate tax rate) as compared to the employee's tax credit of ~20-24% (depending on province) it is obvious that small business (like me) are indeed paying more for this increase and even big business is paying more (despite the bigger tax savings).

Spending $1 to save 30 cents still costs you 70 cents.

It is the previous sentence that people like you and Topaz need to give some serious thought to.

Once again, the reason I get to deduct business expenses is because I must spend money in order to earn money.

Sure, to the extent that a business person deducts personal expenses and gets away with it, then that is a benefit (it's also tax evasion). [i say business person because it is not just corporations that deduct expenses - self-employed people do not have to be incorporated and, of course, some employees incur expenses and get to deduct some against their employment/commission income]

To the extent that businesses deduct expenses that they incur because they have to in order to conduct business is not a benefit because, once again, it does not pay to spend $1 to save 30 cents (for big business) or 13.5 cents (for small business in BC).

[Jerry J. Fortin]

As I have already pointed out - the facts are, in this instance, that business pays more in EI than the employee does.

Take whatever the employee pays and times it by 1.4 and that is what the employer chips in for EI.

For CPP, the amount employers chip in is the same as what the employee has deducted.

So, it is, based on facts, obvious that employers are paying more than employees for EI and paying roughly as much on CPP.

When one nets out the tax savings to the employer (13% - 30% depending on the corporate tax rate) as compared to the employee's tax credit of ~20-24% (depending on province) it is obvious that small business (like me) are indeed paying more for this increase and even big business is paying more (despite the bigger tax savings).

Spending $1 to save 30 cents still costs you 70 cents.

It is the previous sentence that people like you and Topaz need to give some serious thought to.

Once again, the reason I get to deduct business expenses is because I must spend money in order to earn money.

Sure, to the extent that a business person deducts personal expenses and gets away with it, then that is a benefit (it's also tax evasion). [i say business person because it is not just corporations that deduct expenses - self-employed people do not have to be incorporated and, of course, some employees incur expenses and get to deduct some against their employment/commission income]

To the extent that businesses deduct expenses that they incur because they have to in order to conduct business is not a benefit because, once again, it does not pay to spend $1 to save 30 cents (for big business) or 13.5 cents (for small business in BC).

MSJ, I understand your argument and don't really disagree with you. But understand this, employees have expenses as well, but they cannot deduct them. They need to cloth themselves and feed themselves and transport themselves to their places of employment. Yet these expenses are not always deductible for them. What I am saying is that there is an unfair advantage to business in terms of tax advantages. That is all, I am not against business, nobody is. I am against unequal treatment under the law. This nation needs to make citizens their priority, not business.

[msj]

MSJ, I understand your argument and don't really disagree with you. But understand this, employees have expenses as well, but they cannot deduct them. They need to cloth themselves and feed themselves and transport themselves to their places of employment. Yet these expenses are not always deductible for them. What I am saying is that there is an unfair advantage to business in terms of tax advantages. That is all, I am not against business, nobody is. I am against unequal treatment under the law. This nation needs to make citizens their priority, not business.

This is just it - I always hear this argument about feeding, clothing and transportation and it is pure ignorance.

I do not get to deduct my business attire, nor my meals (unless they are directly billed to clients for which I report the revenue at 100% and get to deduct the meal at 100%; otherwise, business related meals are deducted at 50% - now, think of this, I spend $1 on a meal and get tax savings of 6.75 cents - that is not an incentive for me to start taking out all of my clients for lunch), nor my transportation.

My business pays me the same as it pays any of my employees (or partners) - 42 cents per km for documented travel from the place of employment to the client's.

I don't get to deduct my car expenses for driving back and forth to work just like everyone else doesn't get to do this (those who do either have very specific reasons that allow them to deduct it, which are beyond the scope of this forum, or are, more likely, committing tax evasion).

I suppose I will hear from you about servers who have an unfair advantage than most people since they earn cash tips that they don't pay tax on because they "misreport" them?

I suppose these people are "elitist" too?

[ToadBrother]

Then the consumer needs to realize an increase in disposable income. The easy way to do that s with targeted tax breaks, and government can do that very easily.

Except that it delivering a few bucks extra per paycheque isn't going to stimulate consumer growth.

I think the government should pay me an extra 10 grand a year! That would stimulate my spending. And why not? If they're going to throw it at those incompetent bastards in the auto industry, I say screw them and just give that money directly to the citizens. If they decide to spend it on Fords and Chevs, they can do so.

[Jerry J. Fortin]

So why not let you deduct your mortgage from your taxes, the government won't have to pay you and you would have a higher disposable income.

[ToadBrother]

So why not let you deduct your mortgage from your taxes, the government won't have to pay you and you would have a higher disposable income.

No, just give me money. Let me decide where I want to spend it. I don't believe the banks or the major industries are any more reliable in receiving taxpayer largesse than the taxpayers themselves. I say give each and every person who filed a tax return last year $10000. What's that gonna cost, three billion dollars or so. Screw the banks, screw industry, screw the unions, screw all the investors, give the money directly to the taxpayer. If they want to buy houses, pay down their mortgages, buy cars or flatscreen TVs, then so be it. I'll wager it will have just as much likelihood of keeping the economy afloat as giving it to a pack of incompetents who have already driven their banks and businesses into the dirt.

[KeyStone]

The greatest con perpetrated on people is the dogma that tax cuts help the economy. It ranks right up there with the magic of blanket deregulation. Such a tax notion is so simplistic as to be pure nonsense. Moreover, there are no examples--let me repeat "no examples"--of tax cuts, as they are preached by simplistic conservatives, helping an economy. Taxation is a complex area of public policy that requires research, care, and thoughtfulness. Somethings that the preachers of the tax cut dogma never invoke. Did the Conservatives reduction in the GST help the economy? No! Is ti contributing to putting Canada into a deficit? Yes.

So, before you preach tax cuts, present the empirical evidence for your belief. Or admit that you have nothing to support your position except--religion-like--faith.

One of the tricks is to introduce a 'tax stimulus' package at the exact same time as a massive injection of government spending.

Then of course, when the billions of dollars that goes into the economy temporarily boosts things, the anti-tax people can claim that it was the tax cut that made it happen.

The stimulus really only occurs when the tax cuts are enough to steal businesses away from another jurisdiction.

Of course, once the country that lost the company lowers their taxes too, then we are all back to square one, except with a lower tax base.

It's no surprise that our social programs have been massively slashed, and we are running deficits now.

[HistoryBuff44]

The greatest con perpetrated on people is the dogma that tax cuts help the economy. It ranks right up there with the magic of blanket deregulation. Such a tax notion is so simplistic as to be pure nonsense. Moreover, there are no examples--let me repeat "no examples"--of tax cuts, as they are preached by simplistic conservatives, helping an economy. Taxation is a complex area of public policy that requires research, care, and thoughtfulness. Somethings that the preachers of the tax cut dogma never invoke. Did the Conservatives reduction in the GST help the economy? No! Is ti contributing to putting Canada into a deficit? Yes.

So, before you preach tax cuts, present the empirical evidence for your belief. Or admit that you have nothing to support your position except--religion-like--faith.

Then why in my economics classes did they teach that govt tax policy can advance or retard an economy almost as effectively as central bank rate changes?

How in gods name is it better to give money to an industry, dying because people dont want their products, so they can produce products that arent selling than to give it to people so they can spend it on stuff they actually want, or use it to pay down debt thus giving money to financial institutions shoring up their balance sheets and freeing up more credit?

The hypocrasy in your statement is awesome, you slam one side as having no evidence to support it and then refute it offering no evidence to the contrary... nicely done.

[Jerry J. Fortin]

The public is getting a free education at the University of Hard Knocks this year. What the politicians say and what the banks do have lead many to conclude that the entire system is screwed up. The fed lowered the prime but the banks did not follow. The spread widens and the industry benefits, so why is it that the banks will not loan GM any money?

[August1991]

Mr. Flaherty.

Mr. Harper.

We don't need more government. We don't need more government bureaucracy.

PLEASE CUT TAXES. STIMULATE THE ECONOMY DIRECTLY.

[August1991]

Mixed, largely disappointing signals.

Instead of broad-based tax cuts, the budget will contain short-term breaks and incentives such as tax credits for home renovations or tax savings for companies that invest in advanced or green technologies, sources have said.

...

Flaherty also reiterated the Harper government's commitment to use the budget to pump up the ailing economy through increased federal cash outlays – a strategy that could drive this year's budget deficit as high as $40 billion.

His remarks came as parliamentary budget officer Kevin Page released a fiscal forecast predicting cumulative federal budget deficits of at least $46 billion and possibly as high as $105 billion over the next five years, and private-sector firm HIS-Global Insight projected the government will amass up to $100 billion in new debt by 2013-14.

The government is promising a wide-ranging package of measures to stimulate growth and help workers and companies.

The measures expected include:

Infrastructure: More than $6 billion in new spending to pay Ottawa's share of projects to build roads, transit, sewers and other urban facilities.

Employment insurance: Increased training money and possibly enhanced benefits. Auto industry: In addition to a $4 billion bailout for the Canadian arms of U.S. car makers, the government is expected to take steps to make consumer financing for car loans and leases easier to obtain.

Home renovations: A major program of tax credits to encourage home renovations. Social housing: Flaherty has committed to doing more to improve social housing.

Access to loans: The government will take steps to increase access to credit by consumers and business. Likely included will be authorization of expanded financial support for business by the Business Development Bank of Canada and Export Development Canada.

Business tax breaks: Increased tax incentives to help companies invest in new technology and equipment, develop their research arms and pursue cutting-edge environmental products.

Sectoral support: Enhanced financial support for forestry, manufacturing, aerospace, mining and other industries.

Toronto Star

Prime Minister Stephen Harper on Friday said next week's budget will contain some permanent tax measures as he and his ministers began explaining to the country what Canadians will get in return for a deficit that, next year, will put the federal treasury into a $34-billion hole.

Harper has said most of the initiatives in the stimulus package to be unveiled next week will be temporary, designed to naturally expire as Canada's economy begins to grow again. But in an exclusive interview with the Global Television show Focus Ontario, to air Saturday at 6:30 E.T., Harper said the budget also will include some items that will outlast the economic downturn.

Prime Minister Stephen Harper said Friday that the new federal budget will include some permanent tax measures.

"There will be some tax measures and some of those measures will be permanent, but the tax measures are modest and they're affordable in the long term," Harper said.

Canwest

First of all, tax credits for home renovations and the like amount to protectionism by another name. It is precisely this kind of blinkered thinking that exacerbated the depression of the 1930s. When the government encourages local business, it implicitly creates a barrier to trade. This is no different from a tariff.

Secondly, it is wrong in many ways for the government to decide how I should spend my money. If it offers a tax credit, it skews my decision. But what of renters who don't have a home? What about people who just spent alot of money last year on a home renovation?

Thirdly, for a tax cut to have any macroeconomic stimulus, it must be perceived as permanent. People must sense that the money in their pocket will stay there.

----

I fundamentally disagree with this idea of the Paradox of Thrift or that savings are somehow a leakage or bad for the economy. This is particularly true in the current economic situation where unemployment is still below 7%.

Along with loose monetary policy, I think a broad-based, permanent tax cut is the best policy now. Its effects will be immediate. Many good economists (and Barack Obama) argue for the same.

In political terms, if this upcoming federal budget does not offer tax cuts for middle income Canadians, Stephen Harper can count in months the time his family will be living in 24 Sussex. Canadians will not tolerate watching subsidies, contracts and bailouts given to specific industries, sectors or other levels of government while they get nothing.

Edited January 24, 2009 by August1991

[normanchateau]

In political terms, if this upcoming federal budget does not offer tax cuts for middle income Canadians, Stephen Harper can count in months the time his family will be living in 24 Sussex.

I'm sure there will be tax cuts in the budget. Of course it would have been nice if he'd cut our marginal tax rates when he had billions a year in surplus dollars instead of handing another $3 billion a year to Quebec in the 2007 budget in a failed attempt to buy votes.

[KeyStone]

First of all, tax credits for home renovations and the like amount to protectionism by another name. It is precisely this kind of blinkered thinking that exacerbated the depression of the 1930s.

How do you figure that is protectionism? Protectionism would be if they said that only Canadian companies and employees could do the work.

I'm not seeing protectionism in this policy, but perhaps you are referring to something in the policy that I am unaware of'? This is government encouraging certain consumer behaviour, as it deems it good for the country (meeting environmental targets), just as it discourages certain consumer behaviour (smoking) because it deems it best for our nation as a whole.

When the government encourages local business, it implicitly creates a barrier to trade. This is no different from a tariff.

Possibly, but it depends how it is done. If it funds a BDC branch to assist and lend to entrepeneurs to create local business, it doesn't really create a barrier to trade - in fact it might help trade. You can't lump all encouragement of local business together.

Secondly, it is wrong in many ways for the government to decide how I should spend my money. If it offers a tax credit, it skews my decision. But what of renters who don't have a home? What about people who just spent alot of money last year on a home renovation?

No, it isn't wrong. Imagine that you are a leg on a centipede. Imagine that all of the legs had seperate brains. How would you get anywhere? Wouldn't it be easier if one brain controlled all the legs? This is similar to how government behaves - it sees a bigger vision and determines ways to encourage or discourage certain behaviour while still balancing personal freedoms.

Thirdly, for a tax cut to have any macroeconomic stimulus, it must be perceived as permanent. People must sense that the money in their pocket will stay there.

The idea that tax cuts will stimulate the economy, is largely a myth.

Let's look at ways that tax cuts could stimulate the economy.

1) If existing businesses make more profit, they can afford to invest more, and hire more people.

Well, if the company is re-investing the money, then it isn't going to be taxed on that money reinvested - same with hiring new employees.

Actually, lower taxes make it easier for the business to take money out of the company as opposed to reinvesting.

2) More businesses will survive with a lower tax rate.

Well no. If a company is losing money, they wouldn't pay taxes anyways. This only helps the companies that are doing well.

3) A lower tax rate will encourage businesses to relocate to Canada, or start in Canada.

Well, this is true in the short term, but given the prevalent free market mantras and push for globalization, every country has the same strategy. So, whatever short term gains we get from stealing business from other countries, will be offset by other nations lowering their tax rates. So, in ten years, we will be back where we started - but with a much lower tax base, and massive funding shortages. This is not really good for anyone except elite MNC's.

As for lower personal income tax - this doesn't really stimulate the economy either.

Look, let's say that the government has 100 billion dollars. It can either give it back through tax relief, or it can spend it.

If they spend it, they guarantee that 100 billion goes out into the economy.

If they give it back, then a percentage will go back into the economy, but a percentage will be lost to leakage.

Some will save money. Some will spend it overseas. Some will buy imports. Leakage will occur.

So, spending vs tax relief is basically asking 100 billion injected into the economy or 60 Billion injected.

There are other reasons to defend tax relief, but suggesting that it will boost the economy more than government spending, is simply inaccurate.

I fundamentally disagree with this idea of the Paradox of Thrift or that savings are somehow a leakage or bad for the economy. This is particularly true in the current economic situation where unemployment is still below 7%.

Well, you can say point out the fact that our unemployment rate is below 7%, but given that our population is growing, and our GDP is shrinking it suggests that either people are getting paid less per hour, or they are working less hours. Besides which, I think the worst is yet to come.

Along with loose monetary policy, I think a broad-based, permanent tax cut is the best policy now. Its effects will be immediate. Many good economists (and Barack Obama) argue for the same.

Obama doesn't know what he is talking about. The US just had a massive tax cut under Bush - and see how it helped their economy. As I indicated above, the correlation between lower taxes and stimulating the economy is largely fabricated.

In political terms, if this upcoming federal budget does not offer tax cuts for middle income Canadians, Stephen Harper can count in months the time his family will be living in 24 Sussex. Canadians will not tolerate watching subsidies, contracts and bailouts given to specific industries, sectors or other levels of government while they get nothing.

Well, not that I am wishing for Harper to stay in power, but I think Canadians are wising up to the fact that tax cuts is little more than panacea.

If they can convince people that tax cuts will boost the economy, then maybe it will.

[msj]

People keep thinking in broad ideological strokes while dismissing some interesting evidence that when one looks at some details then maybe one should consider why this time this recession may be different in Canada (it is different in the US) from the previous two mild recessions (in the US anyway - early '90's and early '00's).

As such, maybe it is time for the response to be different.

I have already linked to articles about stimulating the economy through government spending and will add yet another for those interested:

Is Public Expenditure Productive?

For the headline readers amongst us I will offer up this quote from the article:

Public investment expenditures translate into higher private sector productivity and higher private sector output.

Aschauer finds no evidence of public military capital raising output or productivity, nor does he find the flow of spending on on capital goods to have any effect on output or productivity. Public spending raises private sector productivity to the extent that public sector spending is on nonmilitary capital goods. How government spends its money matters! It is not government spending, as such, that spurs private productivity, but rather specific government investments in capital goods that makes the private sector more productive.

[bush_cheney2004]

People keep thinking in broad ideological strokes while dismissing some interesting evidence that when one looks at some details then maybe one should consider why this time this recession may be different in Canada (it is different in the US) from the previous two mild recessions (in the US anyway - early '90's and early '00's).

I agree....Canada is different...but apparently the difference can only be defined in terms of the Americans.

[Oleg Bach]

I agree....Canada is different...but apparently the difference can only be defined in terms of the Americans.

America is not the father of Canada..we don't really have to listen to them or live up to what we expect that they expect from us...to make one thing clear - If it was not for our strong ties with the British Empire and being a colony of said empire - America would have invaded our asses a long time ago - Thank God that the American high arch fear and respect the Queen..

[bush_cheney2004]

....to make one thing clear - If it was not for our strong ties with the British Empire and being a colony of said empire - America would have invaded our asses a long time ago...

A fledgling America did invade....back in 1812. Lost the battle....but won the war.

[blueblood]

A fledgling America did invade....back in 1812. Lost the battle....but won the war.

I'd say that ended in a draw, nobody got what they wanted.

[bush_cheney2004]

I'd say that ended in a draw, nobody got what they wanted.

I disagree...America got exactly what it wanted....the last vestiges of the British and their Empire were cast off for good. The United States was recognized as a sovereign state by the most powerful nation on earth, and it would come to eclipse Britain in little more than 100 years.

[Oleg Bach]

I disagree...America got exactly what it wanted....the last vestiges of the British and their Empire were cast off for good. The United States was recognized as a sovereign state by the most powerful nation on earth, and it would come to eclipse Britain in little more than 100 years.

Nope ---- There are Brits who are still smarter than anything or anybody you have. America thinks that who ever has the most money is the smartest and most powerful --- that's because you are still a nation of new rich...where as the old Brits have a thing called class..with class comes respect - America has the word respect mistaken for fear - no one respects America - they just fear the bastards..cos' they are hoods..

[Topaz]

The cut to taxes will only work if people go out and spend money and right now with thousands of people losing their jobs how many are going out and spend ? If Canadians have loans or credit cards payments I would think that that is were the money is going to go and not going out and buying anything. So it seems to me that only the rich has money to spend but again, the rich don't spend much or they wouldn't be rich. The only way I see that this government is going to pay off this deficit is by increasing taxes and they already said that EI premiums are going to increase so they can use the surplus again, which will probably give then 90-100 Billion instead of the 45 Billion.

[bush_cheney2004]

Nope ---- There are Brits who are still smarter than anything or anybody you have. America thinks that who ever has the most money is the smartest and most powerful --- that's because you are still a nation of new rich...where as the old Brits have a thing called class..with class comes respect - America has the word respect mistaken for fear - no one respects America - they just fear the bastards..cos' they are hoods..

If you say so...but in the end, we know what makes the world go round. Those "classy" Brits finished paying off WW2 loans to the "hoods" just two years ago.

God save the Queen....so we did.

[madmax]

I disagree...America got exactly what it wanted....the last vestiges of the British and their Empire were cast off for good. The United States was recognized as a sovereign state by the most powerful nation on earth, and it would come to eclipse Britain in little more than 100 years.

I am not exactly certain how Harpers Fiscal Stimulus package got changed to the war of 1812? Perhaps that is a good way to get off topic of the goals of the CPC fiscal policy, which is to run deficits.

However, the US invasion of Upper/Lower Canada was nothing short of a disaster, and the end of the war, nothing more then a face saving measure for a recently minted sovereign state. Nothing worse then having a war that gets off to a stumbling start, and is backed up only be rhetoric without support. It was a war that few wanted, most of all those who did trade and tended to ignore the "borders" and governance of two self -inflated and disconnected governments.

Thankfully the failure of the US invasion, set up the future for a Country Called Canada.

So, thanks to our American Friends for that helping hand, or who knows what we might have become by 1867?

[bush_cheney2004]

...Thankfully the failure of the US invasion, set up the future for a Country Called Canada.

So, thanks to our American Friends for that helping hand, or who knows what we might have become by 1867?

No problem....the Americans were not so timid about violence in exchange for liberty, unlike the "loyalists" who fled north. And to this day, it would appear that Canada's domestic arguments about taxes, stimulus, and deficit spending depend yet again on what the Americans are doing.

Some things never change!

[blueblood]

I disagree...America got exactly what it wanted....the last vestiges of the British and their Empire were cast off for good. The United States was recognized as a sovereign state by the most powerful nation on earth, and it would come to eclipse Britain in little more than 100 years.

link

The combination suggested an easy conquest, as former president Thomas Jefferson seemed to believe in 1812, "the acquisition of Canada this year, as far as the neighbourhood of Quebec, will be a mere matter of marching, and will give us the experience for the attack on Halifax, the next and final expulsion of England from the American continent."

No dice for both sides. The Brits were still on the continent. However so were the Americans. Hence the draw.