Taxes - Canada vs. the US

[August1991]

I took a quick look at Obama's proposed budget, saw the gaping deficit (Obama proposes to borrow 50 cents of every dollar spent), and then ran away in fear. [i'm no government debt fanatic but Obama's spending proposals are insane.]

But then, I went back and took a look at his tax measures. They make alot of sense, and they make Canada's tax structure make even more sense. [i'm not a tax lawyer/accountant so if I have some of the details wrong, or if I have missed something, please correct me.]

1. The US allows taxpayers to deduct mortgage interest from their federal taxable income. In Canada, we don't. (Only Joe Clark foolishly proposed this and his minority government thankfully collapsed.)

2. The US allows taxpayers to deduct local property taxes from their federal taxable income. In Canada, we don't. (Provinces may have special provisions, usually aimed to help renters who pay indirectly property taxes).

On both of these points, the US policy is arguably bad economics and bad politics. Have you wondered why so many Americans live in trailers? Why are tornados in the US so devastating? These two tax policies explain why. (Warren Buffett, according to his latest letter, also benefits from this tax policy.)

3. In Canada, our standard tax deductions are turned into tax credits at the lowest marginal rate. In the US, tax credits (eg. personal exemptions, charitable donations) are taken off at the highest marginal rate.

This Canadian policy comes closest to Milton Friedman's negative income tax. Obama is merely proposing that tax deductions for the wealthy be turned into tax credits using a lower rate (28%).

4. Canada has a sophisticated federal VAT, harmonized with some provinces. The US has no federal sales tax.

5. Obama is proposing that the highest federal marginal rate rise from 35% to 39% (when Bush's tax cut lapses in 2010). In Canada, our highest federal rate is 29%. Nevertheless, I somewhat prefer the US system because it allows people to shop around for a state with no income tax - there are 50 to choose from. In Canada, we have less choice. Only Alberta has no income tax.

I think Obama is making a mistake in raising the highest marginal income tax rate from 35% to 39%. The IRS won't collect it. For people earning above, say, $1 million annually, the cost of tax compliance becomes a numbers game that the IRS will lose.

The Obama administration is not interested in escalating a dispute with Switzerland over bank secrecy laws, Switzerland's top justice official said on Monday after meeting with her U.S. counterparts.

...

A bill to be offered in the U.S. Senate on Monday will target offshore tax havens used by rich Americans in Switzerland, the Cayman Islands and other nations, senior Senate aides said.

The legislation proposed by Senator Carl Levin expands on a bill he co-sponsored last year with then-Senator Barack Obama and comes two days before a senior UBS executive, Mark Branson, is due to testify before a Senate hearing about the U.S. investigation.

"Offshore tax haven and tax shelter abuses are undermining the integrity of our tax system," said Levin, of Michigan, in a statement. "We cannot tolerate $100 billion in offshore tax abuses burning a hole through our budget each year.

Reuters

6. Corporate taxes. In Canada, the federal rate is now (gross) 19%. In the US, it is 35%. Admittedly, this is a minefield, just like capital gains taxes.

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If Obama had been audacious, and wanted to help low income Americans, he would have abolished the mortgage interest and property tax deductions. He would have turned tax deductions into tax credits.

If Obama had been truly audacious, he would have instituted a US federal sales tax.

And now the question for political scientists: Why has Canada been able to have such an intelligent tax regime while America's is so incompetent? Why are Obama's (minor and laudable) tax changes so controversial?

An organization that cannot change and adapt slowly sets itself up for a later revolutionary change.

Edited March 3, 2009 by August1991

[bush_cheney2004]

...And now the question for political scientists: Why has Canada been able to have such an intelligent tax regime while America's is so incompetent? Why are Obama's (minor and laudable) tax changes so controversial?

Not so intelligent...just different. For example, Canada's GST has become more of a political football than sound tax policy, on top of the ideoligical differences about consumption taxes in general. The more practical barometer is tax flight out of Canada for higher income earners to the playing field that Obama is trying to change.

...hence "controversy".

Edited March 3, 2009 by bush_cheney2004

[August1991]

Not so intelligent...just different. For example, Canada's GST has become more of a political football than sound tax policy, on top of the ideoligical differences about consumption taxes in general. The more practical barometer is tax flight out of Canada for higher income earners to the playing field that Obama is trying to change.

The tax flight in Canada is specific to provinces, or cities, or occupations.

GST (VAT or sales tax) is always a political football. Japan's Liberal-Democratic Party ultimately lost power because of VAT. Sadly, in the US, it would probably be suicide for Obama to adopt a federal VAT. Yet, the US needs a federal consumption tax.

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What naive kos ACORN leftist community organizers such as Obama don't understand is that tax policy matters far more than government spending.

I am amazed that Mulroney was able to bring in a federal VAT, and that our federal income taxes were indexed to inflation. You Americans have had neither. (Reagan's famous tax cuts simply reduced nominal amounts to real rates.)

Canada's tax policies, equalization and all, do much to make Canada a civilized and rich country. Like our natural resources, our tax policies allow our governments to be foolish in spending.

Go figure.

[bush_cheney2004]

GST (VAT or sales tax) is always a political football. Japan's Liberal-Democratic Party ultimately lost power because of VAT. Sadly, in the US, it would probably be suicide for Obama to adopt a federal VAT. Yet, the US needs a federal consumption tax.

Perhaps, but most US citizens don't want a federal VAT. That's tea in the harbor kind of talk. The absolute worst thing to say is that Canada has it, so it must be OK.

Sidebar: Whenever I sell crap to a Canadian on eBay or other sales portal, the buyer invariably tries to beat the duty and taxes.

Canada's tax policies, equalization and all, do much to make Canada a civilized and rich country. Like our natural resources, our tax policies allow our governments to be foolish in spending.

Yet by your own estimation, Canada is a poorer civilized country.

[msj]

Yet by your own estimation, Canada is a poorer civilized country.

Well, BC, looks like you and I do have the same thoughts after all.

I thought the same thing, too.

Well, that and "hypocritical selective memory twit."

[August1991]

Well, BC, looks like you and I do have the same thoughts after all.

I thought the same thing, too.

Well, that and "hypocritical selective memory twit."

Huh? I'm confused. Can either you or BC explain? Edited March 3, 2009 by August1991

[bush_cheney2004]

Huh? I'm confused. Can either you or BC explain?

Sure....I was referring to your earlier thread "Why is Canada So Poor":

http://www.mapleleafweb.com/forums//index....c=10680&hl=

[Smallc]

So, let me see. In that thread, he said our taxes were too high, we were poor, and we have bad roads in certain provinces. Looking at that, its interesting that now: our taxes are good, we're rich, and we don't need an infrastructure program to fix our bad roads....interesting.

[bush_cheney2004]

So, let me see. In that thread, he said our taxes were too high, we were poor, and we have bad roads in certain provinces. Looking at that, its interesting that now: our taxes are good, we're rich, and we don't need an infrastructure program to fix our bad roads....interesting.

Well, in fairness to August1991, the debacle we are currently witnessing did not exist when the thread was posted, and in general, Canada's fiscal policy (and banking system it would appear) have seen it through with less scar tissue, albeit at the cost of less to go around.

Edited March 3, 2009 by bush_cheney2004

[Oleg Bach]

Snooty land lords who rent to those who do not have a line of credit at the bank have no right to be arrogant. Landlords may hold the mortgage - but in effect they rent from the bank - and the tenant rents from the mortgage holder - so both are renters. If the government wants the property - it can take it - The British North America act stated that a citizen actually owns the real estate - but no longer - the state owns all. So it kind of makes sense when a forecloser takes place - it is honest for the gov to bail out the banks and own your property....much like the birth certificate that certifies that the person is property of the state farm.. much like abortion that fools call free choice --- the state owns your body and all that it produces or reproduces. For instance - if you never file an income tax form - ever - you have no contract with the state ---- and never have to pay tribute ----- but the second you file the first one ---- you have granted consent...as for Canada vs. the U S , in regard to taxes - OUR system is more Roman like than America - we are given a measure of bread - wine and housing --- and our job is to burn fossil fuel and go to the games...not much has changed.

[bush_cheney2004]

....as for Canada vs. the U S , in regard to taxes - OUR system is more Roman like than America - we are given a measure of bread - wine and housing --- and our job is to burn fossil fuel and go to the games...not much has changed.

Fair enough explanation.....Americans historically loathe taxes, especially those perceived to be unfair and of benefit to a subclass or special interest. That's how the fight started with Great Britain. The very idea of welfare (i.e. being on the dole carried more stigma than having a venereal disease....now both are OK?).

[Oleg Bach]

Fair enough explanation.....Americans historically loathe taxes, especially those perceived to be unfair and of benefit to a subclass or special interest. That's how the fight started with Great Britain. The very idea of welfare (i.e. being on the dole carried more stigma than having a venereal disease....now both are OK?).

As a little boy - my father injured his spine and was out of work - mums buisness took a down turn...some neighbour called up one of those old fashioned local charities - a delegation of do-gooders showed up at the door with food and clothing and cash....I do not remember it clearly because I was so young...My mother told us later that we as tiny boys started to cry in embarassement and will literally ran them off.

My sister hit the glass ceiling in Canada - she was a very successful real estate person who eventuall started moving large tracks of land for corporations - and she delt with Arab developers ( they cheated her) --- well once she got up their and was begining to be very successful - the Federal Tax people attacked and dragged her into court..they totally destroyed her ---- she left pennyless for L A . She was helpful to some of the developers and worked for nothing for a while...THEN they offered her a job - she build a complex single handedly across from Sony entertainment....America does not mind tall blonde blue eyed woman who generate income for others - she had no permit but came and went as she pleased...

In Canada they screwed her - in America they embraced her. As for myself - I have one lucrative year in the film buisness and inherit a bit of cash - then like a fool I file for the first time in 25 years --- (no reason to file i did not have any money) - so a small tax debt sky rockets to a huge one - then they guarneshee - 100% of my checks ---- so now - I just slowly take back the money - bit by bit...a guy that was hard working is now on welfare ( I keep it to myself not to be persecuted) - and no - I do not declare the small odd royalty check...I have to survive - our taxing system destroys you unless you are from the "right" family - then you pay nothing.

[Topaz]

IF Obama is doing the right thing only history will tell but both parties are to blame for the mess that country is in and electing GW was the worse thing that could happen to the US and they found out too late he didn't have the common sense his dad had, no, he had Cheney and the original gang who wanted to go to war!, Who is complaining the most over there about the tax increase the very rich. Rush, just signed a 100 mil for his radio show. Hannity, is trying to get up to Rush's level, he too complaining. They both supported Bush but now there is no one to support, so they trash the Prez. IF these two loud mouths keep talking down on what Obama is trying to do , the US will belong to China and probably Canada too.

[bush_cheney2004]

IF Obama is doing the right thing only history will tell but both parties are to blame for the mess that country is in and electing GW was the worse thing that could happen to the US and they found out too late he didn't have the common sense his dad had, no, he had Cheney and the original gang who wanted to go to war!,

"Dad" wanted to go to war as well...as did Clinton. I think it would be best if you just let the Americans choose their own president thank-you-very-much. You don't have to like it, but you do have to accept it.

Who is complaining the most over there about the tax increase the very rich. Rush, just signed a 100 mil for his radio show. Hannity, is trying to get up to Rush's level, he too complaining. They both supported Bush but now there is no one to support, so they trash the Prez. IF these two loud mouths keep talking down on what Obama is trying to do , the US will belong to China and probably Canada too.

You might want to check who owns Canada right now. If President Obama raises my taxes, I will not send him praise either.

[Oleg Bach]

"Dad" wanted to go to war as well...as did Clinton. I think it would be best if you just let the Americans choose their own president thank-you-very-much. You don't have to like it, but you do have to accept it.

You might want to check who owns Canada right now. If President Obama raises my taxes, I will not send him praise either.

B C 2004 is willing to give the most honest and pragmatic advice regarding his nation - He seems to have his finger on the pulse..and knows the condition - and it seems that the America is wounded but in stable condition and will recover fully - will they change their ways? Probably not seeing it got them this far - they will continue..and we will continue to watch our arrogant and misheivious big brother - in saftey - big brothers do not beat up little brothers.....they protect them ------------I HOPE.

[August1991]

So, let me see. In that thread, he said our taxes were too high, we were poor, and we have bad roads in certain provinces. Looking at that, its interesting that now: our taxes are good, we're rich, and we don't need an infrastructure program to fix our bad roads....interesting.

We have a good tax system, but the taxes are too high. It's sort of like someone with the right asset mix but a leveraged portfolio.

Sure....I was referring to your earlier thread "Why is Canada So Poor":

http://www.mapleleafweb.com/forums//index....c=10680&hl=

I'll take my lumps for being inconsistent (I am human - this is no spambot posting these words) but here's what I had in mind in that previous thread: Canada pisses away some tremendous advantages.

Our tax system may be more sensible than America's, but we are also taxed more greatly. For example, I didn't say anything about insidious payroll taxes and CPP/QPP contributions. Union contributions are another form of payroll tax.

We may have a federal VAT but in most provinces, there is no corresponding reduction in combined federal/provincial income taxes.

My jibe at leftists/kos-types is that Canada largely uses the tax system for redistribution and I think think that's the best way to do it. The best way to help poor people is not through make-work projects, food banks or even welfare transfers. The best way is through the tax system.

OTOH, I think we bungle government spending. Americans have an expensive military (upon which we free ride), a lousy tax system that creates bad distortions and yet they still manage to have good roads. I shudder sometimes when I see how we waste our avantages in crazy government spending. Americans laugh/complain about Congress, earmarks and the Alaskan bridge to nowhere. Well, we built the damn thing to an island with about 100,000 people.

I used to update this thread about federal transfers. (Whether you are left or right, Liberal, Conservative, BQ, NDP, PQ or Green - you should take a look at that thread, and its list.)

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One political theory of democracy argues that a small group can lobby government to obtain a large benefit at the expense of a small cost to everyone else. (No individual American would notice losing a penny but I would certainly enjoy receiving $3 million.)

Another political theory argues that the majority can tax the bejeezers out of the minority (eg. cigarette taxes).

These theories are contradictory so I don't know why we have the tax system or spending methods that we do. Perhaps it's just random. Dunno.

IF Obama is doing the right thing only history will tell...

I fear that Obama will lead to Canadian spending priorities but with American taxes. That's like spending your lottery winnings before they announce the winning ticket number. Edited March 4, 2009 by August1991

[Oleg Bach]

You mean I didn't win?

[Topaz]

I think no matter who the seating government is, taxes will have to go up, but the problem for this government is that, over 500,000 people and growing, are out of work and the gov't does have the revenues coming in and more money is going out. Don't be surprised that you won't get back as much of a refund on your taxes as last year.

[sharkman]

I think no matter who the seating government is, taxes will have to go up, but the problem for this government is that, over 500,000 people and growing, are out of work and the gov't does have the revenues coming in and more money is going out. Don't be surprised that you won't get back as much of a refund on your taxes as last year.

Ah Topaz, you try so hard and then you go and say this.

Tax refunds are not dependent on how much $$$ the government is taking in. They are dependent on how much you made in the previous year. Which was before the lay offs started.