Tax Fairness in Canada

[-1=e^ipi]

So, 13.5 plus 20% is ~34% rather than the 45% I would be faced with today.

Exactly. Our overcomplicated progressive tax system causes all this needless time and energy wasted to move money around in order to pay lower taxes.

Edit: I looked it up, and apparently accountants make up about 1% of the Canadian labour force.

Also, with respect to my earlier example of the two fishermen, if you account for the fact that credit markets are inefficient and that individuals tend to smooth consumption over time, then the fishermen that earns $60,000 in one year and $40,000 in another year is effectively poorer than the individual who earns $50,000 in two years.

So the fisherman that is effectively poorer pays more in tax. So the progressive tax is effectively regressive in this case.

Edited September 13, 2015 by -1=e^ipi

[TimG]

So, Trudeau is exactly correct about this issue when it comes to people like me.

Except he is wrong to say that making the same amount of money as profit from a business with employees is the same as earning a salary. There are risks and uncertainty that come with business ownership that employed people do not have and it is simply wrong to say that there is something inherently unfair about a corporate structure that allows you to control when you pay taxes. Edited September 13, 2015 by TimG

[msj]

Also, with respect to my earlier example of the two fishermen, if you account for the fact that credit markets are inefficient and that individuals tend to smooth consumption over time, then the fishermen that earns $60,000 in one year and $40,000 in another year is effectively poorer than the individual who earns $50,000 in two years.

So the fisherman that is effectively poorer pays more in tax. So the progressive tax is effectively regressive in this case.

The fisher is more likely to get EI as a subsidy for the seasonal work. That is,the fisher likely is working less hours.

The fisher can sell licences for a tax free capital gains.

So don't feel sorry for them.

Edited September 13, 2015 by msj

[msj]

Except he is wrong to say that making the same amount of money as profit from a business with employees is the same as earning a salary. There are risks and uncertainty that come with business ownership that employed people do not have and it is simply wrong to say that there is something inherently unfair about a corporate structure that allows you to control when you pay taxes.

Sure but that is a minor point.

The rewards of freedom to choose work and clients more than make up for this.

The so called risks should not lead to tax breaks. Why should people who take risks get tax breaks? The supposed reward should be enough to offset it anyway.

The reality is, if you are self employed and if you are not making more than the median income for your profession then you better be self employed for other reasons than money. Nothing wrong with that.

[Argus]

I consider payroll deductions to be taxes, and look how those cheat people. They give enormous preference to workers in certain parts of hte country over others, and they give enormous preference to seasonal workers over those working full time. The Tories are planning on cutting EI deductions by 30% in recognition of the fact the system takes in a lot more than it pays out. Trudeau has said he's going to cancel that, and instead redirect more money for seasonal workers. That means those who work full time are going to have to subsidize seasonal workers even more. Hardly fair.

[-1=e^ipi]

The fisher is more likely to get EI as a subsidy for the seasonal work.

Probably. EI is messed up to, but that's beside the point.

Replace fisherman with any profession, it doesn't really matter.

Point is that if you take two individuals that have the same income, a marginally progressive tax taxes the individual with higher income variance more. If you factor in inefficient credit markets, then this means that the effectively poorer individual is paying more in taxes.

[msj]

Probably. EI is messed up to, but that's beside the point.

Replace fisherman with any profession, it doesn't really matter.

Point is that if you take two individuals that have the same income, a marginally progressive tax taxes the individual with higher income variance more. If you factor in inefficient credit markets, then this means that the effectively poorer individual is paying more in taxes.

Your example is a poor one because the difference in taxes is trivial.

And it is non existent if the fisher uses RRSP's to smooth income from year to year.

[-1=e^ipi]

Your example is a poor one because the difference in taxes is trivial.

And it is non existent if the fisher uses RRSP's to smooth income from year to year.

Just because the difference is arguably small doesn't mean that fairness isn't desirable.

You want a more extreme example? Okay.

Let's say we have 2 individuals.

One individual works for a banking firm and earns $50,000 per year for 10 years.

A second individual works as a research scientist trying to cure cancer and earns $10,000 per year for 10 years. At the end of the 10 years, the researcher cures cancer and earns an additional $400,000.

So in both cares we have the individuals earning half a million dollars in 10 years. But the second person pays a higher amount of tax.

Not only is it unfair, but it discourages innovation.

Edited September 14, 2015 by -1=e^ipi

[msj]

Life isn't fair.

It is not for the government to level the playing field although they surely to various electoral groups.

Besides, the government needs progressive taxation to ensure it raises enough revenue.

Imagine how unfair Canada would be without adequate government spending for healthcare and education.

So lets be "fair" to their needs.

[Canada_First]

Progressive taxation makes a lot of sense.

[dre]

Progressive taxation makes a lot of sense.

Yup

And its not progressive taxation that makes the tax code complicated or hard to manage. A basic progressive income tax scheme can be expressed in one line at the top of 1 page. What makes the tax code complicated is all the exemptions, and loopholes. Many of them the result of successful lobbying efforts by various special interests, and many of the result of government using tax breaks to encourage behaviors if finds desirable at verious times.

And this would happen no matter what kind of taxation system you started with. As long as the government has the power to change it, and tweak it, and add new bits and pieces to reward its friends, those that lobby well, and to encourage the desired behavior of the day the tax code would keep growing until it was a beast.

If you want to simplify things then get rid of consumption and sales taxes, and roll these into the progressive income tax scheme in a way thats revenue neutral. One single tax, one single government tax department, simpler accounting, no more forcing every business owner to be an unpaid government tax collector.

[Canada_First]

So would all income levels pay taxes?

What about those who work under the table? At least the consumption tax catches these people.

It would be good to drastically cut the taxation cabal. I'm all for smaller government.

[msj]

Nothing wrong with a consumption tax.

Businesses collect taxes for the government anyways: as payroll deductions and as GST and PST (where applicable).

From the government POV this makes a lot of sense and is quite efficient and very effective.

[-1=e^ipi]

Besides, the government needs progressive taxation to ensure it raises enough revenue.

Wow you are getting desperate.

This doesn't make sense.

You can have a flat or even regressive tax system generate enough revenue if you set the tax rates high enough. For example, a flat tax of 60%.

And its not progressive taxation that makes the tax code complicated or hard to manage.

Yes and no. There are other complicating factors but as explained in this thread, progressive taxation adds to the complexity and creates a lot of perverse incentives.

A basic progressive income tax scheme can be expressed in one line at the top of 1 page.

Maxwell's equations are very compact:

Yet in our world, they have a lot of implications.

If you want to simplify things then get rid of consumption and sales taxes

Consumption taxes encourage savings, which is desirable if your country's savings rate is below the optimum:

https://en.wikipedia.org/wiki/Golden_Rule_savings_rate

A 25% VAT is desirable since the developed countries closest to the optimal level of savings have a 25% VAT (Norway, Sweden, Denmark).

[msj]

Wow you are getting desperate.

This doesn't make sense.

You can have a flat or even regressive tax system generate enough revenue if you set the tax rates high enough. For example, a flat tax of 60%.

From the governments POV it is easier to generate sufficient revenue by dividing and conquering the various income levels to get elected.

More people vote at incomes below $100,000 so it is easier to offer them tax cuts and lower tax rates as compared to the "rich."

As for this nonsense about progressive taxes making our system complicated : once again, it doesn't.

It is capital gains that make it complicated.

It is legal structures like incorporation and limited partnerships and trusts that make it complicated.

It is the definition of taxable income and allowable deductions that make it complicated.

Finally, it is the use of tax credits that make it complicated.

Progressive taxation is the easy part. It's the basic math.

All the rest is language: which is why a guy like you, who presents a bunch of silly mathematical equations, just doesn't understand.

Taxation tells us lots about a people and you apparently know nothing about Canadians.

My recommendation is to read David Foster Wallace's "The Pale King" for an interesting, albeit American (queue BC_2004), take on this reality.

Edited September 14, 2015 by msj

[-1=e^ipi]

From the governments POV it is easier to generate sufficient revenue by dividing and conquering the various income levels to get elected.

More people vote at incomes below $100,000 so it is easier to offer them tax cuts and lower tax rates as compared to the "rich."

And here I thought this thread was discussing the ideal distribution of tax burden. But I guess you are running out of arguments so now you are trying to appeal to popularity.

As for this nonsense about progressive taxes making our system complicated : once again, it doesn't.

Because you are looking at it in terms of an accountant paying taxes, not in terms of how it affects human behaviour (incentives to save, invest, consume, work, find loopholes, etc.).

It is capital gains that make it complicated.

It is legal structures like incorporation and limited partnerships and trusts that make it complicated.

It is the definition of taxable income and allowable deductions that make it complicated.

Finally, it is the use of tax credits that make it complicated.

Pointing out other complications to the tax structure does not demonstrate that a marginally progressive tax isn't a complication.

[msj]

And here I thought this thread was discussing the ideal distribution of tax burden. But I guess you are running out of arguments so now you are trying to appeal to popularity.

Because you are looking at it in terms of an accountant paying taxes, not in terms of how it affects human behaviour (incentives to save, invest, consume, work, find loopholes, etc.).

Pointing out other complications to the tax structure does not demonstrate that a marginally progressive tax isn't a complication.

I deal in reality, practicality and pragmatism. And I'm willing to consider the governments POV since that is always key since they set the policy in the first place. Their political reality complicates things.

There are very good reasons for LP's and corporations to exist despite the complications that they cause our tax system.

There are very good reasons for section 85, 55, 98 (amongst many others) with respect to capital gains treatments.

To some these are loopholes. To others they are very practical solutions to very real problems.

As for progressive tax rates, again, applying the rates to taxable income is very easy. Any child can do this.

I know many adults who can't understand taxable income or even net income on a basic tax return even when it is staring them in the face in the form of a comprehensive tax summary.

[-1=e^ipi]

As for progressive tax rates, again, applying the rates to taxable income is very easy. Any child can do this.

I never claimed otherwise. But keep ignoring the points I make if it makes you feel better.

[cybercoma]

All the rest is language: which is why a guy like you, who presents a bunch of silly mathematical equations, just doesn't understand.

I tried to explain this to him months ago when he wanted a math formula for "fairness." Taxes are a legal code and the language needs to be interpreted. That's why these things end up in court because one side argues for their interpretation, while the other side argues for theirs and the courts sort it out. The vast majority of improperly filed taxes are due to a misunderstanding of the legal texts and that has absolutely nothing to do with formulas and functions.

[cannuck]

And you conceived this postulation all on your own?

Anyone and everyone in academia (at least those who are not brain dead) is quite aware of how bias is expressed in what is published. Further, once you remove the peer review process, that vast majority of "studies" are primarily intended to lend credence to a specific theory. It is the human condition: same reason as innocent people get locked up for crimes they did not commit: once a theory is postulated, all efforts get directed towards proving that thesis while facts and ultimately the truth become discounted or totally ignored.

[SpankyMcFarland]

Trudeau wants higher income Canadians to pay more tax. I'm happy to do that.

[Canada_First]

Trudeau wants higher income Canadians to pay more tax. I'm happy to do that.

Poor people are always happy to take other peoples money.

[SpankyMcFarland]

Poor people are always happy to take other peoples money.

His proposal would affect me directly.