The Budget 2005

[August1991]

Yup. Corporate taxes are double taxation: tax the corporate earnings, and then tax the incomes of employees which are paid out of those earnings.

No, they aren't. Wages and salaries are an expense item that is not incuded in taxable incomes. Corps are taxed on net income, not gross revenue, just like ordinary taxpayers.

Any dividends are paid with after-corporate-tax dollars and then the dividends are taxed as income by an individual. This is the source of the double taxation.

There are "solutions". One is not to pay dividends, retain earnings instead and make the firm larger. Shareholders presumably make a capital gain. Another is to go offshore. A third is to set up an income trust.

These are all examples of how bad taxes incur costs as people try to avoid the tax.

Actually, sales taxes in the UK are at 17.5%, the Czech Republic 19%, while Denmark, Norway, Sweden and Hungary all levy at 25%. In fact, EU Directive 2001/4/EC states that the absolute minimum tax rate levied by a member state will be 15%.

I stand corrected. The issue is whether visibility keeps the tax lower. I'm not convinced.

It is hard not to view taxes as pure expediency. There is no rhyme or reason to them except what governments can get away with. The comparison with the mafia is not too bizarre.

If I am to pay tolls on the roads, then why should I pay fuel taxes and the same for vice versa? I do agree with paying for what you use, I know I get nothing for free is this lifetime.

Playfull, if it were just a question of road-building, then a fuel tax would be fine. The problem is in congestion. Every working day in large cities around the world people sit in traffic jams staring into space. They are wasting their lives.

People should pay for the congestion they inflict on others. The price mechanism was designed to cope when too many people want to use too little of something. That's what happens on roads in rush hour.

[Hugo]

I stand corrected. The issue is whether visibility keeps the tax lower. I'm not convinced.

I think that Mulroney, along with his friend Reagan, probably recognised that any semi-successful democracy requires that its citizens have a fundamental distrust of government. Mulroney's idea on visible taxes works so long as this distrust is present, however, in Canada that is not the case now. Most people think of government as a solution, not a problem, and most would probably accept higher taxes for a good cause, like more healthcare or police spending.

Where the citizens distrust their government, the only tax increase that the government is likely to get away with is the hidden one. Although VAT factored into prices is hardly invisible, it's certainly less obvious. Separate sales taxes remind you of your tax burden every time you're at the cash register.

It is hard not to view taxes as pure expediency. There is no rhyme or reason to them except what governments can get away with. The comparison with the mafia is not too bizarre.

True. I forget who it's attributed to, but democracy works until the electorate realises that they can vote themselves largesse from the public coffers. It generally doesn't take too long. American liberal democracy only lived eighty-odd years.

[fellowtraveller]

That's just word games. Corporate taxes are levied against corporate incomes and necessarily reduce the amount of money available for everything else, including salaries, and then those salaries are taxed again, and then again in sales taxes. So the same given quantity of money has actually been triple taxed by the time an employee actually gets the goods and services he wants.

No, it is not 'word games'. Clearly you have never operated a business, so you are forgiven being wrong twice.

Taxes are not levied against 'corporate income', they are levied against income after operating costs including all salaries are deducted. There is no CCRA tax on employess salaries at the corporate level, only at the personal tax retur level. It is a tax exemption, not taxable incomes for the corporation. August gives an example of double taxation that is valid, but yours most definitely is not.

[caesar]

I think that Mulroney, along with his friend Reagan, probably recognised that any semi-successful democracy requires that its citizens have a fundamental distrust of government. Mulroney's idea on visible taxes works so long as this distrust is present, however, in Canada that is not the case now. Most people think of government as a solution, not a problem, and most would probably accept higher taxes for a good cause, like more healthcare or police spending.

Wrong; we do not see the government as a solution. There is too much money wasted in government; particularly in Canada with a decentalized government. We are paying enough money now to take care of health care if these governments would quit playing games and work together.

Like many others; I like to see what aI am paying for an item; not having to factor in all the extra taxes. The gst makes more money for the government because every step along the way is taxed. By the time it reaches the consumer; a good portion of the price is already paid taxes.

[Stoker]

Wrong; we do not see the government as a solution. There is too much money wasted in government; particularly in Canada with a decentalized government. We are paying enough money now to take care of health care if these governments would quit playing games and work together.

So why do you complain about the government of British Columbia privatizing services? Are you now in favor of privatization?

[Hugo]

No, it is not 'word games'. Clearly you have never operated a business, so you are forgiven being wrong twice.

Taxes are not levied against 'corporate income', they are levied against income after operating costs including all salaries are deducted.

Corporations see taxes as operating costs and if those costs are too high, will take away money from other areas including salaries. This is why corporate tax hikes cause unemployment increases. They have less money for payrolls.

I know that it appears to work the way you think it does if you divide money up into various neat chunks, but those divisions are purely subjective. That's why it's a word game. It's like when you make your home budget and allocate money for groceries and money for the mortgage. The "mortgage money" is really no different from the "grocery money", you just call it different. If the government takes greater taxes from your "mortgage money", then you necessarily will have less to spend on groceries, so effectively they have taxed both your mortage and your grocery money even though, on paper, taxes are only levied on mortgages and ostensibly do not affect grocery spending.

And if they only took extra taxes from your mortgage after you had bought your groceries, well, you still would not be able to spend the same amount on groceries! You would just have to adjust your grocery budget before your mortgage was paid rather than afterward.

Therefore, when you spend money on groceries and pay sales tax, you have been double-taxed, even though on paper and according to you, you have not.

Wrong; we do not see the government as a solution... We are paying enough money now to take care of health care if these governments would quit playing games and work together.

These two sentences contradict each other. You see government as being a possible solution to this problem, because if you didn't, you'd be calling for private healthcare. You only want to change the implementation of the solution, not the provider of it.

[Argus]

Put another way, if I pay off my brand new mortage in 10-12 years instead of over 25 I will wind up saving about $40,000 in interest.

Argus, the government is fundamentally unlike you or me. Your comparison is dead wrong and merely shows an ignorance of what government is.

It makes no difference to you whether the government takes money from your bank account (taxes you) for its purchases or it uses your credit cards (borrows in your name) for its purchases. In either case, you can undo what the government does.

Strictly speaking that isn't what I was talking about. I made no statement on whether the government should tax to buy things or borrow to buy things. My opinion was on whether to spend money on new and unnecessary services or use that money to pay off the accumulated debt.

It seems to me a fundamental principle of finance is that you should pay off your high interest debt first before paying off the low interest debt. By running a budget surplus, PM PM is doing the exact opposite.  And you say he's wise!

Again, there appears to be some miscommunication. First, there is no budget surplus as long as we have a large debt to pay off. We have an operating budget surplus, butt hat's smoke and mirrors. What Martin should be doing is elminating unneccesary services, not adding them, and using that operating budget surplus to pay down the debt faster.

Then they shouldn't be voting. Simple tradoff. If you believe you cannot contribute, and don't, then you shouldn't be permitted to vote. No representation without taxation - as it were.

Here too you're wrong. If we feel society should distribute from the rich to the poor, then votes should not be dependent on taxes paid.

I do not feel that it is the job of government to redistribute money to the poor. Although that effectively does happen. I feel the government should provide the means for the poor to help themselves, but I am against wealth redistribution merely for its own sake. And to reiterate, if you make no contribution to the local kitty you should have no say in the how the proceeds are to be spent.

[August1991]

My opinion was on whether to spend money on new and unnecessary services or use that money to pay off the accumulated debt.

You have ignored the option of cutting taxes.

But I agree that the main concern is reducing government expenditures. My own impression is that a good way to do that is to reduce the number of civil servants. The fewer there are, the fewer schemes get cooked up to offer more services.

First, there is no budget surplus as long as we have a large debt to pay off.

The budget balance is a flow variable whereas the debt is a stock variable. More broadly, you seem to think that debt is bad. I strongly disagree. I think it is good.

And to reiterate, if you make no contribution to the local kitty you should have no say in the how the proceeds are to be spent.

Would you argue that a person's say should depend on how much she/he contributes?

[Argus]

First, there is no budget surplus as long as we have a large debt to pay off.

The budget balance is a flow variable whereas the debt is a stock variable. More broadly, you seem to think that debt is bad. I strongly disagree. I think it is good.

Twenty cents of every dollar collected in taxes goes to service the debt, and that is in an era of historic low interest rates. That is by far the largest waste of money the government engages in. If we direct as much money as possible to paying off the debt those payment expenditures will get smaller and smaller, and hopefully, as with Alberta's, disappear. Why you believe it's a good idea to be throwing 20 cents of every dollar down the toilet is beyond me.

And to reiterate, if you make no contribution to the local kitty you should have no say in the how the proceeds are to be spent.

Would you argue that a person's say should depend on how much she/he contributes?

I think those who contribute more should have a greater say, yes. That does not include corporate entities, however.

[August1991]

Twenty cents of every dollar collected in taxes goes to service the debt, and that is in an era of historic low interest rates. That is by far the largest waste of money the government engages in.

I think you are barking up the wrong tree, Argus.

By borrowing money at favourable interest rates, the government didn't tax you, which left you with more money so you could, for example, make a larger downpayment or pay back more quickly your mortgage.

I'll bet your mortgage carries a higher interest rate than the interest rate on sovereign government debt. So, this was a good deal.

[Lemming]

Well I suppose after 10 years of doing nothing the Liberals have some catching up to do, and that includes spending as much of Canadians' hard-earned money as possible. The key word throughout this process is that they have "promised" to do this and that. Well, Liberal promises aren't worth the paper they're printed on so my sensibilities take another bashing.

While most Canadians just don't care anymore, the few that do seem to forget what a surplus means - more taxes than spending. Any fool can tax like no tomorrow, and refuse to spend. Yet despite all the waste and mismanagement, they've still managed to accumulate vast surpluses- gives a sense of how out of control taxes are. Taking the poor off the tax rolls? This is a brilliant idea? Are we so starved of sound government policy that we hold this concept up as something revolutionary and visionary?

I should think that the only reason all these promises have been made had something to do with a minority government that is subject to defeat based on a non-confidence vote in the House. Of course, being a good Liberal means do whatever it takes to save your political ass, and to hell with the country. The child care program is another great Liberal idea. A wonderful way to employ a whole mess of political buddies, and insure the political industry remains alive and well. Hell, why would Canadians want discretion over their earnings when you can trust the government to take care of everything? It's getting to the point where we won't even have to care for our kids anymore. Go figure, lower taxes so both parents don't have to work six days a week just to pay bills. OMG, no need for a child care program!!!! But my God, asking Canadians to do something for themselves, blasphemy.

The budget is great fiction, and one can always rely on the BS to come on hard and heavy this time of year. And God said unto them, give them programs and they shall be appeased.

[Argus]

Twenty cents of every dollar collected in taxes goes to service the debt, and that is in an era of historic low interest rates. That is by far the largest waste of money the government engages in.

I think you are barking up the wrong tree, Argus.

By borrowing money at favourable interest rates, the government didn't tax you, which left you with more money so you could, for example, make a larger downpayment or pay back more quickly your mortgage.

No, it is the boomers who benefited from the government borrowing money rather than taxing them. I am simply one of those stuck with the bills. IMHO the way the government should repay the debt is impose a hefty surcharge on all CPP payments to anyone now retired earning more than subsistence amounts. Impose a big death tax, too. Irresponsible boomers ran this big debt up. They should pay it off.

[August1991]

No, it is the boomers who benefited from the government borrowing money rather than taxing them. I am simply one of those stuck with the bills.

Then blame your parents, not the government. They benefitted from this largesse and if they chose to spend it, instead of building up their wealth (to leave to you), you can't blame the government for their choice.

Argus, you make it seem as if you and some people went to a restaurant, and then the others stiffed you with the bill. The comparison is dead wrong. (And once again shows a misunderstanding of government.)

A better comparison would be that you show up at a banquet and you are upset that you have less money to buy stuff than the guy next to you. Why? Because your parents didn't put enough money in your wallet. (That just means more food for the other guy.)

There is a lot more stuff in the world now than 35 years ago. Past generations have left alot to the present and the future.

In fact, it is impossible for the past to borrow from the future. Any lending must go in the opposite direction. The boomers can't leave a debt to the present because there is no way they could have borrowed from the present. (Think about it!)

While there is alot more in general to inherit from the past, it's not certain that you personally will get it. Others in your age group may be getting alot more than you. If you are unhappy about your own personal situation, blame your parents. But you can't blame the government.

At any given moment, there is stuff in the world. Different people have different claims on the stuff. I guess some people of your generation wound up with more claims than you. (Welcome to the real world!)

BYW, you do have one big advantage over your parents. You'll live longer. And you'll get to live in a world with even more stuff in it.

Impose a big death tax, too. Irresponsible boomers ran this big debt up. They should pay it off.

Irresponsible boomers ran this big debt up. They should pay it off.

This idea is hilarious and I suspect really strikes at the basic problem in discussions of intergenerational transfers: fear of death.

You can't take it with you!

A big death tax is only a tax on the children of boomers. (After all, the boomers will be dead when the tax man shows up.)

What about increasing CPP payments? Same idea. You'll just be reducing the inheritance the boomers will be able to leave to their kids.

What you're really saying Argus is that you're jealous of other kids your age. They got more from their parents than you got from yours. Again, don't blame the government for your family squabble. The government has nothing to do with it.

[Argus]

No, it is the boomers who benefited from the government borrowing money rather than taxing them. I am simply one of those stuck with the bills.

Then blame your parents, not the government. They benefitted from this largesse and if they chose to spend it, instead of building up their wealth (to leave to you), you can't blame the government for their choice.

Perhaps not but I can blame them for their choice of government. Except, of course, my parents were never dumb enough to vote for Trudeau or Chretien. So they're exempt.

A better comparison would be that you show up at a banquet and you are upset that you have less money to buy stuff than the guy next to you.  Why?  Because your parents didn't put enough money in your wallet.  (That just means more food for the other guy.)

You are braying here, without having anything to say. This is not about having less money than the next guy. This is about an entire generation who decided they wanted more of everything and wanted it NOW, but didn't want to pay for it. They wanted all kinds of social programs, including generous pensions, but they didn't want to pay the taxes neccesary to afford it all. So they borrowed, and borrowed, and borrowed, and now they're retiring, leaving those who came after to pay for the bills.

While the boomers failed to pay enough into the CPP to take care of their pensions, those who are coming after them will actually pay more into their CPP than they get out of it, in order to make up the difference. Likewise,

the boomers had a great UIC package which gave them high payouts for a full year with minimum deducations - paid for by borrowing the money. The working generation now, of course, has high deducations, and a piss poor excuse for a UIC program which is very hard to qualify for. We'll be paying for the half trillion in debt the boomers ran up over the thirty odd years of their irresponsible, selfish, greedy time in power while they're lazing away on a Florida beach on pensions they never paid for.

There is a lot more stuff in the world now than 35 years ago.  Past generations have left alot to the present and the future.

Aside from crumbling infrastructure, a rusting out military, an agricultural sector on the verge of collapse, a fishing industry completely ruined, and oh yeah, a half trillion dollar debt, I'm finding it hard to think of anything the boomers have left me.

In fact, it is impossible for the past to borrow from the future.

A demonstrably ridiculous statement.

[August1991]

In fact, it is impossible for the past to borrow from the future.

A demonstrably ridiculous statement.

So they borrowed, and borrowed, and borrowed, and now they're retiring, leaving those who came after to pay for the bills.

In both cases, you are suggesting that the past can borrow from the future. That is impossible.

Think about it. What happens if the future were to refuse to pay the debt? Or, what happens if the entire world were to disappear now? There would be no future to pay the debt.

Aside from crumbling infrastructure, a rusting out military, an agricultural sector on the verge of collapse, a fishing industry completely ruined, and oh yeah, a half trillion dollar debt, I'm finding it hard to think of anything the boomers have left me.

Here you are on firmer ground. But the fact is that anyone born after 1980, for example, was born into a world that now has DVDs, the Internet, cars that don't rust, heart bypass surgery, cancer treatments, cheap air travel, 100 TV channel cable, long distance telephone calls that cost nothing, ATMs, debit cards.

Infrastructure? There are more four lane highways, more hospitals, longer metros in our cities, cheaper housing (given available wages), more bridges. Food has never been cheaper in real terms. But I agree with you about the cod fishery. You didn't mention AIDS or the environment.

None of these things existed in 1965. The past gave them to you for free. You got them by simply being born.

The half trillion dollar debt is irrelevant. It is just bits of paper representing claims on the real stuff available. As I said, there is more real stuff available and apparently others of your generation have more bits of paper than you do. Their parents left them more than yours left you.

This has nothing to do with Trudeau, or the debt. Your parents, whether they voted Stanfield or Lewis, could have easily undone in their personal lives anything Trudeau did.

While the boomers failed to pay enough into the CPP to take care of their pensions, those who are coming after them will actually pay more into their CPP than they get out of it, in order to make up the difference.

Yes, but the boomers have bigger bank accounts which they will spend, or leave to their children. Argue this out with your parents. But don't blame the government. Overall, there is more available. How do I know this for sure? Compare real per capita GDP in 1970 and real per capita GDP in 2005.

Government debt is unlike my debt or your debt. Intergenerational transfers for a society as a whole are different from transfers within a family.

Blame your parents if you want but you cannot blame a whole previous generation.

Argus, if it is possible to borrow from the future, tell me how. We'll both be exceedingly rich.

[Argus]

In fact, it is impossible for the past to borrow from the future.

A demonstrably ridiculous statement.

So they borrowed, and borrowed, and borrowed, and now they're retiring, leaving those who came after to pay for the bills.

In both cases, you are suggesting that the past can borrow from the future. That is impossible.

Saying it doesn't make it so.

Think about it.  What happens if the future were to refuse to pay the debt?  Or, what happens if the entire world were to disappear now?  There would be no future to pay the debt.

Sorry, August, I'm not really into whatever esoteric philosophical discussion you're trying to engender here. In the real world (hello? Are you here?) debts have to be paid off. The boomers aren't going to do it, though they borrowed the money. That means we have to. Can we repudiate it? I suppose, if we didn't mind destroying our economic system. So in effect, the boomers borrowed money to enjoy themselves, and we will have to pay it back. Put whatever bizarro spin you want on how it's all just bits of paper. The reality is what it is. And btw, trying to personalize this by implying I'm angry at not being wealthy is, quite frankly, childish.

[August1991]

Sorry, August, I'm not really into whatever esoteric philosophical discussion you're trying to engender here. In the real world (hello? Are you here?) debts have to be paid off.

This is not esoteric at all. Individuals can have debts between each other, just as countries can have trade deficits. But the world as a whole cannot have a trade deficit.

IOW, the world as a whole cannot have a net debt. For each person in debt today, there must be someone else alive today who has net positive wealth.

Argus, when you talk of "debt" (for example, the accumulated federal government debt), you are talking about "financial debt". These are paper claims between individuals alive today. Financial debt to one person is financial savings to someone else.

I am looking at real weath. We receive from the past all the accumulated wealth, infrastructure and knowledge.

We could conceivably use some of this real wealth and leave less to the future. That is the only way we could "borrow" from the future. I think it is impossible to do however, short of starting a new dark ages.

So, it is simply wrong to say boomers have destroyed real wealth or are leaving less real wealth than they received. In fact, the boomers received much real wealth from the past and they have added to that real wealth for the future.

True, the government has played around with the paper claims on that real wealth and so different people have different claims. And true, you may well wind up with negative net claims. If so, what in effect you'll be doing is giving something real (your time) to many people your own age. Why? Because their parents bought Canada Government Bonds and then left the Bonds as part of an inheritance. Will your parents leave you any Bonds?

If you see that as a childish accusation, I apologize.

[Guest eureka]

Too true, August! And debt as it is mostly owed to ourselves is not really debt at all: it is an asset that continues to create wealth. That large part of the debt is not dissimilar to stocks that are also a corporate debt .

The debt is the only investment option for a great many and provides income to many of the boomers and their progeny.

And, who paid off the much larger debt of the 50's and 60'swhen the economy boomed. The slowing of the economy followed the reduction of debt. Debt can be a very good thing for an economy.

[Montgomery Burns]

This was an awful budget, except for the increase in military spending.

The tax "relief" is a joke. The basic exemption goes up every year (it is indexed for inflation), so moving the exemption from $8000 to $10,000 over 5 years is a sad joke.

The out of control spending was shocking especially with Canada's huge debt (Canada's debt as a percentage of GDP is higher than the USA's and the US spends money protecting itself - and Canada).

I am very disappointed that Harper said he would support this budget. Canada's Conservative Party appears to be Liberal Light, and not true conservatives.

While Bush's tax cuts gave the average American family an extra $600 in their pockets annually, the average Canadian family will save $16 (one income family) or $32 (two income family) next year.

Whoop-di-doo!