Brison on Tax Reform

[August1991]

I never thought I would start a thread with such a title, but there's alot of good sense here. I'm not so willing to believe that Brison will do any of this though.

Canada's piecemeal tax system is "antiquated'' and needs an overhaul because it hinders Canada's economic progress, Liberal leadership candidate Scott Brison said Wednesday.

Among his suggestions are the elimination of tax policies that keep people on welfare, allowing young Canadians to earn $25,000 a year tax-free, and slashing corporate taxes to help increase national prosperity.

"We need to face the fact that our mish-mash of antiquated, broken tax systems and patchwork of federal and provincial income support systems are actually holding Canadians back, perversely leaving poor Canadians stuck in a dead end in many cases,'' the 39-year-old Nova Scotian said as he laid out his economic prescription for the country.

Too many tax credits are clawed back from poor Canadians, and welfare systems don't lead them out of poverty, Brison said in one of his first major campaign speeches.

Canada's business and capital taxes are also too high in comparison to other countries such as Sweden and Ireland, he said.

To fix the tax system, Brison said he would reduce the "welfare traps'' that keep Canadians dependent on assistance by introducing a working income tax benefit, something the Liberals have put forward before.

Brison also outlined a plan to allow young workers to earn the first $25,000 tax-free in the first 12 years of their career.

National Post

The key phrase here seems to be "...something the Liberals have put forward before".

The fact is that Brison is right. Canada's tax system is increasingly disastrous. Whereas the US reformed its welfare system, we have done nothing of the sort. Those who should benefit do not, and the effect is merely to waste everyone's time. There are pernicious incentives that encourage people not to work even though they want to. This is further complicated by the different levels of government involved.

In general, things don't get fixed until the problem imposes severe costs. Over the past eight years, rising resource prices have made it easy for Canadian governments to ignore this problem.

[geoffrey]

Well there is a 'working' tax benefit now in the latest budget, its the 'employment tax credit.'

None the less, if the cuts to taxes are significant enough, and if Brison wins leadership, I'll vote Liberal for that tax package.

[shoop]

$25K a year for somebodies first 12 years in the work force.

Hmmm, soooo wrong on so many levels.

Huge, huge loss of revenue.

People encouraged to stay out of the workforce. Why waste those precious *12 years* when you can spend another year in school?

[Riverwind]

$25K a year for somebodies first 12 years in the work force. Hmmm, soooo wrong on so many levels.

Such a move would royally screw anyone in the 30-50 age bracket since they would have not only pay more taxes to payfor the boomer's retirement benefits, they would have to pay even more to give the boomer's kids a tax break.

[geoffrey]

$25K a year for somebodies first 12 years in the work force. Hmmm, soooo wrong on so many levels.

Such a move would royally screw anyone in the 30-50 age bracket since they would have not only pay more taxes to payfor the boomer's retirement benefits, they would have to pay even more to give the boomer's kids a tax break.

I'd say the $25k tax concept would be good if it were applied to a set age, say until 25. After that, you should be fairly self-sustaining, enough to pay taxes.

This would do many things. Give university grads the chance to pay off student loans and save up a little for a downpayment before paying taxes. It solves two problems with an incentive based system instead of handouts.

Great idea. Go Brison. He may be unethical. He may be a complete loser. But hey, these are policies that affect me directly in a huge way.

I like this.

[August1991]

$25K a year for somebodies first 12 years in the work force.

Hmmm, soooo wrong on so many levels.

Huge, huge loss of revenue.

People encouraged to stay out of the workforce. Why waste those precious *12 years* when you can spend another year in school?

That suggestion struck me as odd. Why 12 years? Why not 10 or 15? And when does the clock start ticking?

On the other hand, we give special exemptions to people over 65 for some reason, and we also give special exemptions to people who live in the far north. Why?

It would arguably be more sensible to raise the basic exemption to 15,000 for everyone.

I was particularly interested in Brison's mention of the clawbacks on various social welfare measures. At present, some families earning in the 30,000 to 50,000 range face marginal tax rates above 100% because of their loss of benefits or tax credits. Low income families receiving welfare or EI face truly strange marginal tax rates well above 100%.

To reform Canada's tax system or even give it a healthy push it in a sensible direction, it would take a majority government with nerves of steel and a possible suicide wish. PM Scott Brison might have the temerity but I think he'd lack the fortitude. Nonetheless, I was impressed that Brison put the issue on the table.

[geoffrey]

How about a real tax-reform since we are now open to the discussion?

How about a flat-tax?

[Riverwind]

On the other hand, we give special exemptions to people over 65 for some reason, and we also give special exemptions to people who live in the far north. Why?

And we hand out cash to people with kids (i.e. people in the 30-50 age bracket).

Creating tax exemptions for certain demographic groups simply increases the tax burden on people who do not fit into those annointed groups. If gov't wants to help young people it should pay more for the cost of education. At the least that subsidy encourages young people to build skills that will increase tax revenue in the future.

It would arguably be more sensible to raise the basic exemption to 15,000 for everyone.

Agree 100%

I was particularly interested in Brison's mention of the clawbacks on various social welfare measures.

This problem is an example why the road to hell is paved in unintended consequences. The trouble is universal benefit programs cost too much so the only real solution is to lower benefits to the poor to make working more attractive.

[Riverwind]

How about a flat-tax?

A true flat tax would require the tax rate to be raised to over 30% for everyone in order to bring in the same amount of money. However, a system that kept the tiered tax brackets but eliminated all deductions might be feasible.

[geoffrey]

How about a flat-tax?

A true flat tax would require the tax rate to be raised to over 30% for everyone in order to bring in the same amount of money. However, a system that kept the tiered tax brackets but eliminated all deductions might be feasible.

I don't know if that's factually true. I haven't done the math.

We do know that Alberta has a provincial income tax, at a flat rate of 10%. It's extremely low, for everyone. We still raise comparable per capita revenues through this as other provinces. This would be evidence to the contrary.

It'd be interesting to see what that rate would have to be set at Federally.

Tiered tax brackets without deducations is something that could be considered as well.

[sideshow]

How about just eliminating taxes all together for the first 25k, then double them after 100k? across the board for everyone all the time. sounds easy and fair.

[geoffrey]

How about just eliminating taxes all together for the first 25k, then double them after 100k? across the board for everyone all the time. sounds easy and fair.

Why do I think you make less than $100k? Why draw the line there? Where is the logic?

[sideshow]

yes i do make less than 100k, and the line is an arbitrary number. make it 80k, make it 60k, make it 120k, whatever. it was just a number i threw out. if you make 100k plus, you can afford more tax. if not, boo hoo, quit crying and budget better.

[geoffrey]

yes i do make less than 100k, and the line is an arbitrary number. make it 80k, make it 60k, make it 120k, whatever. it was just a number i threw out. if you make 100k plus, you can afford more tax. if not, boo hoo, quit crying and budget better.

I see your point, and this is the argument for any tiered, or so called 'progressive' tax system. We currently have this in Canada. You pay more percentage the more you make. Interesting argument.

But my proposal is to have all Canadians pay a flat rate, maybe 20%, maybe 15%, who knows, it would take years of study to figure it out. The rich still pay more. Let's use my 20% number, 5% GST and an Alberta tax payer (because no PST and flat provincial tax makes it easy).

$100,000 a year income earner:

$20,000 in federal tax

$10,000 in provincial tax

~$2,000 in GST ($40,000 in consumption)

Total tax bill of around $32,000

$30,000 a year income earner:

$6,000 in Federal Tax

$3,000 in Provincial Tax

~ $750 in GST ($15,000 in consumption)

Total tax bill of around $9,750

So your tax bill is directly proportional to your income level. It's not that the rich pay the same as the poor, they still pay significantly more. It encourages people to earn more money without worrying about losing more money by upping to the next income tax bracket.

More incentive in a flat tax system.

There is also the argument (mostly from the Libertarian side) of a buy in fee. So a flat-tax in the sense that everyone pays the same AMOUNT. Now this I don't agree with whatsoever, though it does have some logical merit.

[August1991]

There is also the argument (mostly from the Libertarian side) of a buy in fee. So a flat-tax in the sense that everyone pays the same AMOUNT. Now this I don't agree with whatsoever, though it does have some logical merit.

It's referred to as a head tax, poll tax or a lump sum tax. Its advantage is that, because it's unavoidable, it doesn't distort behaviour. Perhaps for this reason, such taxes are very unpopular.

Most suggestions for a flat tax still have a basic personal exemption; this renders them more progressive and also simplifies their collection since many people would pay no tax at all.

You would still want to have RRSPs because this corrects for a time distortion between saving and spending.

You are also solely concerned with income (or consumption) tax and ignore wealth tax. And what about user fees?

IMV, tax discussions too often disregard the problem of tax evasion. Is the tax easy to collect?

[geoffrey]

There is also the argument (mostly from the Libertarian side) of a buy in fee. So a flat-tax in the sense that everyone pays the same AMOUNT. Now this I don't agree with whatsoever, though it does have some logical merit.

It's referred to as a head tax, poll tax or a lump sum tax. Its advantage is that, because it's unavoidable, it doesn't distort behaviour. Perhaps for this reason, such taxes are very unpopular.

Most suggestions for a flat tax still have a basic personal exemption; this renders them more progressive and also simplifies their collection since many people would pay no tax at all.

You would still want to have RRSPs because this corrects for a time distortion between saving and spending.

You are also solely concerned with income (or consumption) tax and ignore wealth tax. And what about user fees?

IMV, tax discussions too often disregard the problem of tax evasion. Is the tax easy to collect?

Thanks August, I was drawing a blank on the name of it.

Sorry, I never even thought about putting in a personal exemption into the equation. It's definitely a reasonable effort to get people into the workforce at the lower levels of income. However, it does simply create another tiered system where the lowest rung pays 0%. Never the less, pragmatically, the exemption would be needed.

RRSP's are reasonable tax deductions. We want people to save. Though it is simply deferring tax to a later date, where you assume your rate will be lower. If the tax is flat, then paying the tax now or later is really irrelevent.

Wealth tax is unreasonable, I don't like the idea. Wealth is such an ambiguous term. You could have millions in assets but be relatively cash poor depending on liquidity. Wealth tax would also be the easiest tax to evade, and therefore, we need something better.

User fees should apply to health care provision such as in Sweden, but other than that, what else would we need user fees for? The government shouldn't be in the business of operating many things that have user fees now.

Your passport, licenses and things like that make up a relatively small part of income and really aren't worth considering as user fees.

You've mentioned in another thread, on a different topic, the idea that the best laws are those that don't need to be enforced, that is, they enforce themself. This is where the head tax concept would prevail as ideal. A flat-tax with no deductions is very hard to evade as well.

[sideshow]

geoffery, i am not totally opposed to a flat tax-but i would have to see more information before making a decision. i do believe a personal exemption from tax (i beleive it is currently around 8k) would be a great thing (lets say the original 25k-but it could be 20 or 30).

i pay more tax than others, but i dont mind. i feel i have the ability to pay, so i should support those that are less able. my standard of living is good. i eat what i want, buy a few toys here and there, have a home that fits all my needs and drive nice vehicles. i never worry about being able to pay the bills, and i dont mind helping out so that others dont need to worry about paying theirs.

thats what is great about Canada-we are more about helping eachother than many, many other countries.

[Riverwind]

want people to save. Though it is simply deferring tax to a later date, where you assume your rate will be lower. If the tax is flat, then paying the tax now or later is really irrelevent.

RRSPs allow you to earn income without paying tax on it immediately. This means your investments will grow faster than they would otherwise which means there is an RRSP advantage even in a flat tax system.

That said, your comment illustrates why no flat tax system could last very long. There are literally thousands of 'worthy' reasons for tax deductions that have economic benefits (the capital gains deduction for example). Over time different politicians would simply create more exceptions that bring us back to the current system.

[Hicksey]

want people to save. Though it is simply deferring tax to a later date, where you assume your rate will be lower. If the tax is flat, then paying the tax now or later is really irrelevent.

RRSPs allow you to earn income without paying tax on it immediately. This means your investments will grow faster than they would otherwise which means there is an RRSP advantage even in a flat tax system.

That said, your comment illustrates why no flat tax system could last very long. There are literally thousands of 'worthy' reasons for tax deductions that have economic benefits (the capital gains deduction for example). Over time different politicians would simply create more exceptions that bring us back to the current system.

We don't need any deductions. The tax should be a consumption tax on all new goods. That way we pay as we consume new goods. If we don't consume, then we don't pay. And we don't pay until we consume. So if you want to save for your retirement you just save. No tax until you spend it. There would have to be a type of personal exemption at somewhere around $10K and different income levels and tax basements in each so when we file our taxes we would get money back if we paid more out than we were supposed to or pay some more if you didn't meet your basement.

The truly great part is that people would be able to control their own tax burden. If you don't need to buy something new you can buy used and save the tax you would have paid.

[mcqueen625]

I never thought I would start a thread with such a title, but there's alot of good sense here. I'm not so willing to believe that Brison will do any of this though.

Canada's piecemeal tax system is "antiquated'' and needs an overhaul because it hinders Canada's economic progress, Liberal leadership candidate Scott Brison said Wednesday.

Among his suggestions are the elimination of tax policies that keep people on welfare, allowing young Canadians to earn $25,000 a year tax-free, and slashing corporate taxes to help increase national prosperity.

"We need to face the fact that our mish-mash of antiquated, broken tax systems and patchwork of federal and provincial income support systems are actually holding Canadians back, perversely leaving poor Canadians stuck in a dead end in many cases,'' the 39-year-old Nova Scotian said as he laid out his economic prescription for the country.

Too many tax credits are clawed back from poor Canadians, and welfare systems don't lead them out of poverty, Brison said in one of his first major campaign speeches.

Canada's business and capital taxes are also too high in comparison to other countries such as Sweden and Ireland, he said.

To fix the tax system, Brison said he would reduce the "welfare traps'' that keep Canadians dependent on assistance by introducing a working income tax benefit, something the Liberals have put forward before.

Brison also outlined a plan to allow young workers to earn the first $25,000 tax-free in the first 12 years of their career.

National Post

The key phrase here seems to be "...something the Liberals have put forward before".

The fact is that Brison is right. Canada's tax system is increasingly disastrous. Whereas the US reformed its welfare system, we have done nothing of the sort. Those who should benefit do not, and the effect is merely to waste everyone's time. There are pernicious incentives that encourage people not to work even though they want to. This is further complicated by the different levels of government involved.

In general, things don't get fixed until the problem imposes severe costs. Over the past eight years, rising resource prices have made it easy for Canadian governments to ignore this problem.

Any tax system that allows the corporations and the rich to virtually pay little or nothing while ordinary working Canadians are forced to subsidize these tax-breaks for the rich is just wrong. Every time the Liberal's under both Chretian and Martin fiddled with the tax system it was done so with the corporations and the rich in mind. This unfair system has virtually eliminated the middle-class in this country to the point that one is either rich or poor, there is really no in between anymore. At one time taxes were roughly divided roughly 50/50 between Canadian's and the corporate sector. Now we have the corporate sector paying only about 18% according to the last article I read some years ago. Today it is likely even more in the favour of the corporate sector while the poor Canadian people continue to pay the lion's share of the tax-burden. What would be fair is for Canada to have a flat tax rate, with the first $10,000.00 being exempt, as well as expenses for medical needs, and that shouldn't include membership in exclusive private medical insurance schemes as was suggeested by some corporations in order to skirt around the public system of Medicare.

[Riverwind]

Any tax system that allows the corporations and the rich to virtually pay little or nothing while ordinary working Canadians are forced to subsidize these tax-breaks for the rich is just wrong.

I don't get. Why should corporations pay any income tax? All they can do with the money is save it or invest it in expanding the company. As soon as the company pays out the money in any form (dividends, salary, etc) to a real person the recipiant pays tax on it. In other words, the gov't will also get its share of corporate income one way or another.

The only real issues are caused by transnational corporations who make a profit in Canada and send that profit to people living in other countries. In those cases, the gov't could be justified is charging a withholding tax of some sort .

[geoffrey]

Any tax system that allows the corporations and the rich to virtually pay little or nothing while ordinary working Canadians are forced to subsidize these tax-breaks for the rich is just wrong.

I don't get. Why should corporations pay any income tax? All they can do with the money is save it or invest it in expanding the company. As soon as the company pays out the money in any form (dividends, salary, etc) to a real person the recipiant pays tax on it. In other words, the gov't will also get its share of corporate income one way or another.

The only real issues are caused by transnational corporations who make a profit in Canada and send that profit to people living in other countries. In those cases, the gov't could be justified is charging a withholding tax of some sort .

100% agreed. Charging businesses taxes is a completely ridiculous idea. Eliminating corporate tax would be a big competitive advantage for Canadian businesses. All profit is taxed eventually.

The witholding tax would be neccessary to some extent, though it would be essientially a tariff. It would be unlikely to fly under NAFTA.

[Riverwind]

The witholding tax would be neccessary to some extent, though it would be essientially a tariff. It would be unlikely to fly under NAFTA.

Income taxes are covered under a seperate tax treaty which allows withholding taxes.

[geoffrey]

The witholding tax would be neccessary to some extent, though it would be essientially a tariff. It would be unlikely to fly under NAFTA.

Income taxes are covered under a seperate tax treaty which allows withholding taxes.

You still don't think the US or our other trading partners would protest? Do we really want to discourage foreign participation in our markets?

It may be legal under said tax treaty, but this is pretty much turning the market on its head. I don't think conventional laws would apply.

As well, the NDP and many Liberals would likely protest. I mean, these living breathing corporations are just eatting up all these dollars, not giving any to shareholders or employees, and no one benefits from corporations making money!

[Riverwind]

You still don't think the US or our other trading partners would protest? Do we really want to discourage foreign participation in our markets?

The US gov't keeps 15% of the dividends I receive from US corporations. They can hardly complain if Canada does the same.