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Family Tax Splitting


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But the question is, why should they have any business expenses to deduct? Just give businesses the same tax structure (play with the percentage as much as you like), and let them fend for themselves. The vast, vast majority of businesses would come out ahead on a flat tax system.

NO ONE NEEDS DEDUCTIONS!

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But the question is, why should they have any business expenses? Just give businesses the same tax structure (play with the percentage as much as you like), and let them fend for themselves. The vast, vast majority of businesses would come out ahead on a flat tax system.
You misunderstand. If a business makes cars they have to pay for steel and for people to turn the steel into a car. The cost of the steel and the labour is a business expense that can be deducted against the company's earnings. You can never get rid of those deductions unless you want to make most businesses uneconomic.
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BS. Car manufacturers purchase steel and pay personnel. They pass those costs onto consumers directly in the price of their products. By allowing them to deduct these as non-taxable expenses, the government covers the costs. The taxpayer supplies the government, so ALL taxpayers are paying for the costs to produce the products that only SOME taxpayers buy.

Communism.

If they can't be profitable by assessing a proper price point, they should get out of the business.

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If I operate a lemonade stand, and I hire a person to mix and sell the drink and then I deduct the employee and the raw materials cost from my taxable income, then it is false income and taxpayers are responsible.

Package of lemonade $1.00 (makes 10 glasses)

Employee (paid piece-work) $0.10 per glass

Cost of one glass $0.20

Glass sells for $1.00

Total revenue $10.00

Tax paid at 36% = $3.60

Profit of $6.40

If I can deduct the costs pre-tax:

Total revenue $10.00

Less expenses of $2.00

Adjusted revenue of $8.00

Tax paid at 36% = $2.88

$3.60 - $2.88 = $0.72

Who makes up the missing $0.72? The taxpayers.

Now, what if these numbers were in the billions? All of a sudden it becomes $720,000,000 in missing tax that should have been paid by the manufacturer.

How does your tax-paying rear end feel now?

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If I operate a lemonade stand, and I hire a person to mix and sell the drink and then I deduct the employee and the raw materials cost from my taxable income, then it is false income and taxpayers are responsible.
Most business do not operate with anything close to the profit margin that you used in your example. Try doing your calculations based on a business with a more realistic profit margin:

Package of lemonade $1.00 (makes 10 glasses)

Employee (paid piece-work) $0.10 per glass

Cost of one glass $0.20

Glass sells for $0.25

Total revenue $2.50

Tax paid at 36% = $0.90

Loss of $0.40

As you can see a business which would be economical is rendered uneconomic by a stupid tax system. The net result is the business will close and the gov't gets nothing.

However, the gov't could allow the company to deduct its input costs and only tax the added value. In this case the gov't gets $0.18 and the company has a profit of $0.32. This means the tax payer is $0.18 ahead compared to your system where the taxpayer gets nothing.

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Then a glass of lemonade in Canada has to cost more than $0.32.

$0.32 per glass

$3.20 gross revenue

$3.20 X 36% = $1.15 tax paid

$2.00 input costs

$0.048 net profit (break-even point)

Obviously, you would have to charge more than $0.32 a glass or you are stupid and deserve to go bankrupt. Why should taxpayers have to account fot the additional tax in order for the seller to make more money?

Math can show anything you want. Just look at polls.

My idea can beat up your idea.

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If I operate a lemonade stand, and I hire a person to mix and sell the drink and then I deduct the employee and the raw materials cost from my taxable income, then it is false income and taxpayers are responsible.
Most business do not operate with anything close to the profit margin that you used in your example. Try doing your calculations based on a business with a more realistic profit margin:

Package of lemonade $1.00 (makes 10 glasses)

Employee (paid piece-work) $0.10 per glass

Cost of one glass $0.20

Glass sells for $0.25

Total revenue $2.50

Tax paid at 36% = $0.90

Loss of $0.40

As you can see a business which would be economical is rendered uneconomic by a stupid tax system. The net result is the business will close and the gov't gets nothing.

However, the gov't could allow the company to deduct its input costs and only tax the added value. In this case the gov't gets $0.18 and the company has a profit of $0.32. This means the tax payer is $0.18 ahead compared to your system where the taxpayer gets nothing.

The taxpayer got super-cheap lemonade, and the government (ie. taxpayer) got $0.90. The seller was stupid.

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However, the gov't could allow the company to deduct its input costs and only tax the added value. In this case the gov't gets $0.18 and the company has a profit of $0.32. This means the tax payer is $0.18 ahead compared to your system where the taxpayer gets nothing.
The taxpayer got super-cheap lemonade, and the government (ie. taxpayer) got $0.90. The seller was stupid.
You are assuming the seller had the option of charging more for the lemonade. Most businesses don't have that luxury. For example, assume the business was making car parts instead of lemonade and was competing with a manfacturer in the US with the same input costs but a more sensible tax system. The US based manufacturer would be able to sell the parts for $0.25 each and make a profit of $0.032/unit. The Canadian business would have to sell them for $0.36 to make the same profit. Guess which company the car maker would buy the parts from?

Foreign competition is not the only reason - the system would make it prohibitively expensive to import many products. For example, a car dealer might import a car for $30K and sell it for $32K. Under your system the dealer would have to charge 46K for the same car just to break even. Seems to me the consumer/taxpayer is the biggest loser.

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And that, my friend, is the arguement against high taxes.The 36% number I used absolutely demonstrates why high taxes on any level are detrimental to trade and the economy etal.

Take any example and reduce the tax number to where we become competitive. This is also why governments needs to be reasonable in their spending habits. Too much spending equals too much taxation which equals too much harm to the country's economy.

Simple fix for your example:

Drop the tax rate and stimulate the economy.

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Take any example and reduce the tax number to where we become competitive. This is also why governments needs to be reasonable in their spending habits. Too much spending equals too much taxation which equals too much harm to the country's economy.
Any non zero tax rate under your system would make certain kinds of business uneconomical. IOW, the tax system would reward businesses that make tonnes of money shuffling money around and penalize businesses that have low margins because they actually produce something new. If you think carbon tax is bad for Alberta's oil patch - the system you propose with any non-zero tax rate would be a lot worse.

Now if you want to argue that corporations should pay zero tax then your model would at least make economic sense even though it would shift the tax burden to individuals. I am not entirely opposed to that model but it does have some deficiencies that could be addressed but that is a discussion for another day...

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New way

$2.00 input cost on 10 units

$2.50 gross revenue on 10 units

$0.125 tax paid @ 5% tax on gross revenue

$2.25 total input and tax

$0.37 net profit

$0.038 net profit per unit

Old way

$2.00 input cost on 10 units

$2.50 gross revenue on 10 units

$0.50 gross profit

$0.18 tax paid @ 36% tax on gross profit

$0.32 net profit (after tax) on 10 units

$0.032 net profit per unit

Now who is competitive? Your way is 36% tax, my way is 5%.

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I'm confused by this lemonade stand discussion.

Under a flat tax, there would be no corporate tax and no tax on profits. The only tax would be on the income of individuals. If profits are paid out as dividends or earnings to an owner, then they would be taxed at the flat rate.

Riverwind is correct to say that this is not as simple as Hydraboss implies but it would be simpler than what we have now.

I disagree with Hydraboss's suggestion to do away with RRSPs and pension exemptions. Savings should not be taxed.

I'm not sure a single rate is good either. And what about child tax credits? Abolishing these would be political suicide.

Taxes exist in a political world. It is foolish to think of them theoretically without the political context.

Well, fools rush in where angels fear to tread. Frankly, I would prefer to abolish income tax entirely and rely solely on the GST and environmental charges, carbon tax, road fees and the like.

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There is a huge difference between 5% and 0%, it is simply a matter of how large the numbers are that you start with.

Now the sales tax idea has merit, but only if you extend it to personal tax as well. However, you will hear the defenders of the low income earner scream and howl if the proposal is to do away with income tax and income tax free status.

I love the idea of consumption taxes only, but then I am not a low income earner.

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August, I don't disagree on the "no corporate tax" point. I was only reacting to the suggestion of how a flat tax system would affect business taxes if they were left intact.

I have been pointing out that the flat tax system would be more simple and much cheaper to administer. As for RRSP's and such, this money was taxed at the time of earning and should be. To try and encourage people to save by making it income tax reducible leads down the path that got us in this overly-complicated system to start with. Everyone pays fair tax on all income.

As for child tax credits, get rid of them. Political suicide? The whole flat tax concept would be political suicide. Again, I am just pointing out that there are extremes at either end, and something acceptable somewhere in the middle.

One must look to lofty goals if they are to accomplish lofty things.

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There is a huge difference between 5% and 0%, it is simply a matter of how large the numbers are that you start with.
I am saying there is no practical difference between a 5% corporate tax on gross revenue and a 5% sales tax on gross sales. They both will produce the same amount of revenue and have the same economic impact.
I love the idea of consumption taxes only, but then I am not a low income earner.
The tax base should be as diverse as possible so relying completely on consumption taxes is a bad idea, however, I also agree that the GST should go up and income taxes should be lowered.

I think corporations should pay 0% tax and the money should only be taxed when it is shifted outside the corporation. However, that would result in a huge loss of income for the Canadian gov't because a lot of corporate income goes to people who do not pay Canadian taxes.

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Actually, consumption taxes provide the widest base possible. However, it subjects the governments tax revenue stream to the whim of the consumer. If times are hard, people do not spend as much and the tax revenue falls. This can endanger government funded programs that are crucial. Not all, but some.

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Actually, consumption taxes provide the widest base possible. However, it subjects the governments tax revenue stream to the whim of the consumer. If times are hard, people do not spend as much and the tax revenue falls. This can endanger government funded programs that are crucial. Not all, but some.
Yeah, but a 30% consumption tax would hurt the economy more than a 15% consumption tax and a 15% income tax rate
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And, finally, we are introducing a major positive change in tax policy for pensioners. We will permit income splitting for pensioners beginning in 2007. This will significantly enhance the incentives to save and invest for family retirement security.
National Post

The Tories go for the rich retired vote. I wonder how many marriages of convenience we'll see in retirement homes.

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Question: I guess a quick follow. I’m not quite sure on the overall price tag to the government here. Can you tell me what all the tax changes will end up costing the government on revenue?

Hon. Jim Flaherty: If you look in the backgrounder -- do you have the backgrounder? No. Well, you’ll have it. On page 7 there’s a chart. We would have had some material but you’ll appreciate there’s only a few people knew about this so I didn’t have -- we didn’t have people to do all sorts of things that would often be done. The backgrounder outlines the cost of the increase of the age credit which is approximately $350 billion -- I’m sorry, $350 million. The income splitting for pensioners which grows over time to approximately $700 million. And then the .5 percent general corporate tax rate reduction which doesn’t come into force until 2011, 2010, 2011. And so you add all those up and then we will be getting revenue from publicly-traded flowthrough entities, income trusts, farther down the road after four years. The net cost going out at the four-year mark is 1.24, so one billion, 240 million dollars.

National Post

The bottom line on this is that senior citizens are going to get a nice tax cut and everyone else is going to pay more.

Four years hence, the bulk of the $1.24 billion net tax cut (about $1.05 billion) will be going directly to seniors.

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The Tories go for the rich retired vote. I wonder how many marriages of convenience we'll see in retirement homes.
Marriages of convenience.... hmm....

Here is an idea: we should push for the redefinition of marriage to include polygamy and pets! That way we can all become one great big happy family and beat our "government" at its own game. The Church of Anarchy would gladly perform such a ceremony.

It sounds like I was right:

Descriminating based on marital status makes no sense -- unless you want to be unfair or you want to buy votes.

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I wonder what benefit income splitting is really going to provide. The middle class lives in a largely double income world. The rich can afford to have one partner at home and the poor may see little benefit anyways. My thinking is that the people most likely to put their money into income trusts - the middle class, will see little benefit from income splitting, and certainly not enough to compensate them for the huge haircut they are goin to take from this sandbagging.

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