$6.7 billion Surplus? Cut Taxes

[blueblood]

either way there is a lot of ways to spend this money, just seeing what they did to the crime bill gave me an idea, one penitentiary to end all penitentiaries up in the arctic, and hopefully with that three strikes thing coming in we're gonna need more jail space.

[August1991]

I don't have any debt, I always made a point of paying off what I did have as fast as I could.

You are one person. You are not a collective of several million people.

Canada, taken as a whole, will always have a debt. Today, somewhere in Canada, a young family just fearfully signed their first mortgage, going into tremendous debt. As that family starts to pay off the debt, another young family will sign another mortgage. There will always be debt in Canada and that's a good thing.

----

If I go back to the OP, I think Harper should do as the Liberals keep saying and truly imitate Bush south of the border. Harper should not only cut taxes to eliminate the surplus. Harper should make really large tax cuts and push the budget into deficit.

At worst, this would prevent a possible Bob Rae government from spending more money because it would be obsessed with the deficit.

[geoffrey]

And I'd likely pay off my 17.5% debt before the 4% if I were into paying off debt.

Why are you paying 17.5% interest? Can't you get a line of credit at your bank to pay off your credit card debt?

Yup, I have a line of credit, still higher than 4%... I don't have a nice cozy house to secure it with, give me a break, I'm a youngin .

Point is, I pay more on interest than the government does. And I don't pay of debt right away... if I can make more on an investment, I do that instead. I have a little bit of debt, but a rather decent portfolio because of it. Rather than just having no debt/no money.

[Riverwind]

If I go back to the OP, I think Harper should do as the Liberals keep saying and truly imitate Bush south of the border. Harper should not only cut taxes to eliminate the surplus. Harper should make really large tax cuts and push the budget into deficit.

Whether you like or not running a deficit is a sign of gov't incompetence. For that reason alone no Canadian politician can afford to do such a thing.

[Wilber]

You are one person. You are not a collective of several million people.

True, but carrying a lot of debt leaves you vulnerable to the vagaries of the world economy whether an individual or a country. Perhaps I am different from many on this forum because when I was carrying most of my debt, interest rates were in or near double digits. I saw people loose their houses because they couldn't afford to renew mortgages when rates went sky high. I was lucky enough to escape that but haven't forgotten it.

[Wilber]

Yup, I have a line of credit, still higher than 4%... I don't have a nice cozy house to secure it with, give me a break, I'm a youngin .

Good, I was starting to wonder if you aren't as smart as you seem to be when it comes to other things.

[Jerry J. Fortin]

I am an Albertan, so my opinion with respect to the federal debt is rather tainted. In my opinion Albertans have no debt to repay, the rest of you folks who have been receiving transfer payments may owe the nation but Alberta has more than paid its way for a generation or so. The debt issue is a troubling one to be sure, but again it has no impact on my little corner of the world other than the personal impact of the legalized fraud perpetrated upon my fellow Albertans and myself of having to cover the burden of debt incurred by others.

If the nation decides not to retire its debt load then taxation is a foregone conclusion is it not? Given the current sentiment about tax reduction I would suggest the best way to achieve that is through debt reduction. It is not merely enough to balance revenues with expenditures as the government has done through the budget process that is currently used because the surpluses are outside of the parameters and are spent without Parlimentary consideration. In order to achieve tax reductions then debt has to be eliminated in order to preserve services. Reducing services while retaining debt is the same as an arbitrary reduction in the national standard of living. Granted that the current field of economic rocket scientists subscribes to this view, it does little but serve to cement the government relationship with financial institutions and represents a net transfer of wealth from citizens to the corporate sector. One has to wonder what the function of government should be with this in mind. They take our money and spend it. Sometimes we recieve some services and programs for it, but most of the time we just feed a large bureaucracy and stuff some corporate pockets. These are deep pockets you understand, so deep that they seem to be bottomless! There is no end to government spending when they simply call Fred the banker and tell him to create some interest bearing debt for them and in return the government creates some paper based on the tax paying citizens ability to cover the debt load. The entire system is designed to transfer wealth from lots of little guys to a hell of a lot fewer big guys who are wholly supported by a political system based on an economic model of extreme capitalistic pratices.

It is my hope that a newly created nation, such as Alberta, would utilize their own financial institution and capacity (Alberta Treasury Branch Financial) to leverage capital in a different manner. The manner of which I speak is one in which the productive efforts of citizens can be realized without government intervention or invasion within the private lives of citizens. Without national debt the need for income taxes is eliminated. While taxes will always be required to provide a revenue stream for the government to utilize on behalf of citizens, those programs and services that citizens desire can be managed in a far different manner. That is the other side of the equation, the method of service delivery and the design of public programs. These little problems represent the design flaws of the present system, and highlight the need for serious reformations in government.

Simply not paying the public debt or cutting income taxes fail to address the main problem facing both citizens and nations around the world. The real problem is weath creation and transfer. Unitl the moral issues around this are examined and a fundemental change in society occurs, poverty and debt need to be recognized as manifestations of an economic disease that plagues modern society.

[August1991]

Whether you like or not running a deficit is a sign of gov't incompetence. For that reason alone no Canadian politician can afford to do such a thing.

That's unfortunate. Canada, despite our natural riches, has always been poorer because of such reasoning. Quebec even more so. It is frustrating.

Un petit peuple né pour un petit pain.

[August1991]

The manner of which I speak is one in which the productive efforts of citizens can be realized without government intervention or invasion within the private lives of citizens.

Government is a useful institution that can perform tasks difficult to anyone else. If you have a child, like it or not, you're a parent for life. Similarly, governments can tax.

Both family and government are useful - but different - ways to organize life in a civilized society. Both are different solutions to different problems.

This may sound absurdly cold but I view government debt this way. It is good if it helps people manage their life better just as family is good if it helps people to manage better.

[Hydraboss]

I am an Albertan, so my opinion with respect to the federal debt is rather tainted. In my opinion Albertans have no debt to repay, the rest of you folks who have been receiving transfer payments may owe the nation but Alberta has more than paid its way for a generation or so. The debt issue is a troubling one to be sure, but again it has no impact on my little corner of the world other than the personal impact of the legalized fraud perpetrated upon my fellow Albertans and myself of having to cover the burden of debt incurred by others.

If the nation decides not to retire its debt load then taxation is a foregone conclusion is it not? Given the current sentiment about tax reduction I would suggest the best way to achieve that is through debt reduction. It is not merely enough to balance revenues with expenditures as the government has done through the budget process that is currently used because the surpluses are outside of the parameters and are spent without Parlimentary consideration. In order to achieve tax reductions then debt has to be eliminated in order to preserve services. Reducing services while retaining debt is the same as an arbitrary reduction in the national standard of living. Granted that the current field of economic rocket scientists subscribes to this view, it does little but serve to cement the government relationship with financial institutions and represents a net transfer of wealth from citizens to the corporate sector. One has to wonder what the function of government should be with this in mind. They take our money and spend it. Sometimes we recieve some services and programs for it, but most of the time we just feed a large bureaucracy and stuff some corporate pockets. These are deep pockets you understand, so deep that they seem to be bottomless! There is no end to government spending when they simply call Fred the banker and tell him to create some interest bearing debt for them and in return the government creates some paper based on the tax paying citizens ability to cover the debt load. The entire system is designed to transfer wealth from lots of little guys to a hell of a lot fewer big guys who are wholly supported by a political system based on an economic model of extreme capitalistic pratices.

It is my hope that a newly created nation, such as Alberta, would utilize their own financial institution and capacity (Alberta Treasury Branch Financial) to leverage capital in a different manner. The manner of which I speak is one in which the productive efforts of citizens can be realized without government intervention or invasion within the private lives of citizens. Without national debt the need for income taxes is eliminated. While taxes will always be required to provide a revenue stream for the government to utilize on behalf of citizens, those programs and services that citizens desire can be managed in a far different manner. That is the other side of the equation, the method of service delivery and the design of public programs. These little problems represent the design flaws of the present system, and highlight the need for serious reformations in government.

Simply not paying the public debt or cutting income taxes fail to address the main problem facing both citizens and nations around the world. The real problem is weath creation and transfer. Unitl the moral issues around this are examined and a fundemental change in society occurs, poverty and debt need to be recognized as manifestations of an economic disease that plagues modern society.

Looks like I found my new Minister of Finance....

...or maybe the new Minister of Morality for the new Nation of Alberta (also referred to as Hydrabossia LLP).

Now back to our regularly scheduled programming.............

Countries rely on debt to issue against and borrow against. However, they can also issue and borrow against incoming debt, ie. the amount of money that it's citizens owe it. By transferring the national debt to it's citizens, Canada would be in a much better position to issue bonds against itself, as the bonds would be stronger on the world market. Will there always be personal debt in Canada? God, I hope so. The days of saving up and paying for a house in cash were over long before I was born. However, personal debt does not affect the finances of a country per se.

Why, then, would we consider such a thing? To stave off the negatives that will attach themselves to the eventual (hopefully!) separation of Kwebek and Alberta. Once they seek to become independant, there will be no debt-related financial details to work out. Will the citizens of these new "nations" continue to pay? Not a chance in hell.

But when it comes time to deal on a nation to nation basis....

Hey Len, 'member that 20 bucks you owe me?

That's right. The ROC can use it as a bargaining chip, or leverage if you prefer. Alberta, however, will no doubt pay what it owes just to be free of the welfare-sucking Canadian machine. So there you go, the ROC WILL see some of it's money afterall. And if it's own citizens are "a little sluggish" to make good on their debts.......the bond markets will continue to grow.

One more thing. If Canada were to adopt the US model of being able to write off mortage interest against taxable income in their outdated Canadian system, then the government could easily calculate the break-even point for it's citizens and actually capitalize on the incoming (but never paid) debt that it carries for it's people without ever costing those people any additional money.

[Riverwind]

If Canada were to adopt the US model of being able to write off mortgage interest against taxable income in their outdated Canadian system

Allowing mortgage interest deductions is bad economic policy. Most people will pay as much for a home as they can afford. Decreasing the cost of home ownership would simply encourage people to bid up the price of housing until the prices reach a new level where housing is no more affordable than it is today. Furthermore, such policies discriminate against taxpayers who choose to pay off their mortgage or rent because they would have to pay higher taxes in order to offset the taxes lost by subsidizing home owners with debt.

Incidently, I thought you liked flat taxes - why would you advocate adding yet another deduction to the mix?

[Hydraboss]

Naw, I was just playing with the situation. I don't really believe in any deductions, I was just offering an additional "add-on" to paying off the debt.

As for decreasing the cost of home ownership, I don't know about the ROC, but in Alberta they now have zero downpayment, 40 year mortages at 5.5%. My banker told me that there is an application to extend to 50 year. You can't decrease the initial cost any more than that. Talk about leading people down the garden path.

[Wilber]

One more thing. If Canada were to adopt the US model of being able to write off mortage interest against taxable income in their outdated Canadian system, then the government could easily calculate the break-even point for it's citizens and actually capitalize on the incoming (but never paid) debt that it carries for it's people without ever costing those people any additional money.

One thing about the American model. You pay capital gains on what you make on your house when you sell unless you buy another of equal or greater value.

[August1991]

Countries rely on debt to issue against and borrow against. However, they can also issue and borrow against incoming debt, ie. the amount of money that it's citizens owe it. By transferring the national debt to it's citizens, Canada would be in a much better position to issue bonds against itself, as the bonds would be stronger on the world market.

I have read that phrase several times and I'm lost. Should Canada borrow?

To stave off the negatives that will attach themselves to the eventual (hopefully!) separation of Kwebek and Alberta. Once they seek to become independant, there will be no debt-related financial details to work out. Will the citizens of these new "nations" continue to pay? Not a chance in hell.

But when it comes time to deal on a nation to nation basis....

Hey Len, 'member that 20 bucks you owe me?

That's right. The ROC can use it as a bargaining chip, or leverage if you prefer.

Debt? Bargaining chip? You gotta be kidding.

There will be many, many bargaining chips. Debt will be a minor detail because both governments would want to preserve their reputations. They'll both agree quickly on debt because the politicians are always spending someone else's money.

Hydraboss, you just don't seem to get this. You think that if a politician uses your TD Bank debit card rather than your Visa, she's a good responsible politician. It's OK to buy if they don't borrow!

Who cares whether a politician uses your debit card or credit card to buy something? What matters is whether the politician spends your money - regardless of the card. Politicians spend other people's money. Obsessed as you are about government debt, you don't get that key point.

----

I'm going to be possibly insulting now - no harm meant.

Sometimes I think you Albertan yokels are ripe to be taken to the cleaners. Your simplistic "never borrow" homilies merit the wealth you lose because of them.

Anyway, it was pure chance that oil was found under Albertan soil. Easy come, easy go. Despite what Kimmy has said about her family, Albertans didn't work to get their current wealth. It was the chance of geology, like the chance of genetics.

How many hockey players, runway models and lottery winners lost their earnings to agents, accountants and lawyers? Alberta? Same story.

[Remiel]

I can see why some government debt might be necessary, but I think it should be a lot less than it is now, which is somewhere around $550+ billion, right? It would be nice to see it cut down to about a figure equal to the actual government spending each year, which, if I recall, is around $186 billion? My numbers may be off, but I imagine you can get the gist of what I am suggesting.

[August1991]

One more thing. If Canada were to adopt the US model of being able to write off mortage interest against taxable income in their outdated Canadian system, then the government could easily calculate the break-even point for it's citizens and actually capitalize on the incoming (but never paid) debt that it carries for it's people without ever costing those people any additional money.

That's like Garth Turner's idea about tax-splitting. You want to foist more taxes on renters and reduce the taxes on people who buy their home.

Joe Clark wanted to bring the American mortgage-deductibilty scheme to Canada. Joe Clark.

Our tax system is already biased in favour of homeowners and against renters. (Renters pay rent with after tax dollars. Owners don't pay rent and so don't pay tax for the use of their home. Property tax? You're missing the point.)

Confronted with this argument, my father always argued that homeowners are better citizens in a democracy.

I think that homeowners move less often because it is costly. Renters move around more easily. IMV, the definition of poverty is having fewer choices. Rich people have the freedom to choose.

[bradco]

A few questions that maybe someone can answer:

1. What portion of the national debt is financed domestically? I see little problem in having debt where the interest is paid to domestic actors. But if the interest is going to other countries, IO's etc is that not a net loss? Does it work this way?

2. A few people in here are arguing for a tax cut with the surplus. A tax cut of $6.7 billion would increase consumption a large amount, no? How much effect would this increase in consumption have on inflation seeing that the economy is running near its potential level if Im not mistaken. I think we can all agree that keeping inflation within the BOCs target range is an important factor to consider.

[August1991]

2. A few people in here are arguing for a tax cut with the surplus. A tax cut of $6.7 billion would increase consumption a large amount, no? How much effect would this increase in consumption have on inflation seeing that the economy is running near its potential level if Im not mistaken. I think we can all agree that keeping inflation within the BOCs target range is an important factor to consider.

If the government pays down the debt, then the borrowers will be reimbursed and they're just as likely to spend the government cheque as Geoffrey with his tax cut.

Bradco, Keynes died in 1946. Most economists today appreciate his invention of macroeconomics but that's about all.

1. What portion of the national debt is financed domestically? I see little problem in having debt where the interest is paid to domestic actors. But if the interest is going to other countries, IO's etc is that not a net loss? Does it work this way?

Most of the federal debt is held by Canadians and it is denominated in Canadian dollars. (No quick stats at hand.)

Does this matter? Not really.

In a macro sense, your point in Question 2. above is taken. Reimbursing debt held by foreigners has different implications.

More broadly, should the Canadian government treat Canadian lenders any differently than foreign lenders? Does it matter to a Canadian taxpayer whether her agent - the Canadian government - has borrowed on her behalf from a foreigner or a Canadian? Does it matter to you whether your mortgage is held in fact by the Bank of Montreal or the Bank of America?

Collectively, we have borrowed and we owe principal and interest. Like a mortgage, it is the conditions of the loan that matter. Not who holds the loan.

[Hydraboss]

August, all points well taken. By the way, I DO get it (hyuk, hyuk). What would I truly like done with the debt? Split out Alberta's per capita portion (there is no other way that could be agreed upon) and let the NATIONAL Alberta gov carry it. As you have said, it doesn't matter who holds the note because that doesn't matter to the borrower. Guess what, it doesn't mean a hell of a lot to the lender either as long as the borrower is stable. Alberta would be viewed as a hell of a lot more stable post-separation than other provinces...say...Kwebek.

As a nation, Albertans can decide how to approach the debt reduction (notice I did not say elimination) while maintaining our lifestyle. Inflation is a problem that can be somewhat controlled within the financial borders of a country. Good luck, Canada.

I can see how well the rest of the provinces have dealt with their debt, and I'm glad Alberta didn't continue down that garden path. It sure is nice when regions with increasing or at the least barely-manageable debt loads give advice to the poor yokels (no offence taken). By the way, has anyone noticed that the fact is Alberta could pay off it's debt, but it hasn't because it is using that money in higher interest bearing investments that exceed the servicing cost of the remaining provincial debt.

The ROC would be essentially screwed if Alberta decided not to keep up the influx of over-taxation money (ie. stolen). Poor Ontario would have to keep the rest of the country afloat. Want tax-splitting? Fine. Lets add up all the provincial and federal revenue in the country, and Alberta will pay it's share based on a per capita formula, instead of oil and gas revenue. Think that might end the gravy train? It's the same as letting couples split income. If we can only have one other province or territory to split with (monogomous, you know) then I choose YK. Let's see how the numbers work out now.

As for my comment about mortage interest, there is nothing wrong with the idea. But it does not operate in a bubble, it has to come with a lot of other policies as Wilbur pointed out.

The gov of Canada has done an atrocious job of managing what should be money in trust. Anyone who can continue to put faith in the feds would have to be a yokel. Some of us are sick of it and will do what we can to end the thievery.

[Renegade]

Yup, I have a line of credit, still higher than 4%... I don't have a nice cozy house to secure it with, give me a break, I'm a youngin .

Point is, I pay more on interest than the government does. And I don't pay of debt right away... if I can make more on an investment, I do that instead. I have a little bit of debt, but a rather decent portfolio because of it. Rather than just having no debt/no money.

Geoffrey, you reasoning would imply that the government should take on MORE debt, pass the money on to the citizens so that they pay off their personal debt.

Let's look at this situation in the extreme. Let's say ALL personal debt was transfered to the the govenment. If I had debt, but was paying little or taxes this would be a great situation for me, as essentially I have passed on my debt obligations to my fellow citizens. Similarly if I had no debt but was paying high taxes, the situation would be absymal. I would essentially be paying interest on eveyone elses debt.

Personal and government debt cannot be mixed because the commitments have been made by different entities, so the logic you use cannot apply as it would result in huge inequities.

[geoffrey]

Geoffrey, you reasoning would imply that the government should take on MORE debt, pass the money on to the citizens so that they pay off their personal debt.

Yes and no. There is a positive to that decision, I really struggle with how you guys can't see the simply math involved. The downside is that increased government borrowing means that businesses have to fight the government for funds, and interest rates on government debt will rise. Then the whole point is lost.

The simple issue at hand is pay down the debt or not. I say not. My debt needs servicing faster.

Let's look at this situation in the extreme. Let's say ALL personal debt was transfered to the the govenment. If I had debt, but was paying little or taxes this would be a great situation for me, as essentially I have passed on my debt obligations to my fellow citizens. Similarly if I had no debt but was paying high taxes, the situation would be absymal. I would essentially be paying interest on eveyone elses debt.

That's not what I'm saying. I'm saying cut taxes so we can pay off our debt rather than the government paying off really low interest debt. I agree that all transfers of wealth are troublesome, you'll never find me supporting such a concept.

Personal and government debt cannot be mixed because the commitments have been made by different entities, so the logic you use cannot apply as it would result in huge inequities.

What are you talking about? I'm saying issue the surplus back to Canadians on a paid in basis. You pay more tax, you get more back. You pay no tax, you get nothing. Ralph bucks but a little more effective. Then the next year, cut $13b or whatever the surplus was out of the revenues to government, and see where we are.

[Renegade]

Yes and no. There is a positive to that decision, I really struggle with how you guys can't see the simply math involved. The downside is that increased government borrowing means that businesses have to fight the government for funds, and interest rates on government debt will rise. Then the whole point is lost.

I struggle with it because the math is far from simple. Your analogy that government debt is cheaper than personal debt and so the government should apply any available funds to tax cuts is simplistic. Let's look at some of the implications.

1. People who have low or no personal debt don't really benefit from this reasoning. The interest rate they get on the money returned to them in the form of tax cuts is vastly less than what it costs government to service its debt. So for them, the analogy doesn't hold.

2. People who pay no or little taxes don't really get the benefit of the interest rate differential. In fact they are better off if the government pays down the debt as in the long term, as reduced debt leads to reduced interest payments, which leads to greater funds available for program spending.

Don't misunderstand my points. I AM in favour of tax cuts. I am also in favour of some reduction in debt. I think a balanced approach makes more sense to address most objections.

The simple issue at hand is pay down the debt or not. I say not. My debt needs servicing faster.

Yes, it may be better for your personal circumstance that you get a tax cut, however, it doesn't mean it is better for everyone.

That's not what I'm saying. I'm saying cut taxes so we can pay off our debt rather than the government paying off really low interest debt. I agree that all transfers of wealth are troublesome, you'll never find me supporting such a concept.

All I'm saying is you need to do some of each.

I'm saying issue the surplus back to Canadians on a paid in basis. You pay more tax, you get more back. You pay no tax, you get nothing. Ralph bucks but a little more effective. Then the next year, cut $13b or whatever the surplus was out of the revenues to government, and see where we are.

Personally I'd agree with that approach. People who think it is a government duty to deliver program spending may disagree.

[bradco]

"should the Canadian government treat Canadian lenders any differently than foreign lenders? Does it matter to a Canadian taxpayer whether her agent - the Canadian government - has borrowed on her behalf from a foreigner or a Canadian?"

It just seems to be better for national interest to pay interest to Canadians rather than foreigners. Therefore it seems to make more sense to pay down foreign debt first. Obviously that is complicated by what the agreement is for the repayment.

Im of the pay down the government debt crowd. Im not saying that having debt is bad but its at an unreasonable level. When the government shells out billions in interest payments a year we're missing out on a lot. For me there are moral implications as well. It is the younger generations who have been shafted by the debt by being forced to pay interest on a loan they recieved no benefits from. Individuals willingly took loans out because they decided the benefits of doing so outweighed the costs of the interest. The government debt should be paid down so that people who gain no benefits from it dont have to keep paying a ridiculous amount of interest on it.

Either way, putting this money to paying down the debt was a political move. Harpers hands were pretty much tied. If he cut taxes he would have the left screaming, if he spent it the right would be screaming. If he split it neither side would be happy with how much they got. Solution: nobody gets it.

[August1991]

I struggle with it because the math is far from simple. Your analogy that government debt is cheaper than personal debt and so the government should apply any available funds to tax cuts is simplistic. Let's look at some of the implications.

1. People who have low or no personal debt don't really benefit from this reasoning. The interest rate they get on the money returned to them in the form of tax cuts is vastly less than what it costs government to service its debt. So for them, the analogy doesn't hold.

Renegade, if you had no personal debt and the government cut your taxes, all you need do is buy government bonds with the money from the tax cut. The interest you receive is roughly the same as what the government has to pay.

In fact, if you personally want to pay down the debt, I suggest you buy a bond and hold it. Consider that portion of the debt paid. If everyone did that, we'd have "no debt" and we'd also be back to where we are now.

As a nation, Albertans can decide how to approach the debt reduction (notice I did not say elimination) while maintaining our lifestyle. Inflation is a problem that can be somewhat controlled within the financial borders of a country. Good luck, Canada.

....

The gov of Canada has done an atrocious job of managing what should be money in trust. Anyone who can continue to put faith in the feds would have to be a yokel. Some of us are sick of it and will do what we can to end the thievery.

Excuse me if I take Quebec separatists a little more seriously than Albertan separatists. And given the track record of either, I'm not holding my breath.

I agree however that the federal government has done an atrocious job of spending our money and that's really my main point all through this. A government that pays down debt is no more competent than a government that doesn't. Paying down debt is not the issue. Government spending is.

[Renegade]

Renegade, if you had no personal debt and the government cut your taxes, all you need do is buy government bonds with the money from the tax cut. The interest you receive is roughly the same as what the government has to pay.

In fact, if you personally want to pay down the debt, I suggest you buy a bond and hold it. Consider that portion of the debt paid. If everyone did that, we'd have "no debt" and we'd also be back to where we are now.

August, while it is a good suggestion, and I'd be ok with just tax cuts, I don't think your statement "The interest you receive is roughly the same as what the government has to pay." is accurate. Whatever the government pays me in interest, they end up taking back 50% in taxes.