People in highly taxed countries better off: report

[Saturn]

Most of your demands are quite reasonable... your simply saying I can violate another's rights in my own freedom. I agree.

Taxes to pay for roads are acceptable too, like you said, I use them. Even if I don't drive, society's transportation is based around them and if I'm not completely self-sufficent, I use the roads.

I'm talking about equalisation. Taking my wealth (ultimately by force, the state will eventually kill you for it) and giving it to others. What right is that?

In fact, is the polar opposite of all those demands you make of me. It is a complete violation of my freedom, for another to benefit financially.

I say it's as simple as those that earn money, should keep it. Flat taxes are the only just measures, and that money should only be applied to things that everyone uses.

I see your point. But I also realize that not everyone is born equal and I have different expectations from different people. I consider myself lucky to be who I am and where I am. I could have been born to a 16-year-old drug addicted mother. I could have been born with physical and mental disabilities. I could have been in a wheelchair after a car accident involving a drunk driver. None of these things would have been my own doing. But I am none of these things and for that I consider myself lucky. I don't agree that that the kid of a 16-year-old drug addict should be denied health-care because his mother is a **** and won't pay the $30 you suggested earlier, while the kid of a billionaire has a team of expensive doctors to care for him. A kid in the Waltons family is not a billionaire at birth because of his own efforts - the Waltons empire rests on the sholders of millions of workers. So I expect the Waltons kid to pay more taxes than his share of services, so that the poor kid can have health-care when he needs it. I agree to define a just society as one where everyone would consider fair regardless of where their starting point is. Would you consider your $30 per ER visit and paid education society fair if you were born to that drug addicted mother?

[Saturn]

The study compares four high-tax Nordic countries (Sweden, Norway, Denmark, and Finland) with six low-tax Anglo-American countries (the U.K., U.S., Canada, Ireland, Australia and New Zealand).

Saturn, have you ever been to Finland or Sweden?

Comparing Finland to the United States is like comparing Jonquière to Toronto. It's almost meaningless.

The simple response to this study is to say that correlation does not mean causation. Because some high tax countries have good standards of living does not mean that if a country raises taxes, it will have a high standard of living (and in effect, that's the argument you're making Saturn). It's like the little boy who decorates a Christmas tree in July and is then surprised to learn he gets no gifts.

The Soviet Union had high taxation rates (the government took most of what people produced and used it for the collective good) and yet it had a dismal standard of living.

This is the kind of mindless nonsense the CBC occasionally regurgitates.

There is clear correlation between taxes and the quality of life in a country. I won't claim which is the cause and which is the effect but clearly developed countries have higher taxes and third-world countries have lower taxes. The relationship between taxes and quality of life is not linear either. There are optimal levels for everything, taxes included. Paying 80% of your income in taxes is clearly not the optimal level, but neither is 20%. Whether you should raise or lower taxes depends on where you are relative to that optimal level. Lowering taxes regardless of where you are is not the right approach. This is the kind of mindless nonsense that comes out of the Fraser Institute, the Taxpayers Federation and every conservative publication out there.

Your statement about the Soviet Union is incorrect because a huge chunk of the money the government took simply went into the communist party coffers and the politburo members' pockets, not into the public good. On top of that the standerd of living in the former SU has fallen sharply since the free-market took over, along with a 5 year drop in life-expectancy, 5 fold increase in infant death rates, and a host of other problems that plagues Russia and most of the former soviet republics.

[geoffrey]

Would you consider your $30 per ER visit and paid education society fair if you were born to that drug addicted mother?

It's not a matter of fair or equal. It's a matter of rights. That child born to a drug addicted mother has no right to steal the money from my wallet to pay for whatever he's buying. I don't see why you encourage the government to do the same.

You claim the Walton kid should pay more in taxes... I disagree (well, he should pay more in taxes, but not punitively... the rate should be the same for him or a homeless bum). He provides hundreds, thousands, maybe more... with jobs, and an income. That's a considerable contribution to society. And then you want to tax him even more.

I don't get it.

[Riverwind]

You claim the Walton kid should pay more in taxes... I disagree (well, he should pay more in taxes, but not punitively... the rate should be the same for him or a homeless bum).

What is your fixation with an arbitrary number like percentage of income? Why is that fair? Wouldn't 'fairness' mean everyone should pay the same amount of dollars? If you accept the prinicipal that taxes should be progressive (i.e. the rich pay more) then why is a system with two tax brackets fairer than a system with 6 brackets?

[Saturn]

Would you consider your $30 per ER visit and paid education society fair if you were born to that drug addicted mother?

It's not a matter of fair or equal. It's a matter of rights. That child born to a drug addicted mother has no right to steal the money from my wallet to pay for whatever he's buying. I don't see why you encourage the government to do the same.

You claim the Walton kid should pay more in taxes... I disagree (well, he should pay more in taxes, but not punitively... the rate should be the same for him or a homeless bum). He provides hundreds, thousands, maybe more... with jobs, and an income. That's a considerable contribution to society. And then you want to tax him even more.

I don't get it.

The Walton kid isn't providing a damned thing. He can't even change his diapers. That's not much of a contribution to society. For all you know he could turn out to be a mass murderer and the poor kid could be the next Einstein. If you get cancer tomorrow and you need a $500,000 treatment, should we kill you or should we try to treat you? You haven't paid for it yet and if you end up dying anyway, you'll never pay for it. Or maybe the surgeon who operates on you came from a poor family, so he stole money from my wallet to get an education and save your life - so you stole from my wallet. Geez!

[geoffrey]

What is your fixation with an arbitrary number like percentage of income? Why is that fair? Wouldn't 'fairness' mean everyone should pay the same amount of dollars? If you accept the prinicipal that taxes should be progressive (i.e. the rich pay more) then why is a system with two tax brackets fairer than a system with 6 brackets?

It's not fairness I seek... it's the principle that one person shouldn't have their wealth transfered to another on an arbitary basis. Why should Mr. $100k pay 30% while Mr. $30k pays 20%. It makes no sense. In fact, the lower income person is MORE likely to be using government services.

If you want to discuss consumption tax based systems, it's possible to go there... but I've got a whole 'nother set of issues with that.

The Walton kid isn't providing a damned thing. He can't even change his diapers. That's not much of a contribution to society. For all you know he could turn out to be a mass murderer and the poor kid could be the next Einstein. If you get cancer tomorrow and you need a $500,000 treatment, should we kill you or should we try to treat you? You haven't paid for it yet and if you end up dying anyway, you'll never pay for it. Or maybe the surgeon who operates on you came from a poor family, so he stole money from my wallet to get an education and save your life - so you stole from my wallet. Geez!

Having money in itself is of benefit to the society you live in. No one just keeps billions under their bed. It's invested in the economy which provides growth and jobs.

If my treatment cost more than my benefit to society, then ya, you should really just let the person die. Being said, the value of a person is in the few million I believe when it's economically assessed, dependant on age though.

Education is tough... very very tough. Is it a transfer or is it an infrastructure program? We need professionals to run our economy, no doubt. But these people that received subsidization end up making more, so they are beneficiaries of a transfer. Perhaps graduates need to repay their received equalisation over the rest of their careers.

[Riverwind]

It's not fairness I seek... it's the principle that one person shouldn't have their wealth transfered to another on an arbitary basis. Why should Mr. $100k pay 30% while Mr. $30k pays 20%. It makes no sense. In fact, the lower income person is MORE likely to be using government services.

I take it that you are in favour of eliminating the basic deduction that ensures that people earning less than 8K pay no tax.

[geoffrey]

It's not fairness I seek... it's the principle that one person shouldn't have their wealth transfered to another on an arbitary basis. Why should Mr. $100k pay 30% while Mr. $30k pays 20%. It makes no sense. In fact, the lower income person is MORE likely to be using government services.

I take it that you are in favour of eliminating the basic deduction that ensures that people earning less than 8K pay no tax.

I see where your going with this. But I disagree that this makes it two tier. This allows everyone a little bit of moonlighting that doesn't need to be forced under the table.

River, another thing that you and others don't consider is the evasion factor. The more complex the system, the more people will avoid paying taxes because there is invariably loopholes created. A flat tax that applies to everyone is nearly unavoidable. Where as complex brackets encourage wacky tax planning and outright avoidance/evasion. Consumption taxes are by far the worse in evasion... you know that 5% cash discount the plummer gave you... ya, think about it.

[Riverwind]

River, another thing that you and others don't consider is the evasion factor. The more complex the system, the more people will avoid paying taxes because there is invariably loopholes created.

The number of tax loop holes have no connection to the number of tax brackets that exist. I am saying that a system with 2 tax brackets is just as arbitrary as a system with 6 tax brackets. I feel it is a mistake to get hung up on number of tax brackets and if you want to reform the system you are better off focusing on the what really matters: the total tax bill paid.

Personally, I think marginal rates that exceed 50% are excessive and reduce the incentive to work and are bad for the economy. However, I also think that any tax scheme that increase taxes on middle income earners in order to reduce the marginal rates for high income earners hurts the economy as well.

I realize that you probably will argue that cuts in government spending could ensure that the taxes on the middle class do not go up but I feel that is a totally unrealistic point of view. Almost all government spending today is either mandatory (i.e. interest on public debt) or pays for services that have to paid for one way or another (i.e. health care, education, police and the military). So any significant cuts to gov't spending will increase the cost of living for the middle class which, in turn, will hurt the middle class in order to give the wealthy a break. That is why pure flat tax systems are a political non-starter in almost every country.

That said, some countries like the UK have kept the tiered tax brackets but eliminated most deducations and created something that has many of the benefits of a flat tax system but does not screw the middle class.

[Saturn]

It's not fairness I seek... it's the principle that one person shouldn't have their wealth transfered to another on an arbitary basis. Why should Mr. $100k pay 30% while Mr. $30k pays 20%. It makes no sense. In fact, the lower income person is MORE likely to be using government services.

I take it that you are in favour of eliminating the basic deduction that ensures that people earning less than 8K pay no tax.

I see where your going with this. But I disagree that this makes it two tier. This allows everyone a little bit of moonlighting that doesn't need to be forced under the table.

River, another thing that you and others don't consider is the evasion factor. The more complex the system, the more people will avoid paying taxes because there is invariably loopholes created. A flat tax that applies to everyone is nearly unavoidable. Where as complex brackets encourage wacky tax planning and outright avoidance/evasion. Consumption taxes are by far the worse in evasion... you know that 5% cash discount the plummer gave you... ya, think about it.

Oh, come on. You know it's not the tax rate that is the reason for evasion. Tax evasion comes from reporting less revenue than you really have and reporting more expenses than you have. It's not tax rates that create the loopholes. The loopholes are created by overly-complex rules on certain types of income from arrangements that seek to avoid having that income taxed as income. Sometimes those loopholes are intentionally put in or allowed to stay open when they should be closed - like income trusts or offshore tax havens.

Your argument about consumption taxes proves my point - sales taxes have generally the same rate (0 or 7% for GST and 8% with a few exceptions for Ontario PST). But a huge portion of the sales taxes you pay just end up in the vendors' pockets and that's not because there are a lot of tax rates.

[Saturn]

River, another thing that you and others don't consider is the evasion factor. The more complex the system, the more people will avoid paying taxes because there is invariably loopholes created.

The number of tax loop holes have no connection to the number of tax brackets that exist. I am saying that a system with 2 tax brackets is just as arbitrary as a system with 6 tax brackets. I feel it is a mistake to get hung up on number of tax brackets and if you want to reform the system you are better off focusing on the what really matters: the total tax bill paid.

Personally, I think marginal rates that exceed 50% are excessive and reduce the incentive to work and are bad for the economy. However, I also think that any tax scheme that increase taxes on middle income earners in order to reduce the marginal rates for high income earners hurts the economy as well.

I realize that you probably will argue that cuts in government spending could ensure that the taxes on the middle class do not go up but I feel that is a totally unrealistic point of view. Almost all government spending today is either mandatory (i.e. interest on public debt) or pays for services that have to paid for one way or another (i.e. health care, education, police and the military). So any significant cuts to gov't spending will increase the cost of living for the middle class which, in turn, will hurt the middle class in order to give the wealthy a break. That is why pure flat tax systems are a political non-starter in almost every country.

That said, some countries like the UK have kept the tiered tax brackets but eliminated most deducations and created something that has many of the benefits of a flat tax system but does not screw the middle class.

Exactly. The rich in Canada have been getting huge tax cuts over the last 15 years in order to offload more "user fees" onto the middle class. A flat tax will just further increase the burden the middle class for the benefit of a select few. Then those select few are allowed to take their multi-billion tax cuts out of our economy and invest it overseas. In the meantime our infrastructure is decaying, our investment in education and what makes an economy tick is falling further and further behind other developed countries.

[White Doors]

River, another thing that you and others don't consider is the evasion factor. The more complex the system, the more people will avoid paying taxes because there is invariably loopholes created.

The number of tax loop holes have no connection to the number of tax brackets that exist. I am saying that a system with 2 tax brackets is just as arbitrary as a system with 6 tax brackets. I feel it is a mistake to get hung up on number of tax brackets and if you want to reform the system you are better off focusing on the what really matters: the total tax bill paid.

Personally, I think marginal rates that exceed 50% are excessive and reduce the incentive to work and are bad for the economy. However, I also think that any tax scheme that increase taxes on middle income earners in order to reduce the marginal rates for high income earners hurts the economy as well.

I realize that you probably will argue that cuts in government spending could ensure that the taxes on the middle class do not go up but I feel that is a totally unrealistic point of view. Almost all government spending today is either mandatory (i.e. interest on public debt) or pays for services that have to paid for one way or another (i.e. health care, education, police and the military). So any significant cuts to gov't spending will increase the cost of living for the middle class which, in turn, will hurt the middle class in order to give the wealthy a break. That is why pure flat tax systems are a political non-starter in almost every country.

That said, some countries like the UK have kept the tiered tax brackets but eliminated most deducations and created something that has many of the benefits of a flat tax system but does not screw the middle class.

Exactly. The rich in Canada have been getting huge tax cuts over the last 15 years in order to offload more "user fees" onto the middle class. A flat tax will just further increase the burden the middle class for the benefit of a select few. Then those select few are allowed to take their multi-billion tax cuts out of our economy and invest it overseas. In the meantime our infrastructure is decaying, our investment in education and what makes an economy tick is falling further and further behind other developed countries.

Pure unequivacle BS. This proves two things. You are not rich as you claim to be and 2) that you have no idea about the tax system. Tell me how many low income people were directly affected by getting rid of the capital gains tax?

[Saturn]

River, another thing that you and others don't consider is the evasion factor. The more complex the system, the more people will avoid paying taxes because there is invariably loopholes created.

The number of tax loop holes have no connection to the number of tax brackets that exist. I am saying that a system with 2 tax brackets is just as arbitrary as a system with 6 tax brackets. I feel it is a mistake to get hung up on number of tax brackets and if you want to reform the system you are better off focusing on the what really matters: the total tax bill paid.

Personally, I think marginal rates that exceed 50% are excessive and reduce the incentive to work and are bad for the economy. However, I also think that any tax scheme that increase taxes on middle income earners in order to reduce the marginal rates for high income earners hurts the economy as well.

I realize that you probably will argue that cuts in government spending could ensure that the taxes on the middle class do not go up but I feel that is a totally unrealistic point of view. Almost all government spending today is either mandatory (i.e. interest on public debt) or pays for services that have to paid for one way or another (i.e. health care, education, police and the military). So any significant cuts to gov't spending will increase the cost of living for the middle class which, in turn, will hurt the middle class in order to give the wealthy a break. That is why pure flat tax systems are a political non-starter in almost every country.

That said, some countries like the UK have kept the tiered tax brackets but eliminated most deducations and created something that has many of the benefits of a flat tax system but does not screw the middle class.

Exactly. The rich in Canada have been getting huge tax cuts over the last 15 years in order to offload more "user fees" onto the middle class. A flat tax will just further increase the burden the middle class for the benefit of a select few. Then those select few are allowed to take their multi-billion tax cuts out of our economy and invest it overseas. In the meantime our infrastructure is decaying, our investment in education and what makes an economy tick is falling further and further behind other developed countries.

Pure unequivacle BS. This proves two things. You are not rich as you claim to be and 2) that you have no idea about the tax system. Tell me how many low income people were directly affected by getting rid of the capital gains tax?

What? I never said that I was rich. And I know a heck of a lot more about the tax system than you can imagine. You aren't making any sense.

[geoffrey]

Oh, come on. You know it's not the tax rate that is the reason for evasion. Tax evasion comes from reporting less revenue than you really have and reporting more expenses than you have. It's not tax rates that create the loopholes. The loopholes are created by overly-complex rules on certain types of income from arrangements that seek to avoid having that income taxed as income. Sometimes those loopholes are intentionally put in or allowed to stay open when they should be closed - like income trusts or offshore tax havens.

The tax rate is absolutely key to how much evasion occurs. If the business rate was 2 or 3%, considerably less companies would have dealt with the costs of converting to income trusts.

Tax evasion/avoidance isn't cheap. There has to be a cost/benefit to the evasion. Tax lawyers and accountants aren't cheap, your not going to hire a firm to save you a 2 or 3 percent. You will when it saves you 20 or 30 percent though... in return to your shareholders.

People are more able and willing to pay lower rates on the personal side too.

It's all about individual choice under uncertainty. Push that benefit higher and higher and even the most risk-adverse people will start to bite.

Your the expert. If you honestly believe rates aren't tied to evasion, tell me why basic rational actor cost/benefit doesn't apply here.

If the benefit of evading taxes outweighs the probable costs, then you'll evade them. It's the reasonable thing to do.

The body of research in economics supports me. Why do you differ, do you have any academic agreement besides yourself?

Your argument about consumption taxes proves my point - sales taxes have generally the same rate (0 or 7% for GST and 8% with a few exceptions for Ontario PST). But a huge portion of the sales taxes you pay just end up in the vendors' pockets and that's not because there are a lot of tax rates.

I don't understand what your saying?

[August1991]

Education is tough... very very tough. Is it a transfer or is it an infrastructure program? We need professionals to run our economy, no doubt. But these people that received subsidization end up making more, so they are beneficiaries of a transfer. Perhaps graduates need to repay their received equalisation over the rest of their careers.

One could argue that a progressive tax regime is the State getting a return on its investment. We collectively take an equity position in many small "firms" (people) by paying for their education and then the successful ones pay out earnings through the tax collected.

The health care system is a State-operated insurance scheme. That makes sense since almost everyone would likely have health coverage so obligatory, universal group insurance is sensible. (Canada has among the lowest premiums in the western world.)

These are the two big ticket items for government and while we could and should organize them differently, the principle is sound.

----

As to taxes, I would prefer moving to a value-added tax (such as GST) which amounts to a flat, consumption tax. It's less costly to collect. I think too that governments should start to look seriously at environmental charges (Pigouvian taxes) to replace income taxes.

Canada's tax system is a mess. Low income families often face marginal tax rates over 100%. Various family support measures mean high marginal rates at middle incomes. EI creates starnge incentives. I would like to believe that if the Tories get a majority, they would take on seriously tax reform.

[jdobbin]

I would like to believe that if the Tories get a majority, they would take on seriously tax reform.

More GST cuts?

[geoffrey]

Consumption taxes are easily evaded August, what would you do differently than the GST to correct this?

[August1991]

Consumption taxes are easily evaded August, what would you do differently than the GST to correct this?

To collect income taxes, teh revenue agency must deal with around 15 million individuals. To collect the GST, the revenue agency deals with several hundred thousand firms. You tell me which is easier to control and audit.

In Montreal, they are raising the cost of street parking and extending fees to all seven days and late hours. (The fee will go to $2.50/hour from $2/hour.) They have started to computerize this but it's still very backward. The city is also thinking about imposing tolls on the bridges and tunnel onto the island.

In general, governments should charge us for the use of the environment. In this, I find that governments are extremely backward. From banks to grocery stores, we have seen tremendous innovations. Governments collect taxes (with the exception of the GST) the same way they did 50 years ago.

[geoffrey]

$2/hr for parking is a steal. It's going to up to $4/hr in Calgary in January.

Anyways. Consumption taxes are easily avoided in much of the services industry... through those nice 'cash discounts'. There is no way to audit this... the labour simply 'didn't happen'.

[Saturn]

Oh, come on. You know it's not the tax rate that is the reason for evasion. Tax evasion comes from reporting less revenue than you really have and reporting more expenses than you have. It's not tax rates that create the loopholes. The loopholes are created by overly-complex rules on certain types of income from arrangements that seek to avoid having that income taxed as income. Sometimes those loopholes are intentionally put in or allowed to stay open when they should be closed - like income trusts or offshore tax havens.

The tax rate is absolutely key to how much evasion occurs. If the business rate was 2 or 3%, considerably less companies would have dealt with the costs of converting to income trusts.

Tax evasion/avoidance isn't cheap. There has to be a cost/benefit to the evasion. Tax lawyers and accountants aren't cheap, your not going to hire a firm to save you a 2 or 3 percent. You will when it saves you 20 or 30 percent though... in return to your shareholders.

People are more able and willing to pay lower rates on the personal side too.

It's all about individual choice under uncertainty. Push that benefit higher and higher and even the most risk-adverse people will start to bite.

Your the expert. If you honestly believe rates aren't tied to evasion, tell me why basic rational actor cost/benefit doesn't apply here.

If the benefit of evading taxes outweighs the probable costs, then you'll evade them. It's the reasonable thing to do.

The body of research in economics supports me. Why do you differ, do you have any academic agreement besides yourself?

Your argument about consumption taxes proves my point - sales taxes have generally the same rate (0 or 7% for GST and 8% with a few exceptions for Ontario PST). But a huge portion of the sales taxes you pay just end up in the vendors' pockets and that's not because there are a lot of tax rates.

I don't understand what your saying?

I am saying that a flat tax rate doesn't produce result in the same behaviour for all people. Because a $1 for me is not the same as what a $ is worth to someone on minimum wage or to Ted Rogers. If you want a flat tax then in order to raise the same amount of tax revenue you have to lower the tax rate at the high end and increase the tax rate at the low end. This will change the incentive (or disincentive) to work. When it comes to working, the nominal tax rate is far less important than the effective marginal tax rate. As things currently are, EMTRs are much higher at the low end of the income distribution than at the high end. Flattening taxes will further increase EMTRs at the low end and they already run as high as 80% there depending on the exact income level, province, credits, etc. The result will be that many lower-income workers will end up taking 10-20 cents on the dollar home which will ultimately result in a significant number of people working less or not working at all. This is something that will have a huge impact given the very large number of people in the under $30K income range. So you may give a lawyer an incentive to work 5 hrs/wk more but you will end up putting someone else on the welfare roll. Also, you'll give a much greater incentive for lower-income people to evade taxes and again it's a lot of people we are talking about. Anyway, EMTRs in Canada are really bad as they are (in several cases the EMTR goes over 100%) and the overall disadvantages of making them worse will exceed the benefits. This is just one of the reasons why flat taxes are not all that common. The consequences of moving to a flat tax are not as clear and straightforward as one may think at first.

Besides what are the tax lawyers and accountants going to do if we take away the reason for their services?

P.S. This issue has been studied to death and you can find a lot of resources by googling it. Here is just one simple example: http://www.aims.ca/equalization.asp?typeID=5&id=220

[gc1765]

Anyways. Consumption taxes are easily avoided in much of the services industry... through those nice 'cash discounts'. There is no way to audit this... the labour simply 'didn't happen'.

But couldn't they just as easily avoid income tax if the labour "didn't happen"?

[geoffrey]

Don't take my job away, I knew that was the motive!!

I don't do tax thank God, I don't know how those guys do it (ok, I do... they are the most boring people in the world). I do audit, I understand evasion...

I understand your concerns with the EMTR... but the effective payout from the government is also higher amongst lower income workers. They will pay a higher effective rate, but they also received a somwhat proportionally higher effective assistance from the government.

The $5 per person to build roads (an example figure, who knows what it really is) to use is a transfer essientially from the rich to the poor. This should be deducted in the big picture when we look at what people pay in/take out from the government.

Having a higher rate of tax for a higher income encourages people to sneak in under brackets and attempt to defer income to later times of lesser income or more favourable tax situations. This has a negative effect on productivity by creating a distortion in the investment market.

Agreed, or no?

[Saturn]

Consumption taxes are easily evaded August, what would you do differently than the GST to correct this?

To collect income taxes, teh revenue agency must deal with around 15 million individuals. To collect the GST, the revenue agency deals with several hundred thousand firms. You tell me which is easier to control and audit.

I agree that consumption taxes (sales taxes) are more prone to evasion than income taxes. Sales taxes are much more of a headache for the tax authorities (some more than others - eg. PST in Ontario is much worse than the GST). On top of that paying the tax and having it stolen is (seen by some) as worse than not paying taxes in the first place.

[geoffrey]

Anyways. Consumption taxes are easily avoided in much of the services industry... through those nice 'cash discounts'. There is no way to audit this... the labour simply 'didn't happen'.

But couldn't they just as easily avoid income tax if the labour "didn't happen"?

No. Payroll taxes are withheld at the time the company writes you your paycheque, by law. It's very hard for a company to pay their entire workforce under the table.

I agree that consumption taxes (sales taxes) are more prone to evasion than income taxes. Sales taxes are much more of a headache for the tax authorities (some more than others - eg. PST in Ontario is much worse than the GST). On top of that paying the tax and having it stolen is (seen by some) as worse than not paying taxes in the first place.

What's the occurance of this theft of GST/PST? I can't imagine how one would get away with it for long. When a business files it's return, the tax people would be all over it. There is say, 100 invoices that charged GST, and the company reported only 30 GST sales? Busted.

I don't see that happening much.

[gc1765]

No. Payroll taxes are withheld at the time the company writes you your paycheque, by law. It's very hard for a company to pay their entire workforce under the table.

About as hard as it would be for a business to do all of it's business "in cash", and therefore avoid consumption taxes? Is the business just supposed to say they don't have any customers?