Tax Reform

[Riverwind]

In certain industries, like farming, the tax side is an oppressive burden of work. If your just selling a service, as I assume your referring to, your taxes are quite simple. In fact, if your an incorporated small business, which nearly everyone would certainly move to under my system, it's even easier. You only ever have to worry about paying taxes on withdrawals from the company.

I spent about an hour on the phone this week with CRA trying to figure out what was a 'legimate' meal expense. The rules include factors like: how far away was the trip, how long did the trip take, how was the customer invoiced for the travel expenses...

The rules were insane but I can see the perverse logic in them because meal expenses are easy to abuse.

Capital cost amortization is another can of worms.

I think that the majority of the tax bureaucracy is dedicated to dealing with corporate taxation and ensuring that corporate income is properly reported. I don't believe the relatively small number of clearly defined deductions on personal income taxes add that much complexity to the system.

Furthermore, I don't see the difference between a 2 tier progressive taxation system (a.k.a flat tax) and one with 3 to 5 tiers. The issue in both cases is ensuring that no one is unfairly penalized. I personally think that marginal tax rates should never exceed 40%. So I could see the need to re balance the system to reduce the tax rates in higher income brackets and balance that with an increase in the capital gains tax.

I don't see the benefit of an ideology driven flat tax which will likely lead to signficant tax increases for average middle class employee.

[jbg]

Why would I invest in Canada where much of my investment goes to the government, compared to Ireland where my investment comes home with me? Increases in productivity due to investment are more noticed in people's pockets in environments with lesser taxation.

Wouldn't lower health care costs offset a lot of this? My employer pays out $15,000 per employee per year for health insurance. Even after factoring in it's tax deductibility, that's $10,000 or so per employee per year that employers in Canada don't face.

[madmax]

Why would I invest in Canada where much of my investment goes to the government, compared to Ireland where my investment comes home with me? Increases in productivity due to investment are more noticed in people's pockets in environments with lesser taxation.

Wouldn't lower health care costs offset a lot of this? My employer pays out $15,000 per employee per year for health insurance. Even after factoring in it's tax deductibility, that's $10,000 or so per employee per year that employers in Canada don't face.

I don't think you can compare tax structures or tax reform, and health care costs. It is a separate topic.

Yes there is a competitive advantage that corporations receive from our health care system. The fees your employer pays are steep and it is worse with large industries.

But it is possible to restructure the tax system, as Geoff is suggesting, and that revenues and investments will stay in Canada. Who pays may change, but who benefits will also change. It would appear although others seem to disagree, that there would be an increase in productivity, which should lead to more growth investment and a larger tax base. (Correct me if I am wrong, its happened before).

[August1991]

Wouldn't lower health care costs offset a lot of this? My employer pays out $15,000 per employee per year for health insurance. Even after factoring in it's tax deductibility, that's $10,000 or so per employee per year that employers in Canada don't face.

Of course Canadians face these costs - we just face them differently. To my knowledge, Canadians haven't discovered a way to receive health care at no cost.

In the US, drivers pay for toll roads. In Canada, drivers pay for roads through taxes. Someone still pays.

The question, whether roads, health care or anything else for that matter, is which method leads to better service at lower overall cost. This would presumably show up in an ability to obtain better terms of trade when trading with foreigners.

As a plumber, I add value to the wrenches, pipes and other materials that I pay GST on. I essientially charge the GST to the customer on those items and then I can claim my GST refund. What I don't charge GST on is my labour, which the CRA really has no freaking idea what I'm doing with... my labour is 100% value-added and could be avoided completley if needed.

Your plumber example applies equally for income tax. If the plumber doesn't declare GST, then he probably doesn't declare the income either.

My point was that GST involves less administrative work for the CRA compared to an income tax. There are fewer people to collect from.

[jbg]

Wouldn't lower health care costs offset a lot of this? My employer pays out $15,000 per employee per year for health insurance. Even after factoring in it's tax deductibility, that's $10,000 or so per employee per year that employers in Canada don't face.

Of course Canadians face these costs - we just face them differently. To my knowledge, Canadians haven't discovered a way to receive health care at no cost.

In the US, drivers pay for toll roads. In Canada, drivers pay for roads through taxes. Someone still pays.

The question, whether roads, health care or anything else for that matter, is which method leads to better service at lower overall cost. This would presumably show up in an ability to obtain better terms of trade when trading with foreigners.

Obviously you're right. My point is that they're included in the tax package, making taxes not truly comparable to other countries.

[August1991]

My point is that they're included in the tax package, making taxes not truly comparable to other countries.

Absolutely. Comparing taxes between countries is comparing apples and mangoes.

Incidentally, I posted this elsewhere but it sums up my thoughts on the future of taxation:

I have to play the devil's advocate: Why the GST / road congestion trade off? why single out the GST?

Why not abolish (or at least reduce) income tax and replace it with the congestion tax?

I chose the GST for the same reason Harper did. It's visible and easy to understand. But you're right, a congestion tax could replace income or property taxes.

I think the main idea though is that since we have to pay tax to the government, let's pay our tax in a way that benefits us all. If each dollar raised by congestion tax means a one dollar cut in GST, then the overall tax take would be revenue neutral. The net gain appears from the lower congestion.

It would even be political popular since more ridings are in rural areas. Rural voters would see a lower GST. Urban voters would see less road congestion.

Why doesn't the government do this? Well, London has done it and the UK is thinking of doing it. But tax policy is an absolute minefield for politicians. It's too confusing.

Nevertheless, I am reasonably confident that in 50 years or so, governments will get all their revenues from road taxes, environmental charges and royalties. In effect, we will be renting ourselves the use of the environment. IOW, income taxes and VAT won't exist.

[Saturn]

I have a lot of comments but I don't know where to start. Overall, this will produce a great shift in taxation from the lower and upper levels to the middle-income levels. You are looking at a federal tax rate at around 40%. Ouch!

I really don't think I am. There is a considerable increase in capital gains and taxes on disbursements from companies. There is also a considerable increase in taxation on corporate profits and the savings from less RRSP contributions have to be considered.

Ok, so you start with a flat tax system. You convert income taxes from progressive to flat (with a large exemption at the bottom). You eliminate most regressive taxes. In other words, you cut taxes at the low end of the income distribution and the high end of the income distribution. What does your "flat" tax system look like now? It's bell-shaped. The middle class gets to pay substantially more taxes than it does now. The middle class is also the backbone of the workforce and the economy. Why exactly is telling the middle class that they have to pay 40 cents on every additional dollar earned in taxes beneficial to the country?

I have anecdotal evidence as well here, Alberta's conversion to a flat-tax did not spike rates. It came at a projected decreased in revenues of 10%, but in fact, revenues did not decrease that much and the province further slashed rates soon after by another percentage.

That is on top of no sales tax, so we aren't playing with just oil money here causing this ability. The flat tax works.

Your anecdotal evidence doesn't work for 2 reasons:

1) Alberta is somewhat of a tax haven in Canada. The reason tax havens work is that there are very few of them.

2) 30% of the Albertan budget comes from oil and gas royalties. There is no provincial debt to pay interest on. This means that the prov gov't can afford a low flat tax rate. Federally, this means that if you set a flat tax rate at 18-20% (corresponding to Alberta's 10%), you'll still leave a $80B shortage. Which means that you have to set your flat tax rate at 30%. Now implement an even larger exemption than Alberta's and you are looking at 35-40%.

[Pat Coghlan]

Personal Tax

This is where I'd see the most change. I strongly advocate the implimentation of a flat tax, close to Hall-Rabushka model.

Essientially, we'd first start be seeing Canadians for what they are, individuals, and tax them as such. One thing that the current tax system ignores is that spouses and children of income earners (take the one income, two parent family) also earn an indirect income that they are not taxed on. This could be accounted for in a flat-tax system quite easily, without marginal rates, income transfered to the spouse and children would still be taxed the same, minus of course, the individual deduction.

One of the things that the creators of the US constitution realized was that there was a need to prevent the concentration of wealth. This is why they have hefty estate taxes.

How does a system of flat taxation address this problem?

The problem is not progessive taxation, per se, but that we have too many tax brackets and that they apply only to individuals, not families.

It would be better to have a system similar to the following:

- different tax brackets for various family classes (singles, couples, families with children etc.)

- all income (needed for food, shelter etc.) in first bracket taxed at rate x (low)

- all income above first bracket (i.e. "luxury" income, for family class) taxed at rate y, which would be slightly higher than rate x

The current set of brackets are MEANINGLESS, now that children have essentially been removed from the tax system, and result in a tax penalty for families in which one spouse earns most or all of the family income.

[geoffrey]

One of the things that the creators of the US constitution realized was that there was a need to prevent the concentration of wealth. This is why they have hefty estate taxes.

How does a system of flat taxation address this problem?

The US constitution founders obviously did a poor job if that was their goal. What right to you have to anyone else's money, especially a dead person that is going to receive no further benefit from society?

If they want to give their money to x, y and z, they should be able to.

I have inheritence of cash taxed like income in my plan, and inheritence of assets taxed upon the asset's sale.

There is no problem with a concentration of wealth to some degree, it increases investment.

The problem is not progessive taxation, per se, but that we have too many tax brackets and that they apply only to individuals, not families.

It would be better to have a system similar to the following:

- different tax brackets for various family classes (singles, couples, families with children etc.)

- all income (needed for food, shelter etc.) in first bracket taxed at rate x (low)

- all income above first bracket (i.e. "luxury" income, for family class) taxed at rate y, which would be slightly higher than rate x

Your various tax brackets for various living arrangements is arbitrary and needlessly discriminatory. Tax people as a family as they decide to define it... acknowledging they then have a responsbility to that family.

How is your bracket setup any different from mine? I don't tax any income needed for essientials, and only tax so called "luxury" income.

The current set of brackets are MEANINGLESS, now that children have essentially been removed from the tax system, and result in a tax penalty for families in which one spouse earns most or all of the family income.

I think my plan adequately addresses that.

[Pat Coghlan]

There is no problem with a concentration of wealth to some degree, it increases investment.

Tell that to the legions of workers who are being laid off because their jobs have been moved to China.

Also, the CEO of Exxon made $650M last year. Exactly what was his contribution to the company that was worth $650M?

My point is that someone like the Exxon CEO pays a lower tax rate on his $650M (i.e. capital gains - in Canada it's about 25%) than someone supportint a wife and a family on a middle-class income.

Does your system differentiate between the two?

The problem is not progessive taxation, per se, but that we have too many tax brackets and that they apply only to individuals, not families.

It would be better to have a system similar to the following:

- different tax brackets for various family classes (singles, couples, families with children etc.)

- all income (needed for food, shelter etc.) in first bracket taxed at rate x (low)

- all income above first bracket (i.e. "luxury" income, for family class) taxed at rate y, which would be slightly higher than rate x

[geoffrey]

Tell that to the legions of workers who are being laid off because their jobs have been moved to China.

Should have made the choice to improve their skills. Or they can move to China. Are these the same workers that shop at Walmart and whine about high prices?

Also, the CEO of Exxon made $650M last year. Exactly what was his contribution to the company that was worth $650M?

The shareholders that approve that compensation obviously figured his value to the company was that amount. The shareholders pay the CEO. They vote on his compensation. They could fire him if he didn't live up to his expectations. Mr. Tillerson hasn't been fired yet, so I'm going to say he provided $650M of wealth.

Either way, it's not your money, so why do you care? His wealth does not make you poorer.

My point is that someone like the Exxon CEO pays a lower tax rate on his $650M (i.e. capital gains - in Canada it's about 25%) than someone supportint a wife and a family on a middle-class income.

Was that income capital gains? I have no idea. Why should he pay a higher rate? There is no logical reason for that besides that you think you deserve a slice of his salary. Differing rates are a transfer program, from the CEO of EXXON Mobile to you. Why do you deserve his money? He provided $650M in value to his shareholders, you provide NOTHING to him.

[Jerry J. Fortin]

Taxes are supposed to pay for services provided to citizens. So how is it that governments find themselves in surplus? How is it that governments can cut program spending to decrease services without the permission of citizens? Why do citizens have less ability to deduct expenses from their incomes than business?

[Saturn]

The current set of brackets are MEANINGLESS, now that children have essentially been removed from the tax system, and result in a tax penalty for families in which one spouse earns most or all of the family income.

Your problem is that you have a stay-at-home spouse and a large family and you find it difficult to support them. Under the current tax/benefit system you get around $15K in government transfers + $20K in tax credits for having a non-working spouse and a large family. Which in turn means that you most likely receive more government transfers than the total taxes you pay - in other words, you are $20K ahead of anyone else who doesn't have a non-working spouse and kids and chances are that consequently you pay no taxes. And you get this enormous benefit precisely because you have a non-working spouse and a large family. Then you come around claiming that children have been removed from the tax system and that there is some tax penalty for having a family. You get $20K/yr from the system. How is that a penalty?

[Jerry J. Fortin]

What!

I don't get a dime from the feds, or the province either for that matter. My wife doesn't work outside of the home and doesn't have a home business. There is a net transfer of my hard earned money to government , not the other way around.

I got a little pissed off the other day when I heard that as a campaign promise the Quebec Premier has decided that more than 700 million of federal transfers would go to reducing the tax load on citizens in Quebec. Its a damned good thing for them that I am not the Prime Minister because if I was there would be a net reduction of 700 million in transfer payments to them next year!

At any rate the smoke and mirrors that governments use to convince citizens of the value of government no longer works on me. I am not apathetic, nor am I fanatical, but I have become a separatist because of it. I want out of this chicken *&%# country! I am tired of the crap and I want changes made that are beneficial to people for a change. Corporate governance is my favorite pet peeve, after that it is bureaucracies and politicians.

The government does little for me and charges a hell of a lot to do what it does.

[Saturn]

What!

I don't get a dime from the feds, or the province either for that matter. My wife doesn't work outside of the home and doesn't have a home business. There is a net transfer of my hard earned money to government , not the other way around.

You get no CTB, no UCCB, no GST credits, no spousal and child tax credits? I suggest that you look at your tax form. You get plenty of benefits that people with no kids and/or working spouses don't get. Factor in the health-care and education costs of your family and your net transfer to government will more likely turn into a net transfer from government. Whatever the case, people with non-working spouses and people with kids are far ahead of dual-income families and people with no kids in terms of tax breaks and government transfers. To claim that this preferential treatment is somehow not preferential enough or that you are being penalized somehow is ridiculous.

I want out of this chicken *&%# country! I am tired of the crap and I want changes made that are beneficial to people for a change.

There are over 200 countries for you to choose from. That's a lot of choice.

[Jerry J. Fortin]

Actually I have the Republic of Alberta to call home. The land of the red neck! Governments are a waste of money at the best of times.

I pay for my healthcare, I pay for my kids school too. I don't get a GST rebate and I don't get any child tax checks in the mail either.

To say that a tax break constitutes a benefit is moronic at best. I still pay about 30 k a year in taxes. Thats after its all said and done. I don't get much in the way of tax refunds either, unless in your mind a hundred bucks is big coin because to me its chicken feed compared to the 30 k they government took from me.

Where the hell do you live anyway? No doubt in some city with mass transit, child care facilities and a hospital in your neighborhood. Who is getting the tax benefits dude? The nearest government facility not including a school is more than thirty kilometers from my place.

[Saturn]

Actually I have the Republic of Alberta to call home. The land of the red neck! Governments are a waste of money at the best of times.

Alberta is far from a Republic in any way, shape, or form. You've got a long way to go before it becomes one, so get working on it - blabbing in the forums won't do it.

I pay for my healthcare, I pay for my kids school too. I don't get a GST rebate and I don't get any child tax checks in the mail either.

This simply means that your kids are now adults - prior to that you weren't paying for their school and you were collecting child benefits. And you still get your non-working spouse tax credits.

To say that a tax break constitutes a benefit is moronic at best. I still pay about 30 k a year in taxes.

It's moronic for you to suggest that I should pay more taxes than yourself because I don't have a spouse who's on vacation permanently.

Where the hell do you live anyway? No doubt in some city with mass transit, child care facilities and a hospital in your neighborhood. Who is getting the tax benefits dude? The nearest government facility not including a school is more than thirty kilometers from my place.

There are 2-3,000 taxpayers per kilometer of road, 30,000 per school a quarter million per hospital in a city. In your neck of the woods, there are what? 50 taxpayers per km of road, 3,000 per school and 20,000 per hospital? Well, guess what? The cities are paying for the majority of your services.

[Pat Coghlan]

The current set of brackets are MEANINGLESS, now that children have essentially been removed from the tax system, and result in a tax penalty for families in which one spouse earns most or all of the family income.

Your problem is that you have a stay-at-home spouse and a large family and you find it difficult to support them. Under the current tax/benefit system you get around $15K in government transfers + $20K in tax credits for having a non-working spouse and a large family. Which in turn means that you most likely receive more government transfers than the total taxes you pay - in other words, you are $20K ahead of anyone else who doesn't have a non-working spouse and kids and chances are that consequently you pay no taxes. And you get this enormous benefit precisely because you have a non-working spouse and a large family. Then you come around claiming that children have been removed from the tax system and that there is some tax penalty for having a family. You get $20K/yr from the system. How is that a penalty?

It's not *my* problem. It's a problem faced by every family in which one spouse earns the bulk or all of the income. BTW, my wife works half-days.

Care to break down the $15K in government transfers + $20K in tax credits that you seem to think I receive?

Tell me what you *think* I'm receiving, and I'll gladly explain why you've erred.

[Saturn]

It's not *my* problem. It's a problem faced by every family in which one spouse earns the bulk or all of the income.

It's a problem because you seem to believe that you deserve to earn as much as two people. Obviously, families with one-income earner will have less income than families with two-income earners in general. You can't expect someone else to pay you a second income for nothing.

Care to break down the $15K in government transfers + $20K in tax credits that you seem to think I receive?

Tell me what you *think* I'm receiving, and I'll gladly explain why you've erred.

Add up your CTB, UCCB, and GST credits and provincial sales tax credits, and you'll be in the neighbourhood of $15K. If you are below that, then you are certainly earning enough to support your family. Since your wife works half-days, your tax credits may well be less than $20K. Whatever the case, I wish you the best of luck and the ability to provide well for your family. I just find it very irksome when someone claims that a system with very generous benefits for parents and single-income families is somehow penalizing those families.

[Pat Coghlan]

It's a problem because you seem to believe that you deserve to earn as much as two people. Obviously, families with one-income earner will have less income than families with two-income earners in general. You can't expect someone else to pay you a second income for nothing.

I don't think you understand the issue here. The one-income families aren't complaining that they don't have enough income or that they receive fewer benefits than their two-income counterparts, they are complaining that in spite of the fact that the government deems all families with the same total income to have identical eligibility for benefits, they may have to pay up to $16,000 more in taxes than the family next door (with an identical aggregate income).

Care to break down the $15K in government transfers + $20K in tax credits that you seem to think I receive?

Tell me what you *think* I'm receiving, and I'll gladly explain why you've erred.

Add up your CTB, UCCB, and GST credits and provincial sales tax credits, and you'll be in the neighbourhood of $15K. If you are below that, then you are certainly earning enough to support your family. Since your wife works half-days, your tax credits may well be less than $20K. Whatever the case, I wish you the best of luck and the ability to provide well for your family. I just find it very irksome when someone claims that a system with very generous benefits for parents and single-income families is somehow penalizing those families.

Even if we had zero income, we would not be receiving $15K in various credits for our 5 children. The $2,000/child tax credit just announced by the feds is a credit, which is worth the lowest income bracket percentage (15% federally), or just over $300/year.

[Jerry J. Fortin]

Hey Saturn who the hell are you anyway? Just a guess but I would say that you have no wife, no kids, and are making about 60k a year. You are probably 21-30 years old and are complaining that taxes are eating up you recreation fund or just cutting into your beer money.

Look fella, I have been paying taxes since 1970. I have watched services decline and debts stack up with governments. Bureaucracies have grown and taxes have skyrocketed. The problem here is bean counters and politicians, graft and corruption.

Taxes reflect all that goes on in government. Right now the government is vote buying with targeted tax breaks that reflect a majority position. Its politics. The cold hard reality is that taxes are regressive in nature and constitute a net reduction in disposable income. Given that this is a consumer society it would make sense to reduce taxation to provide a greater amount of purchasing power for the consumer.

However having said all this, the government doesn't not play fair. You see most government programs reflect household income. Yet come tax time this does not apply, its just every paycheck they can get their hands on that matters to them. Now if they were playing fair then everything would either be or not be based on house hold income. So my point is this. Make a level playing field and then nobody can bitch.

By the way Saturn, the vast majority of citizens in this country (85%) live in cities. Yes the cities create more wealth and provide more taxes to the government. But don't think for a second that us folks in the boonies want the government to build any swimming pools nearby. Its you folks in town that are whining about services and perks, its you 85 percent that account for a vast majority of spending. Take a reality break for a minute will you Saturn.

[Pat Coghlan]

I just find it very irksome when someone claims that a system with very generous benefits for parents and single-income families is somehow penalizing those families.

As the previous poster said, you are probably single and don't understand how the system actually works.

The avalanche of so-called benefits you refer to are clawed back based on your combined family income.

In my own situation, when I was in the private sector earning a much higher salary and supporting a stay-at-home spouse and 5 kids, virtually all of our benefit payments were reduced to zero (family income was high) and our tax liability was virtually identical to a single person with no dependents earning the same salary.

Another family with the same number of children and identical aggregate income would also have virtually all of its benefits clawed back, but if the income was earned 50/50 by both spouses then the family's tax liability would be about $9,000 less.

This is why two-income families drive two new cars, take a trip to Florida every year and are mortgage-free by age 45, while their one-income neighbours drive an old minivan, never travel, have an old minivan and are in debt up to their ears...in spite of earning the same - or even higher - aggregate income.

[jbg]

I live in the US but I doubt that my situation is that much different from a similarly postured Canadian. I am almost 50, have two children in grade school, and earn what I consider to be a decent living. Not including sales tax, my wife and I pay roughly 1/3 of our income to various levels of government in the form of income and property taxes. With sales and gasoline taxes added in, as well as hidden portions of those taxes (in New York for example approximately $0.15 per gallon of taxes on gasoline is hidden) I would venture to guess we pay about 45% of our income to the government.

As far as services we use, I will admit that we use a bit more than others. One of our children is "special needs" and is receiving extra school services. Luckily, the services are making it likely that he will enjoy an independent life, which long term saves the public money. My other child, of course, also attends school. We drive, so we use the roads. We make limited use of subsidized mass transit. However, I do understand that without the subsidies, the service levels would not attract people off the road. Thus, we benefit indirectly from those services. So on balance, I am not dissatisfied.

That being said, I agree with JJF that government tends to build excessively upon itself. Much of the school district's exenditures are incomprehensible, and not transparent. Thus, both sides of this debate have merit.

[Jerry J. Fortin]

Well jbg on most of the planet governments live fat on the taxes of their citizens. Some economies survive without income taxes though. Those need to be looked at by the rest of us. In most cases the efforts expended by governments are accepted by a majority of citizens.

My hang up with taxation and governments stems from what I would describe as a lack of accountability. For instance here in Canada and more specifically in Alberta, the government has a surplus of revenue to the extent that it has trouble spending all of it. Who would ever think that this is something that should trouble citizens? Here though is the problem, while a budget has its merits and contains the fiscal practices and policies of a government there is simply no accounting for and public debate on the excess funds. The government does what it wants with it. In my books that is the same as taxation without representation, they simply don't have the authority to spend that money.

At least in Alberta we no longer have any provincial public debt, there are some pension funding liabilities but there are no outstanding loans owed by the government. Having said that, the government is in a surplus position and at the same time has numerous infrastructure issues. One would tend to think that these issues would have been accounted for in some form or manner through the provincial budget, unfortunately that is not so. There is always some group of individuals or some public organization that desires funding at the expense of the tax paying citizen. There is simply no way around some of these pressing social issues, they must be addressed. Therefore the government is under constant pressure to support both individual and group efforts that benefit either society in general or some specific need of a segment of society. All the while the social dynamics are in fact constantly changing. The government is unable by design to be able to respond to the needs the wants and the desires of the public. Yet citizens do not recognize this simple fact.

Unfortunately the common perception is that taxation fuels government and therefore it is incumbent upon citizens to willingly participate in funding the governments efforts with our hard earned cash. The people believe that their contribution of funding to the government which in turn provides the revenue streams that maintain public programs and service to citizens within our society is contingent upon income taxes. Nothing could be further from reality and yet the paradigm continues. I honestly believe that it is time for some substantive changes in public perception. It is time to begin to dismantle the carefully crafted wall of public apathy which successive efforts of numerous governments have endeavored to create. Once the public becomes involved within the political process change is inevitable. The time for that is now, right damned now.