Showing posts with label tax cuts. Show all posts
Showing posts with label tax cuts. Show all posts

Monday, March 21, 2011

The Job Creator Myth

The Harper Government (c)(tm)(r) has spent months promoting the Liberal tax cuts it inherited as being job creators. Well reality of course is a smack in the face with a wet dishrag sometimes, and in the case of tax cuts to corporations=job creation well, that smack you hear is a hard dose of wet reality.

Canadian CEO's were surveyed by the Globe and Mail about how they will use the upcoming tax cuts they get from the Harpocrites and job creation was not a priority in fact doing the same old same old, that is by definition NOT adding productivity to their operations (something the Bank of Canada has complained about) but just pocketing the tax breaks.

While these CEO's in the same survey challenged the government to invest more in R&D, with their pending tax cut they put the same amount into R&D as they proposed to put into hiring, the very source of productivity. In other words 'please sir can I 'ave some more" say the real begging class; the government should invest in areas we are not willing too. Can you say corporate welfare. These are the so called job creators the Harpocrites are using to justify their Liberal tax cut.

What will you do differently as a result of the corporate tax cut?

No change: 31%

Re-invest in business: 26%
...
Don’t know: 11%

Other: 11%

Grow business: 10%

Research and development: 6%

Hire more people: 6%

Almost three in five executives said investing in education and training should have a high priority in the budget, while 52 per cent said investing in research and development is key. Transportation and infrastructure were a top priority for 42 per cent of those who responded, while attacking the deficit came in fourth place – a high priority for 39 per cent of executives.

Friday, March 04, 2011

Tax Breaks=Corporate Welfare

The Conservatives are out promoting the Liberal Tax breaks for corporations they inherited...claiming that our poor Canadian Capitalists need tax breaks so they will be encouraged to create jobs. While economic reality says that Canadian workers are paying taxes to their bosses who are rolling in money. And the reason for existing deficits Federally and provincially is because of corporate bail outs of Big Auto.

In keeping with the government’s vision of making Canada a low-tax jurisdiction, the Conservatives have been gradually cutting taxes on corporate profits since 2007.

By 2015 under this plan, the share of federal government programs paid for by corporate income taxes will have shrunk to 12.3 per cent from 20.8 per cent in 2000.

Do we really want to 'look more like Ireland?'

Shortly after rolling out the Harper government’s first budget in 2006, a boisterous Finance Minister Jim Flaherty was asked during a visit to New York what Canada would look like in five years under a Conservative majority regime.

“It will look more like Ireland — more dynamic, more attractive to investors, brighter, more positive, outward-looking,” Flaherty said in a published report of his comments.

Perhaps in part due to his Irish heritage, Flaherty has long been a fan of Ireland’s fundamental economic strategy — rock-bottom corporate income tax rates.

But with Ireland's low-tax Celtic Tiger now dead, the Harper government no longer cites the Irish example to promote corporate tax cuts in Canada. Nonetheless, despite the dire state of Ottawa's finances, the Conservatives are sticking to the low-tax policy pioneered in nearly bankrupt Ireland.

Billions in profits boost bank shares

Banks in the United States and Europe are getting hit by bonus taxes and a welter of new regulation but here in Canada, where policy makers see less need to penalize the sector, the Royal Bank of Canada and Toronto Dominion Bank thrashed earnings expectations with combined first quarter profit of $3.4 billion, driving their shares higher.

Royal Bank of Canada, the country's biggest lender by market capitalization, had net income for the first quarter of $1.84-billion, up 23 per cent from last year. TD, the country's second biggest bank, had a profit of $1.54 billion, up from $1.3 billion amid record performance from retail banking in both Canada and the United States.

Canadian corporate operating profits rose to $65.5 billion in the last three months of 2010, Statistics Canada reported Wednesday, a 7.9 per cent increase over the previous quarter.

StatsCan said the increases were widespread across the economy, with 19 of 22 industries reporting higher earnings.

The rise followed moderate declines in the previous two quarters. Operating revenues were up 2.8 per cent for the sixth straight quarter.

Operating earnings in the non-financial sector increased by 7.3 per cent, with the biggest gains in mining and oil and gas.

Financial institutions climbed by 9.5 per cent as insurance firms rebounded from a poor performance in the third quarter. Chartered banks rose 5.6 per cent.

Profits up 9% for the year

Compared with the same period a year earlier, operating profits for all industries were nine per cent.

By the end of 2010, profits had grown by 5.5 per cent since the beginning of the recovery, regaining 56 per cent of the ground lost during the recession.

It's looking like a better year for dividend increases

Please sir, I want some more dividends.

Flush with cash and encouraged by a strengthening economy, companies are doling out dividend increases to the delight of yield-hungry investors.

And with corporate profits rebounding strongly, the trend is likely to gather momentum over the next couple of years, analysts predict.

This month alone, Canadian companies including Rogers Communications Inc., Shoppers Drug Mart Corp., TransCanada Corp. and Russel Metals Inc. have raised their quarterly payments, signalling their confidence in both the economy and the strength of their balance sheets.

Armine Yalnizyan: Five economic reasons to say no to more corporate tax cuts in Canada

Least effective job creation measure: According to the nation’s official number crunchers, if you want policy to encourage job creation, cutting corporate taxes is the weakest option (20 cents growth from every dollar of tax cut). Spending on infrastructure has the most impact ($1.50 on every dollar spent). The Department of Finance shows that spending on income supports for the unemployed and for low-income Canadians has an equally big pop, and housing initiatives are almost as good ($1.40 for every dollar spent).

Little impact on investments: Federal corporate tax rates have fallen from 28 percent in 2000 to 18 percent in 2010. Business investment (in non-residential structures and equipment) as a share of GDP was 12.4 percent in 2000. It was also 12.4 percent in 2009, and on track for the same in 2010. In the 1960s, the heyday of industrial expansion and economic development in Canada, the federal corporate tax rate was 40 percent. Statistics Canada’s data on business investment starts in 1981. That year the federal corporate tax rate was 36 percent, and business investment represented 11.5 percent of the economy. By 1990 the federal corporate tax had fallen to 28 percent. Business investment had fallen to 10.8 percent of the economy. There are many factors that drive business investment practices, and while taxes are a consideration, they are not the primary factor in investment decisions. The historic evidence shows that a commitment to this strategy is a costly faith-based proposition.

Pay more tax to cut taxes: Since fall 2010 the Harper team has been saying corporate tax cuts “pay for themselves”. But Budget 2009 figures show that reducing the general corporate tax rate from 22.12 percent in 2007 to 18 percent by January 2010 removed $6.7 billion annually from public coffers, right through the worst of the recession. Cutting the rate further this year to 16.5 percent meant another $2.8 billion in foregone revenues annually. The Harper team’s commitment to reducing the corporate tax rate to 15 percent will reduce the size of the public purse by $13.7 billion annually by 2012, according to Finance estimates, at which time the federal budgetary deficit will be between $21 and $26 billion (the range of Finance, PBO and IMF estimates). Financing this tax cut requires borrowing more money. The average Canadian taxpayer will pay interest on the borrowed money to provide a tax break for profitable corporations.


Sunday, February 06, 2011

Canadian Business Not Productive

Despite the tax cuts given to corporations by both the Liberals and Conservative governments, it has not translated into increased productivity, that is both technological innovation and job growth. So the Harpocrites latest national tour promoting Job Creation Through Corporate Tax Cuts, is all a dog and pony show, the facts don't meet the rhetoric. For five years tax cuts have not resulted in increased RD investment by corporations nor investment in technology upgrades, and of course few new jobs.

But hey if you don't believe me how about these guys:

Canada has made major public investments in research, primarily through universities, but private-sector innovation has remained relatively weak. The OECD ranks Canada as 16th in business spending on R&D as a share of the economy, despite having the second-highest level of government support for such investment. The overall policy and economic environment has become much more encouraging over the past decade. The marginal tax rate on new business investment has dropped sharply, making Canada more attractive internationally and opening a significant tax advantage over the United States.

Thomas d’Aquino and David Stewart-Patterson are the former chief executive and president and executive vice-president of the Canadian Council of Chief Executives and co-authors of the book Northern Edge: How Canadians Can Triumph in the Global Economy. Read more: http://opinion.financialpost.com/2011/01/25/unleashing-innovation/#ixzz1DCwwrEmV


And of course Bank of Canada boss Mark Carney regularly reminds us that corporate failure to invest results in lack of productivity. So why give them tax cuts, clearly it doesn't increase productivity or create jobs.

In fact continued tax breaks federally and provincially to Big Oil has had a negative impact on jobs in Canada.

A 2009 Industry Canada report found that 54 per cent of Canada's loss of hundreds of thousands of manufacturing jobs since 2002 is due to the oil sands boom replacing good, stable employment with short-term construction work in the tar sands and low-wage service sector jobs elsewhere in the economy. Canada has lost one-third of its post-war gains in value-added (manufactured) exports since 1999/2000, Canadian Auto Workers senior economist Jim Stanford told the Institute for Competiveness and Productivity in 2008.

The problem is not worker productivity, since workers in Canada are highly productive, its investment in actual technology.

The Canadian manufacturing sector employed more than 2.3 million people in 2002. By last September, manufacturers had shed some 580,000 jobs - more than one in four – and most of these losses occurred before the recession. There are few signs that this trend will reverse itself soon.

the fall in manufacturing employment was largely due to attrition, not layoffs. And one of the surprises of the recession is that manufacturing unemployment is now lower than it was before the recession – although this result was largely achieved by workers leaving the sector altogether.

But it’s a puzzle nonetheless: output per worker in the manufacturing sector has been increasing more than three times as fast as the economy as a whole. If productivity growth is the key to sustained prosperity, then shouldn’t manufacturing be increasing in importance?


Tax cuts have not created jobs, since corporations have used the break to accumulate capital which if invested at all is invested in the stock market and in mergers and acquisitions, not in workers wages, technology or pensions.

Corporations in this country are flush with cash and ready to grow.

"In some ways, corporate Canada has never been stronger than it is right now," Tal said.

"Better-than-expected profitability and a reluctance to spend in recent years has left Canadian businesses sitting on a record amount of cash and confident about the future.”

Swift and strategic downsizing during the recent recession paid off, Tal said. It allowed companies to withstand the downturn and ramp up hiring at a much faster clip than in the U.S.


In fact both private corporations and ironically our public pension fund the CPP have led the way in taking that capital and investing it abroad.

Foreign investment is a two-way street.

The Canada Pension Plan Investment Board and Onex took top honours for the biggest global private equity acquisition of the year with their $4.4-billion purchase of U.K. manufacturing giant Tomkins.

PricewaterhouseCoopers suspects Canadian companies will continue look past North America to emerging markets for better deals.

Last year, Canadians made major “buys” in nearly every continent with deals in the fourth quarter alone stretching to the Middle East, Asia and Africa.

“These transformational deals are beacons for what will become the norm for Canadian deal making going forward,” Knibutat said.

Joint ventures and minority purchases will also become more popular, it said. These deals allow companies to test drive sectors while minimizing financial and political risk, PricewaterhouseCoopers said.

“Organic growth prospects within North America remain limited, so for many well capitalized corporates and funds, M&A may be the best and only tool for growth,” Knibutat said.

A “perfect storm” of companies flush with cash, improved access to financing and lacklustre organic growth prospects means the M&A outlook is even brighter for Canada in 2011.

Global public companies have an estimated $3 trillion in cash reserves. Private equity firms hold another $500 billion.

Competitive tensions stemming from strong takeover demands are likely to entice sellers back in the market and that should create a more balanced number of buyers and sellers, PricewaterhouseCoopers said.

All this means Canada will likely continue to outpace the globe when it comes to M&A activity, buoyed by a well-capitalized financial system, strong dollar and leadership in hot deal sectors.

So rather than calling corporate tax cuts job creators, we should call a spade a spade; all that tax cuts do is reduce government revenue, social capital, while giving corporations more capital. Tax cuts are public funding of private profits, without having shareholder benefits. Tax cuts are corporate welfare.

A broad look at how corporate tax rates have changed Canada in the past suggests the impact of the small cuts planned for this year and next is marginal for most companies.

The larger impact is on the government's bottom line, not the corporate bottom line — even though corporate taxes have now become key in determining whether there will be a spring election.

Indeed, federal Finance Department documents show that the reduction of corporate income tax — from 18 per cent in 2010 to 16.5 per cent in 2011 and then to 15 per cent in 2012 — will be expensive for any government battling a deficit. The cost is about $1.6 billion in foregone revenue in the 2011-2012 fiscal year, $3.9 billion the year after, and a total of more than $10 billion over three years.



Tuesday, January 01, 2008

2008 Year Of Corporate Welfare

The corporate tax holiday that begins today and will only continue on a downward trend promises the Harper. So you have to ask who pays to make up for this? Why you and I off course. In 1960 the 41% tax rate made up over 60% of all government revenues. As it declined that need to make up the difference shifted to Joe and Jane Canuck.

In the nineties the Liberals discovered that in order to balance their deficit budget they could dig into payroll taxes, and re-jigged Unemployment Insurance renaming it Employment Insurance and restricting workers access to it. The resulting savings they made off the backs of Canadian workers created the federal surpluses. Which the Conservatives have inherited and continue to use to offset the corporate tax breaks they give to their Bay Street pals.

Profits have risen for corporations thanks to these tax breaks but instead of plowing them into productivity they have continued to rely on cutting production costs; that is laying off workers, to create more with less, while investing their cash in the stock market.

Tax breaks for corporations is welfare for the less needy, or as my pal Larry Gambone calls it Socialism for the Rich.


The image “http://myblahg.com/wp-content/uploads/2007/10/corp-taxrate.jpg” cannot be displayed, because it contains errors.

Graph courtesy of My Blahg.


SEE:

Flaherty's Tax Deception

Flaherty's Smoke and Mirrors

Tax Cuts For All

Tax Cuts For The Rich Burden You and Me

Tax Fairness For The Rich

Who Pays


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Monday, December 31, 2007

Harper Recycles


Stephen Harper, taking a page from Ralph Klein, is recycling old promises and announcements. Guess that's what he considers being Green.

PM kicks off final GST cut at electronics store

Mr. Harper wound up 2007 by holding a news conference at a Mississauga store on Monday to trumpet tax cuts his government has made and which take effect at midnight.

As the year turns, the GST will drop to 5 per cent, something that Harper's government announced months ago.

Mr. Harper said Canadians should not expect further tax cuts in 2008, adding that his government will be cautious on tax relief or new spending.

Even this is not as big a tax break as the corporations are getting thanks to Harpers generosity with our tax money. And what you save in GST you pay back in payroll taxes.

Starting Jan. 1, Canada's corporate tax rate will be trimmed to 19.5 per cent from the current 22.12 per cent. This rate is slated to come down each subsequent year until it is reduced to 15 per cent on Jan. 1, 2012.

As well, the tax rate on small businesses with incomes under $400,000 drops to 11 per cent from the scheduled 11.5 per cent rate.

Of course, what the government giveth, it often takes away and Ottawa has also brought in a slight increase in so-called payroll taxes.

The taxpayers federation estimates that employees will pay an additional $50.43 in 2008 on employment insurance and the Canada Pension Plan, while employers will pay $46.02 more per worker.

And it is the payroll taxes, EI specifically that creates the record Government Surpluses whether that government is Liberal or Conservative.

And note that workers still pay more than employers. Time to abolish taxes on the working class!

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Tuesday, November 13, 2007

Flaherty's Tax Deception


The reason the Conservatives have a surplus is because income taxes remain high. The recent Flaherty roll back was only to the level that had existed under the Liberals.

Tax Fairness? Hardly. The rich continue to get tax breaks, the working poor face claw backs and the middle class pays more in taxes.

And other than the window dressing of rolling back the Conservative created GST (not eliminating it) not much tax relief came out of all the smoke and mirrors pre-election mini-budget.

Instead all that Flaherty did was dress up for Halloween as the Wizard of Oz.



The federal government's personal income tax cuts were relatively modest, and for the most part merely a rollback of the tax increases in his first budget, according to an analysis by a think-tank that was involved in preparing projections for Finance Minister Jim Flaherty's recent economic statement.

And those measures will only temporarily ease the personal income tax burden, and not by much, and won't keep that burden from rising in the future, says the analysis Wednesday Global Insight's chief economist Dale Orr, which warns that burden will rise in the years to come.

"Finance Minister Flaherty is fond of telling us that Canadians pay too much tax," it said, noting that last week's economic statement promised about $60-billion in tax relief over the next five years.

However, almost 60% of that is the goods and service tax reduction, a cut that Global Insight say will do little to boost the overall performance of the economy.

"Only 18% is in personal income tax reductions," the report said. "From almost any perspective, the personal reductions in the economic statement were very small, smaller than they could have been, and smaller than they should have been."

The economic statement, which was widely perceived as a pre-election mini-budget, reduced the lowest personal income tax rate to 15% from 15.5%, retroactive to January 1, 2007. It also increased the amount people could earn before being taxed, providing $10.9-billion in personal income tax relief over the 2006- 2013 period, with about about half of it this year and next.

"What the Finance Minister Flaherty didn't tell us is that the lowest marginal rate was 15% in 2005, and in 2006 until the Conservative government raised it to 15.5% in budget 2006, to help finance the first GST reduction," Orr said, adding that the rollback of the earlier Tory tax hike accounted for almost 80% of the total personal income tax relief .

"Thus, this personal income tax 'relief' is relief only because the Conservative government took it away in their budget 2006, to have it restored again in the November, 2007 economic statement."

And the amount of "relief" is tiny relative to its impact on the personal income tax burden, which is measured as the proportion of personal income paid in personal income tax, and it's temporary, the analysis argues.

The rollback of the earlier tax hike reduces that burden slightly to 9.8% this year from 10.1%, but the tax burden will rise back to 10.1% next year as the projected increase in after-inflation earnings pushes more income into higher tax brackets, it said.

While tax brackets rise with inflation, any real or above-inflation increase in incomes, means more of that income is taxed at higher rates, Mr. Orr explained in an interview, adding that were it not for the re-indexing of the income tax system, which occurred under the former Liberal government, the tax burden would rise even faster.

"Roughly speaking, if personal income increases by five per cent, federal personal income tax collections will increase by about six per cent of $7-billion a year if the increase in personal incomes is evenly spread across the income distribution," it said. "Personal income tax collections ... are the proverbial 'cash cow'."

In fact, in recent years the faster growth in incomes at the upper-income level has resulted in personal income tax collections rising by closer to eight per cent for every five per cent increase in personal incomes, it said.

The analysis, for example, calculated that for every $100 increase in income an individual's income the government collects an extra $29 from an upper income tax-filer but just $15 from a low-income one.

The analysis was prepared for Global Insight clients which include governments of virtually all stripes and corporations, Mr. Orr said.

Canada's rich pay less in taxes than poor, report finds

OTTAWA — The era of tax cuts ushered in by federal and provincial governments in recent years have made Canada’s tax system so regressive that the country’s richest now pay the lowest rates of all income groups, says a report to be released Thursday.

The report by the Canadian Centre for Policy Alternatives, an advocacy research group that has pressed in the past for more social spending and bigger taxes on corporations and higher-income Canadians, looked at what percentage of income Canadians pay in taxes to all levels of government.

The study shows that Canada’s progressive tax system has become less so between 1990 and 2005, and for the richest Canadian families — those with annual earnings of $266,000 a year and more — the era of tax cuts since the turn of the century has been like manna from government.

Those very rich Canadians paid 30.5 % of their income in federal, provincial and municipal taxes in 2005, as opposed to the 30.7 % for those with incomes under $13,523, the lowest 10 % of family earnings.

That’s a big difference from 1990, when the top 1 % of earners paid 34.2 % of their incomes in taxes, as opposed to 25.5 % for families in the bottom 10 %.

“The tax system as gotten less progressive,” said the group’s senior economist Marc Lee.

“There’s something in the overall tax system now that most people would find offensive. The idea that someone who is in the upper middle class is paying a higher tax rate than someone much wealthier is not fair.”

In last week’s mini-budget, Finance Minister Jim Flaherty cut the GST as well as personal, corporate and other taxes by $60 billion over five years, declaring that “Canadians pay too much tax.”

In recent years, several provincial government have also cut taxes, but in many cities, property taxes and users fees have been rising as local governments try to cope with rising costs and service demands.

The highest taxed Canadian families are those earning between $120,000 and $151,000, who pay 36.9 % of their income in taxes. This group is followed closely both those earning $57,460 and $72,299 — whose tax bill represents 36.5 % of their total income.

Lee said his report is different from other such analyses in that he included all sources of income, including salaries, inheritances, employer provided benefits and capital gains. As well, the report calculates all taxes, including property and corporate taxes and user fees charged by governments.

He said he chose the 1990 to 2005 timeline because the last time a similar methodology was used to analyze the Canadian tax system was in 1988, and because the 15 years covers a time of government deficit cutting and tax hikes, followed by several years of tax cuts.

The main finding is that on average, tax rates dropped by 2 % between 1990 and 2005 as both federal and provincial governments undid the tax increases of the 1990s with deeper and broader reductions.

But the relief wasn’t spread equally. Those in the top 1% of earners actually saw their tax bill drop by about 4%, whereas those at the very bottom saw the take rise by 5%.

Lee said although the lowest income earners generally pay no or very little income tax, they do pay a disproportionately high amount in relation to their income in sales taxes, property taxes and other government revenue generators, such as gaming and liquor sales.

Tax cuts by provinces was the main impetus behind the flattening of the system, says Lee, although federal cuts, such as the elimination of the 5% high income surcharge after 2001 also reduced progressivity.

Provincial taxes are less progressive than federal levies because of their greater reliance on sales tax and fees for such things as driver’s licences. As well, provinces generally have flatter provincial income tax rates.

“Provincial income tax cuts are the major culprit behind Canada’s eroding tax fairness, an important consideration given allegations by the provinces of a fiscal imbalance in Canadian federalism,” the report finds.

Upper-income earners benefited from a 2001 federal decision to eliminate the 5 per cent "high-income surtax" and from preferential treatment of capital gains from the sale of stock market shares and real estate.

The affluent were also better able to take advantage of increased allowable tax deductions for RRSPs, Lee said.

At the other end of the scale, low-income earners saw their tax rates accelerate as a result of increases in payroll, consumption and property taxes, as well as user fees.

The analysis concludes that there is scope for raising income taxes at the top of the income ladder to make the system fairer.

"Such changes would help to ensure those who can afford to contribute more for public goods and services valued by all Canadians can do so," the study says.


Tax cuts won't buy a cup of coffee
Analyst says savings for low-income earners are, at most, 39¢ a day

Unveiling tax goodies on mini-budget night, a beaming Finance Minister Jim Flaherty declared to a national audience that "these tax cuts will move some 385,000 people off the income tax rolls altogether."

Sound good?

It should. This kind of thing has been a staple of federal budgets for many a year.

But analysts scoff at this supposed manifestation of a government's goodwill toward Canadians at the bottom of the financial scale.

In fact, there's widespread agreement the tax changes introduced by Flaherty do little to improve the lot of low-income earners.

"Don't get sucked in by that," says TD Bank chief economist Don Drummond when asked about Flaherty's claim 385,000 people won't pay federal tax as a result of the Oct. 30 mini-budget. "Most of those people were paying $5 or $10."

He said he completely agrees with the idea that someone earning under about $14,000 should not be taxable. "But just bear in mind the amount of taxes they are paying. It's not a very meaningful statistic."

The main lever used in Flaherty's mini-budget to ease the tax burden on low-income Canadians was raising the basic personal amount that can be earned without paying federal taxes to $9,600 – an increase of $671.

The people supposedly removed from the tax rolls, then, are those whose taxable earnings would have been slightly higher than the old threshold of $8,929.

"There are people who would be just barely above the amount of the non-refundable credit, so, in effect, you put them in a zero tax position," says Hugh Mackenzie, a research associate with the Ottawa-based Canadian Centre for Policy Alternatives. "They're not eliminated from the tax rolls. The position that they find themselves in is that when they go through the tax calculation, they find at the end of it they don't owe anything.

"It's not as if these people are exempted forever from paying tax," Mackenzie added. "As inflation goes on and economic circumstances change, you could have a very similar income and find yourself taxable again."

In his mini-budget, Flaherty also said he is helping taxpayers by dropping the lowest personal income tax rate to 15 per cent from 15.5 per cent. This helps all taxpayers but is proportionately more helpful to those with low incomes.

But Flaherty's budget measures still aren't great news.

Cutting the lowest tax rate will return about $1.3 billion a year to taxpayers, notes Drummond. "When you've got 20 million paying taxes, $1.3 billion doesn't go very far."

However, he says, the Harper government decided to spend the money it had for tax cuts on reducing the GST another percentage point to 5 per cent.

With a GST cut, "there's no incentive to work, save and invest. In fact, if it gives any incentive, the incentive is only to spend more and consumption is not one thing the Canadian economy is short of by any means," Drummond said.

As a result, Flaherty's income tax moves do little for Canadians with the smallest earnings packets, economic analysts say.

First of all, it's universally noted the reduction in the lowest income tax rate to 15 per cent only reverses a tax increase brought in by Flaherty in his 2006 budget. Taxpayers are getting a benefit they would have received anyway had he not raised income taxes last year.

It's a similar situation with the increase in the basic personal amount to $9,600. Flaherty is only moving forward increases in that tax break put in place by the Liberals in 2005.

Taken together, the Oct. 30 measures will provide only very modest help for low-income earners.

The CCPA's Mackenzie estimates the mini-budget changes will result in a maximum income tax reduction for individuals of $242 in 2007, $187 in 2008 and $144 in 2009.

For a single parent, the maximum reduction is $298 in 2007, $184 in 2008 and $94 in 2009, he said.

And those savings will be less for anyone with an income below about $38,000 a year, Mackenzie said. So, as a result of the way taxes are calculated, Flaherty's income tax changes will amount to a gain of at most 39 cents a day for a single individual and 25 cents a day for a single parent, he estimates.

It marginally helps people with very small incomes, says Rob Rainer, executive director of the National Anti-Poverty Organization.

"But we're not going to see any major, substantive visual evidence on the streets, so to speak, of people really having their financial fortunes reversed by this," Rainer said.

Analysts and anti-poverty advocates agree that Canadians must go way beyond tax cuts if they are going to use government fiscal measures to effectively reduce poverty.

Reducing taxes for those at the low end of the income ladder only helps if governments refrain from cancelling out any benefits by clawing back income supports and social assistance as taxpayers' incomes begin to rise above the subsistence level, economists stress.

These clawbacks, designed to keep support programs from becoming too expensive, act as a disincentive for low-income workers to extend their hours or upgrade skills because the reduction in social benefits, combined with rising tax rates, leave them with less money. As a result, what economists call their marginal effective tax rate can reach the same level or higher than top income earners.

"You really have to get the effective rates on low-income people down," says Dale Orr, an economist with Global Insight. "Some of these people are subject to very high effective marginal rates because they lose tax credits and subsidies and things. So we really have to do something better for them."

The federal Conservatives have taken a step in this direction, introducing the Working Income Tax Benefit, a $550-million-a-year program designed to help eliminate some disincentives for low-income earners. However, critics say it needs to be expanded to be of maximum value to working families.


Federal government shows no interest in making Canada better
Lana Payne
The Telegram

Before kids even go to school, we expect them to connect the dots.
My daughter has been doing it for years and she’s only 6. When she’s finished connecting the dots, she is left with a clear picture that she then colours a multitude of shades and hues.
You soon learn, though, that children are very good at connecting other kinds of dots. At Thanksgiving, like most kids in the city, she was asked to bring items to school for the food bank. We talked to her about food banks and explained that not everyone had enough money to buy food, pay bills and buy clothes for their kids. And that food banks help, but they are not the answer.
This must have stayed on her mind, as a few days later she asked, out of the blue, if we had food banks because “rich people didn’t share enough.”
Canada’s not-so-new prime minister and his blustery finance minister are counting on us having forgotten to connect the dots.
They certainly don’t want us questioning their tax-cut agenda and the damage it is causing and will continue to have on the country’s social fabric.
They most certainly do not want Canadians contemplating this failed and flawed public policy.
Because if Canadians start connecting the dots, they may discover that despite tens and tens and tens of billions of dollars in tax cuts, they are still not feeling that financially secure.
Despite a 30-year unemployment low, despite more than a decade of government surpluses and despite unprecedented economic growth, Canadians are a worried lot — at least according to polling by the Canadian Centre of Policy Alternatives.
It may have something to do with all the debt families are carrying and a lack of household savings. Or it may be because real wages, excluding inflation, have not increased since the recession year of 1981-82.

Not shared
It’s no wonder Canadians are feeling a little shaky. After all, the country is generating more wealth than ever before, they see politicians giving away billions, but it isn’t filtering down to them.
And despite this failed and unimaginative economic policy of tax cutting, the federal Conservatives persist with the finance minister announcing at the end of October another $60 billion in tax cuts — almost 25 per cent going to corporations.
This is what Canadians do know and what Stephen Harper ought to fear.
They know how expensive it is to send their big kids to university or college because taxes haven’t been used to reduce the cost of post-secondary education.
They know that only the lucky and the fortunate can access affordable child care and early learning programs for their smaller kids. They know that tax cuts won’t repair mould-infested schools. They know tax cuts won’t build bridges or pave roads. Nor will they build hospitals, buy cancer-treatment equipment or pay home-care workers a decent wage. Tax cuts do nothing for homeless people, except keep them homeless.
And tax cuts for corporations do even less, except feather a few already cushy nests.
Canadians know that the last thing hugely profitable corporations need is more of their hard-earned cash. Yet the Harper Conservatives have done just that, handing over another $14.8 billion in corporate tax cuts, including to obscenely rich oil and gas multinationals.
It’s no wonder a study last week by the Centre for Policy Alternatives discovered that Canada’s tax system is becoming less and less progressive. According to the report, by economist Marc Lee, the richest one per cent of families pay a lower percentage of their income to governments than the poorest.
Lee’s conclusion was that Canada’s tax system, after years of cuts, now fails a basic test of fairness.
And this was before the Conservatives’ latest round of tax cuts, which had many economists warning that Harper had slammed the door on any new major programs.
What a waste. This money could have made a real difference in the everyday lives of Canadians. An average $200-a-year individual tax cut won’t buy a coffee a day. But collectively, it could have done a lot of good.
That’s, of course, if you are interested in making that difference in the first place.

Government doesn’t care
What is becoming increasingly clear is that Canada’s slightly used Conservative government has no interest in that. They are much too busy managing the public relations of a war, shutting out the media and playing politics.
And while they play politics — fencing with each other over who is the sharpest politician in the lot — another child’s sense of wonder is dimmed by poverty because government chose tax cuts over action.
And that is the whole problem. We have a federal government that doesn’t believe in government, and so most days are spent dismantling and diminishing government as a force of change.

The message to Canadians is: don’t look to Ottawa to be part of the solution.


Unfair burden on poor

EDITORIAL
TheStar.com


Whether taxes are high or low, they ought to be fair, with those with the greatest ability to pay contributing a larger percentage of their income than those with less ability to pay. Such a progressive tax structure has long been a core Canadian value – at least in principle.

But the reality of our current tax system tells a far different story.

In 2005, the richest Canadians actually paid a smaller share of their income in taxes than those who earned the least. In a country that prides itself on fairness, all levels of government took a combined 30.7 per cent of income in taxes and fees from those with incomes under roughly $13,500, but only 30.5 per cent from the top 1 per cent of Canadians, those with incomes of more than $265,800 a year.

In the broad middle between the poorest and the richest, the tax system was mildly progressive, which means that the very richest Canadians paid a lower overall tax rate than any other group.

These findings come from a new study by the Canadian Centre for Policy Alternatives, which looked at changing taxes from 1990 to 2005, a period when the rich were getting richer and the poor poorer. Astonishingly, it found tax cuts had exacerbated that trend.

During this period of big tax cuts, the overall tax rate for most Canadians fell 2 percentage points. For the wealthiest, the drop was 4 percentage points. But while others were getting tax breaks, the poorest Canadians saw their tax rate rise more than 5 percentage points.

By their very nature, some taxes are regressive, hitting the poor harder than the middle class and the rich. Property taxes are one such tax and while they took a diminishing share of everyone else's income over the period, for the very poor they took a rising share, increasing to 5.9 per cent in 2005 from 5.1 per cent in 1990.

Sales taxes, which are also regressive, had the same effect. Rising more slowly than income for most Canadians, they increased significantly relative to income for the two lowest-income groups.

But if that wasn't bad enough, cuts in progressive federal and provincial personal income taxes favoured those with higher incomes, particularly the rich, at the expense of the poor. To create greater fairness, Marc Lee, the study's author, suggests hiking taxes on the rich.

But taxing the rich would do nothing for the poor. It is far more important to tackle poverty head on, and raising incomes of the 10 per cent of Canadians who live on less than $13,500 a year.


See:

Flaherty's Smoke and Mirrors

Tax Cuts For All

Tax Cuts For The Rich Burden You and Me

Tax Fairness For The Rich



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Friday, November 02, 2007

Flaherty's Smoke and Mirrors



More evidence of the Harpocrites Tax Unfairness. Business got the biggest tax cut while you and I got crumbs.

And even though many in booming Alberta are better off now than they were a decade ago, the taxation on working families earning median incomes; $40-$60,000, are paying for the tax cuts to business.

Simply put it is our taxes paying for Flaherty's corporate welfare while the Conservatives fail to invest the remainder of our money in much needed social programs.


Economists say the personal income tax relief in the Harper government's Tuesday mini-budget is paltry and does little to improve incentives to work, save and invest in a country already suffering from weak productivity growth.

The overall tax breaks that Finance Minister Jim Flaherty doled out this week will ramp up to $14.7-billion annually within five years, but less than 11 per cent of that went toward personal income tax rate cuts. Only about $1.5-billion is directed at lowering personal income tax rates, in this case cutting the lowest bracket rate to 15 per cent from 15.5 per cent.

Global Insight (Canada) chief economist Dale Orr calculates that the personal tax burden on Canadians keeps rising despite the Conservatives' fall mini-budget.

"This puts the small magnitude of that [mini-budget] relief into perspective," he says.

As a result of the relief Mr. Flaherty offered, personal income taxes collected by Ottawa as a share of all personal income fall to 9.8 per cent this fiscal year from 10.11 per cent. But then they rise to 10.12 per cent and soar to 10.94 per cent by 2012-13, only slightly less than where they would have been without the mini-budget.

The marginal effective tax rate on personal income - the tax paid on the next dollar of income someone earns - remains extremely high for most earners in Canada.

Typical marginal effective tax rates for families with children climb above 50 per cent for incomes in the $20,000 to $30,000 range and exceed 60 per cent for those earning $30,000 to $40,000, according to calculations by C.D. Howe Institute research director Finn Poschmann.

For most families, the rate doesn't drop below 50 per cent until incomes hit $45,000.

Edmonton's economic boom is making the rich richer, but most households are barely better off than in 1981, says the Edmonton Social Planning Council.

In making the comparison today, the council reached back to the peak year of the last big oil boom, rather than to the leaner intervening years.

It makes sense to compare "apples-to-apples" boom years, council researcher John Kolkman said as the non-profit agency called for more than $1 billion in tax breaks and increased spending for low-income Albertans.

Using Statistics Canada figures, Kolkman said the median earnings level - the point where half of income earners make more and half earn less - stood at slightly more than $32,000 in 1981, and only $300 above that in 2005. He adjusted 1981 earnings to equate them to the dollar's 2005 buying power.

Even so, in inflation-adjusted terms an increasing proportion of Edmonton-area families are making $100,000 or more, the Statistics Canada numbers show. Back in 1981, about 27 per cent of families were making at least that amount, in 2005 dollars. As of 2005, more than 30 per cent were in that earnings range.

About 55 per cent of families in 1981 were earning between $40,000 and $100,000 in inflation-adjusted 2005 dollars. The middle-income range accounted for just 43 per cent of families by 2005.

About 18 per cent of families earned less than $40,000 in 1981, using the same inflation-adjusted dollars. Families in that lower-income range peaked at about 38 per cent in 1995. As of 2005, they accounted for 27 per cent.

"A greater percentage of families are doing better," Kolkman said. Even so, he said some families that were once middle income have since lost ground.



SEE:

Tax Cuts For All

Tax Cuts For The Rich Burden You and Me

Tax Fairness For The Rich


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Income Trusts; Predatory Capitalism


Predatory capitalism comes to the oil patch through this Income Trust merger. Another consequence of the Harpocrites Halloween surprise last year. And clearly farmer Ed's Royalty compromise has not impacted these guys.
Merger creates oil patch giant
Canada's newest energy powerhouse, forged yesterday by the proposed merger of Penn West Energy Trust and Canetic Resources Trust, is poised to challenge the oil patch's biggest players as it seeks even more aggressive expansion through acquisitions and new projects.

The new entity will be comfortably the country's largest oil and gas trust, with market value of around $15-billion and production of more than 200,000 barrels of oil equivalent a day. It will have the size to compete with some of the oil patch's biggest names, said executives of both companies.

The new company will not only be a leader in Canadian conventional light oil production, but its larger size will make it easier to access debt markets to fund significant developments in unconventional gas, enhanced oil recovery and even Alberta's oil sands, a region in which major projects have been the preserve of only the largest and most well-financed firms.

In addition, the company - which will operate under the Penn West banner for now, but may be rebranded in the future - is now buttressed against any potential foreign takeover and positioned to expand aggressively by taking over other trusts in Canada as well as assets in the U.S., said Penn West chief executive officer Bill Andrew. Last year's federal decision to make income trusts pay corporate tax from 2011 is perceived as having left such firms as more susceptible to domestic or foreign buyouts.

The friendly $3.6-billion cash and paper deal, which came together in a series of confidential meetings held in motels outside of Calgary over a three-week period, was facilitated in part by Calgary-based lawyer John Brussa, one of the original architects of Canada's income tax structure.

Income Trusts generate vast pools of capital which they can use to buy up other companies while retaining their ability to pay out dividends to coupon cutters.Income Trusts began in the oil patch in Alberta before becoming popular across Canada.

They are a product of the Alberta stock exchange lack of regulation and the Klein governments deregulation revolution. They avoid paying taxes thus allowing for higher returns to investors. They are a tax avoidance scheme for owners. And they still will generate value for their owners despite Flaherty's tax scheme which only comes into effect in 2011.

That will impact the coupon cutters far more than the companies real owners, the Class A shareholders and company investment managers. And by then the majority of Flaherty's corporate tax cuts will be in place enabling this trust to transform itself into a corporation again if it is a fiscal advantage.

In practical life we find not only competition, monopoly and the antagonism between them, but also the synthesis of the two, which is not a formula, but a movement. Monopoly produces competition, competition produces monopoly. Monopolists are made from competition; competitors become monopolists. If the monopolists restrict their mutual competition by means of partial associations, competition increases among the workers; and the more the mass of the proletarians grows as against the monopolists of one nation, the more desperate competition becomes between the monopolists of different nations. The synthesis is of such a character that monopoly can only maintain itself by continually entering into the struggle of competition.

Karl Marx
The Poverty of Philosophy
Chapter Two: The Metaphysics of Political Economy


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Thursday, November 01, 2007

Flaherty Saves Oil Patch


See the sky is not falling. Instead the boys in the Petro Towers in Calgary are hearing the sounds of pennies from heaven falling into their laps.

Oilsands stocks rallied yesterday on a US$4.15 jump in crude prices and optimism that Ottawa's surprise corporate tax cut could rescue producers from Alberta's oil and gas royalty increases.

Oilsands companies with long-term oilsands plans will be among the biggest beneficiaries of corporate tax changes proposed by Jim Flaherty, the Federal Finance Minister, on Tuesday, Andrew Potter, oil-and-gas analyst at UBS Securities Canada Inc., said in a research note.

The three most influential movers on the TSX were oilsands companies. EnCana Inc. jumped $2.96 to close at $66.10, Canadian Natural Resources Ltd. rose $3.46 to close at $78.56, and Suncor Energy Inc. was up $3.79 to close at $103.45. Crude prices jumped as high as US$94.74 a barrel, a record price when not adjusting for inflation, on a report showing that inventories in the United States are at a two-year low. Crude for December delivery closed at US$94.53, up US$4.15.

As the old adage goes what the government taketh away the government gives to them that has.

Personal income taxes are being positively impacted in two ways -- by cutting the lowest rate by a half-percentage point, and by raising the "basic personal amount" that someone can earn without paying any tax.

The two measures together will produce an average saving of about $275 a year for most working Canadians.

Better than nothing, but still less that the price of a Tim's coffee per day.

BIG BUSINESS WINS

Big corporations, on the other hand, are in for significant tax reductions over the next five years as the federal rate drops to 15% from more than 22% today.

By 2012, the total cost to the treasury of giving corporations such a break is expected to be just over $14 billion, or almost 50% more than all of Flaherty's tax cuts for individual Canadian taxpayers over the very same period of time.


SEE:

Tax Cuts For The Rich Burden You and Me

Tax Fairness For The Rich


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Thursday, October 18, 2007

Tax Cuts For All

Instead of capital gains tax cuts (which only impact the rich) or further tax cuts for corporations how about eliminating income taxes (payroll taxes) for working Canadians and families who earn less than $100,000 a year.


Tax break not dead: Flaherty
The Harper government is examining how to make good on its pledge to grant Canadians a capital gains tax break in the 2008 budget, says Finance Minister Jim Flaherty, who avoided the measure in the last two fiscal plans because of cost and design difficulties.

Mr. Dion's tax strategy, so far, is promising enough. He aims to cut the corporate rate to 18.5%, a rate that, however, coincides with the rate some corporate insiders have heard Conservative officials talk about. Is Mr. Dion scalping Tory policy?


While the average Canadian family earns far less than $100,000, those in professions and in trades earn above the average. Revenue Canada and Stats Canada define high income earners as having an income of over $113,000 annually.

An argument could be made for elimination of taxes at the $80,000 a year level, however due to geography this would have a negative impact on higher paid workers in the Arctic, Northwest Territories, Yukon, etc. where prices are also higher.

Also family incomes can be blended to reach $100,000. Whether we speak of eliminating income taxes for individuals at the $50,000 per annum income level or families at $100,000, I am open to debate on this issue. So far I have seen few who were willing to take me up on it right or left. Despite the tax tinkering being promoted by the Liberals and Conservatives.

Eliminating Income taxes on workers and working families would go a long way to eliminating the prosperity gap the NDP talks about. You will see from the statistical studies below that the income gap between rich and the working class grew, and that they benefited from reductions through tax cuts and tax credits, including the myth of how they pay more GST. In fact they don't since their monies are tied up in cars and homes and other consumer goods, but in stocks and investments, and in fact they pay less luxury tax than the average worker does when GST and PST are added up.

And while the stats show that income support payments from EI, welfare, AISH, etc. have a positive economic impact on the working poor, this would be better offset by a program that created a Guaranteed National Living Wage. Something the Green Party has joined the NDP in calling for though neither of them go far enough.

The Libertarian Party of Canada does advocate for the reduction of and maybe the elimination of income taxes. To be replaced by user fees to pay for the privatization of public services! While the CPCML adovcates Make The Rich Pay! which I agree with and in fact take a more libertarian position than the LPC or the so called fiscal libertarians in the Conservative Party!

During the last federal election, the Marxist-Leninist Party of Canada (MLPC) addressed the question of government revenue and taxation as follows:

"The Marxist-Leninist Party of Canada does not agree with the manner in which the issue of taxes is posed by the big parties and most media. Income taxes were introduced during World War I as a temporary measure and reflect an archaic viewpoint that owners of equity and debt are the centre of the economy, and Canadians and the state should serve the most powerful corporations."

Governments should keep their hands off personal incomes. Governments should fund program expenditures from their claim on the aggregate social product, not from that portion of social product the working people have managed to claim in the form of wages and salaries.

Who produces that wealth? The working people do. After the claims of the workers who produce the wealth have been distributed at their workplaces, the government should make its claim on the workplaces itself. It should appropriate directly from companies over a certain size enough social product to fund the costs of the social programs and infrastructure required for modern production in a modern society and a human and natural environment fit for human beings. A modern transportation and energy infrastructure for example are needed for modern production to take place in a society. Why then shouldn't those requirements be paid for from the aggregate social product of the society and appropriated directly at the point of production? Government revenue is a claim on the provincial social product. In its self-proclaimed drive to modernize, the Ontario government should stop the unacceptable practice of stealing the claims of working people on the social product and abolish the archaic income tax system, sales taxes and the myriad other taxes and service charges that takes money from the people. The claim (revenue) of the Ontario government should come directly from enterprises above a certain size that are engaged in producing social product or distributing, servicing and financing it.


The point is that no existing parliamentary party is talking about eliminating income taxes for the majority Canadians who now carry the burden of funding the government, which should be paid for by the Corporations and the rich since it's their state after all.


Income Inequality and Redistribution in Canada: 1976 to 2004

After remaining stable across the late 1970s and 1980s, family after-tax-income inequality rose during the 1990s. This increase occurred at the same time as a reduction in the generosity of several income transfer programs, including the Employment Insurance and Social Assistance Programs (in some provinces), and decreases in income tax rates. This potentially reflects a weakening of the redistributive role of the Canadian state.

However, while rising after-tax-income inequality can result from a weakening redistribution system, it can also result from rising inequality in family market (pre-tax, pre-transfer) income. In this report we address the following question: Is income redistribution playing a smaller equalizing role in recent years than it did in the past, or is increasing inequality being driven by rising familiy market-income inequality?

A close examination of after-tax income reveals that from 1989 to 2004, income fell for lower-income families but grew for middle- and higher-income families. Average income in the bottom 10% fell by 8% over this period, but rose by 8% at the median and by 24% in the top 10%. As a result, the absolute range between those with income in the bottom 10% and those in the top 10% also rose. In real dollars, after-tax income for a four-person family was stable at about $110,000 higher in the top decile compared to the bottom decile all through the 1976-to-1995 period, but grew thereafter, reaching $147,600 by 2004. This indicates that the increase in after-tax-income inequality is of significant absolute magnitude as well as relative magnitude.

Income polarization also rose over the 1990s. The share of Canadians with family after-tax income from 75% to 150% of the median after-tax income fell from 52.1% in 1989 to 47.3% in 2004, a drop of 4.8 percentage points. Closer inspection of the data reveals that the trend away from the middle class (defined by income) was both towards lower-income and higher-income persons. The share of persons with after-tax income below 75% of the median rose by 2.6 percentage points, while that share with income above 150% of the median rose by 2.0 percentage points.

The share of persons with adjusted income below one half of the 1979 level of adjusted family median income fell across the 1980s but rose in the 1990s, ending at 10.2% in 2004, which is slightly higher than it was in 1989.

There are several reasons to suspect that the role of the tax-transfer system in equalizing incomes may be different in the 2000s than in earlier decades. While the paper does not go in to these in great detail, we note that changes in social assistance and employment insurance eligibility and entitlement levels (these generally became more generous across the 1980s and then less across the 1990s), the introduction of new programs such as the Canada Child Tax Benefit and the Goods and Services Tax credit, as well as the maturation of the Canada Pension Plan and the Québec Pension Plan were important developments which may have affected the amount of income redistribution that is done through the transfer system. Moreover, increases in real tax rates across the 1980s, followed by their reduction in the 1990s, may have had implications for redistribution through the tax system.

This study shows that, after remaining stable for several decades, family after-tax-income inequality rose in the 1990s, settling at a higher level in the 2000s. At the same time, the share of middle-income families was reduced and the share of low- and high-income families grew larger. The absolute gap between bottom- and top-income families also increased in a substantive way, indicating that these increases in inequality have an important magnitude. These trends appear to have been driven by rising inequalities in income received from market sources (wages, salaries, self-employment income, private pensions and investment income) among families.

Perspectives on Labour and Income - September 2007

High-income Canadians

Brian Murphy, Paul Roberts and Michael Wolfson

Thresholds defined in nominal dollar terms are the
simplest. Absolute thresholds refer to a particular dollar
amount—for example, $100,000. Those with
incomes higher than a given figure are considered to
have high income.

Examples of commonly applied absolute nominal
thresholds include $250,000, the highest income
grouping used for many years by the Canada Revenue
Agency (CRA);2 $150,000, used in Statistics Canada’s
census tables; $100,000, used by the province of
Ontario in their ‘sunshine list’ made available under the
Public Sector Salary Disclosure Act (Campbell 1996); and
the threshold at which the top federal tax rate begins—
$113,804 in 2004.3

  • In 2004, 5% of Canadian taxfilers had an income of $89,000 or more; only 1% reached $181,000 or more.
  • In 2004, the top 5% of taxfilers received 25% of total income and paid 36% of income and payroll taxes.
  • The prevalence of high income peaks in the 45-to-64 age group. In 2004, individuals of that age represented less than a third of all income recipients, but made up more than half of the top 5%.
  • Calgary had the highest proportion of families with income over $250,000 in 2004, but Toronto had by far the most families with such incomes, almost one-third of the national total.
  • Of the 1.2 million taxfilers who made up the top 5% of income recipients in 2004, three-quarters were men, even though men accounted for less than half of all taxfilers. However, since 1982 there has been an 11% increase in the portion of women in the top 5% of tax filers.

Average income and net worth

In 1999, the average income for the bottom 80% of families was $38,000 while their average net worth was about five times higher at $192,000. The top 1% had average income of $366,000 and average net worth of $1.9 million, also roughly five times income. It follows that both the average income and average wealth of the top 1% are about 10 times that of the bottom 80%. The implication is that some lower-income families have relatively high net worth (for example the elderly) while some high-income families have relatively low net worth (the young).

Not surprisingly, the importance of housing and vehicular assets declines as income increases. While houses and cars accounted for 31% of average net worth for the 80% of families with the lowest incomes, they accounted for only 16% for the top 1%. These top income families had 61% of their net worth in financial assets compared with 37% for the bottom 80%. Pension assets are far more evenly distributed—21% of net worth for the top 1% of families, 32% for the bottom 80%.

The ratio of taxes to total income rises with income. In 2004, the bottom 95% of the taxfiler population received 75% of income and paid 64% of taxes, while the top 5% received 25% of income and paid 36% of taxes.11

A number of different tax rates can be examined. Nominal (statutory) tax rates are provided in legislation and are higher for higher incomes. The marginal tax rate applies to the last dollar of income. These rates are sensitive to the kind of income and the unit of analysis—individual or family. The effective tax rate (ETR) is simply the ratio of taxes paid to total income.

For the bottom 95%, ETRs generally increased through the 1980s, remained roughly constant at just over 15% throughout the 1990s, and declined at the turn of the millennium, remaining steady through 2004. More fluctuation was evident in the high-income population because of high-income surtaxes and numerous changes to top federal tax brackets. They had a more pronounced rise in the mid-to-late 1980s, declining more sharply in 1988 with the introduction of tax reform, which reduced 10 brackets to 3 and converted many deductions to tax credits.

Over 85% of the 5% of Canadians with the lowest incomes in 2004 paid no income or payroll taxes (Chart F). While some individuals may have no income taxes payable, Employment Insurance and Canada or Quebec Pension Plan contributions may still be payable.

The proportion paying no taxes drops sharply after the first vingtile but remains over 40% until the 35th percentile. It then drops quickly to below 1% approximately two-thirds of the way up the income distribution.

Chart F - The proportion of taxfilers paying zero taxes declined at almost all income levels

Some 5% of individual taxfilers had incomes of $89,000 or more in 2004. Regardless of the threshold used, incomes in the upper tail of the distribution as well as the share of total income increased substantially from 1992 to 2004. In contrast, individuals in the bottom 50% to 80% generally saw little improvement in constant dollar income.

Compared with the U.S., Canada had significantly fewer high-income recipients in 2004, and their incomes were considerably less. High-income Canadians increasingly receive more of their income from employment than from other sources.

Investment income has been a decreasing proportion, even among those with the highest incomes.


Income Instability of Lone Parents, Singles and Two-Parent Families in Canada, 1984 to 2004

This paper examines income instability of lone parents, singles and two-parent families in Canada in the past two decades using tax data. We attempt to answer the following questions: Has there been a widespread increase in earnings instability among lone parents (especially lone mothers) and unattached individuals over the past 20 years? How do the trends in earnings instability among lone parents and unattached individuals compare to the trends among the two-parent families? What is the role of government transfers and the progressive tax system in mitigating differences in earnings instability across different segments of the earnings distribution among the above-mentioned groups? We find little evidence of a widespread increase in earnings instability in the past two decades and show that government transfers play a particularly important role in reducing employment income instability of lone mothers and unattached individuals.

Similar to Morissette and Ostrovsky (2005), we find that earnings instability varies considerably with employment income and is much higher among families in the bottom tertile (one third of all families) than among families in the top tertile. The magnitude of these differences varies for different age groups and family categories; however, it is fair to say that for two-parent families the bottom–top earnings instability ratio is generally smaller mostly due to lower instability in the bottom tertile.

In all age groups, social assistance appears to be the single most important factor reducing income instability of lone mothers. For lone mothers, SA plays a much greater role in reducing income instability than for the two-parent families. In the youngest age group, for instance, it reduces instability in the bottom tertile by 32%. As social assistance has little effect on the lone mothers in the top tertile, this also results in the largest drop in the differences between bottom and top tertiles (23%). The impact of social assistance on instability is somewhat smaller for the 45-to-49 age group although it is still larger than the impact of any other factors.

Employment insurance also lowers income instability of lone mothers. In all age groups, it is the second most important factor mitigating instability among lone mothers in the bottom tertile. Overall, the reduction in instability (relative to market income) due to EI and SA in the bottom tertile varies between 32% and 48%.

The role of the progressive tax system has two different aspects. On the one hand, in all age groups, the instability of the after-tax income in the bottom tertile is lower than the instability of the total income although the reduction is 6% at most, and in some age groups it is close to zero. On the other hand, in some age groups the tax system has a larger effect in the top tertile, so the after-tax difference between bottom and top tertiles is actually larger for the after-tax income than for the before-tax income.

Personal debt — PDF

Personal consumption expenditure constitutes a larger share of GDP in the U.S.

Consumer spending is a key contributor to a country's economic health. Consumer spending as a percentage of GDP is much lower in Canada, ranging from 52.8% to 58.9% over the last 25 years, compared with 61.4% to 70.0% in the U.S. In other words, consumer spending has boosted the economy more in the U.S. than in Canada.

http://www.statcan.ca/english/freepub/75-001-XIE/comm/11-1.gif

Canadians pay more income taxes and transfers to government

Even though both countries have a progressive income tax system, their marginal tax rates, methods of taxation, and allowable deductions vary considerably. In Canada, a relatively larger share of personal income goes for federal and provincial income taxes, Canada or Quebec Pension Plan contributions, and Employment Insurance premiums (17.3% in 1980 and 23.4% in 2005). Americans, on the other hand, paid 18.3% and 18.7% of their income for federal and state income taxes, social security contributions, and unemployment insurance.1 The gap between total and disposable income has widened over time in Canada while remaining almost unchanged in the U.S. However, the mix of deductions in the U.S. has changed considerably: Income taxes accounted for 79.4% of deductions in 1980 compared with 57.7% in 2005..


http://www.statcan.ca/english/freepub/75-001-XIE/comm/11-3.gif

Both Canadians and Americans have increased their debt-to-income ratios

Credit can be used to meet regular or unexpected consumption needs, or even to acquire assets. Debt load, measured by the ratio of total debt to disposable income was almost the same for Canadians and Americans at the beginning of the 1980s. After that, they parted ways: Americans had the greater debt load between 1983 and 1991 and Canadians between 1992 and 2000. From 2001, debt grew steadily in both countries and by 2002 had surpassed disposable income. By 2005, for each dollar of disposable income, Canadians owed $1.16 and Americans $1.24.

Some of the increased indebtedness between 2001 and 2005 may be attributed to relatively low rates of interest, easy credit through home equity loans, and increased limits and incentives on credit cards issued by competing financial institutions.


http://www.statcan.ca/english/freepub/75-001-XIE/comm/11-4.gif



Canadians use more consumer credit for their personal spending

Between 1980 and 2005, consumer credit represented between 21 and 38 cents of each dollar of personal spending in Canada. In the U.S., the amount was between 19 and 27 cents. Since 1986, when the Reagan administration cancelled tax deductibility for interest paid on consumer loans, Americans have been using less of this kind of credit. Consequently, since 1988, the gap between the U.S. and Canada in the use of consumer credit has widened.

Non-homeowners in both countries, who have neither mortgage debt nor access to home-equity line of credit, can increase limits on their credit cards or use personal loans to finance unexpected needs or other budgetary shortfalls. http://www.statcan.ca/english/freepub/75-001-XIE/comm/11-5.gif


On a per-capita basis, consumption expenditure outpaced disposable income in both Canada and the U.S.

Over the 1980-to-2005 period, per capita consumption expenditure in Canada more than tripled from $6,870 to $23,560, while disposable income rose proportionally less—$8,390 to $24,400 (2.9 times). In the U.S., expenditures and disposable income rose more steeply—from CAN$8,770 to $37,980 (4.3 times) and from CAN$9,710 to $39,260 (4.0 times). The disparity between Canada and the U.S. in both per-capita spending and disposable income has increased and, as consumer spending has outgrown disposable income, both Canadians and Americans have had to finance their spending through credit.


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In both countries, total household debt outgrew consumer spending as well as disposable income

In terms of aggregates in their respective currencies, household debt rose in Canada from $134 billion in 1980 to $916 billion by 2005 (6.8 times), and in the U.S. from $1.3 trillion to 11.2 trillion (8.6 times). Even though inflation was almost the same in both countries, consumer spending and disposable income increased less in Canada. Consumer spending, for instance, rose from $168 billion to $760 billion in Canada and from $1.8 trillion to $8.7 trillion in the U.S.

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Young pensioners
Ted Wannell

  • Although public retirement pensions cannot be collected until one's seventh decade (age 60 for the Canada and Quebec Pension Plans, and 65 for Old Age Security), many private pension plans allow long-serving employees in their 50s to draw benefits. Tax data indicate that about one-fifth of workers begin collecting benefits from such plans before their 60th birthday.
  • The pension take-up rate is very low (less than 1%) from ages 50 to 54. It spikes at age 55 (5% for men and 4% for women) as many plans commence unreduced benefits at this milestone, given sufficient tenure. This peak is not surpassed until workers exit their 50s.
  • About half of young pensioners worked for pay the year after they began receiving their pension. However, much of that work was either part-time or intermittent since only 30% earned at least $5,000. Men were more likely than women to surpass the $5,000 benchmark (34% versus 26%).
  • The probability of non-trivial re-employment falls as the age at retirement increases. Those who retired at 50 were almost twice as likely as those retiring at 59 to earn at least $5,000 in the following year.
  • Very few young pensioners turn to self-employment as a significant source of income. Less than 1 in 10 earned some self-employment income, and 1 in 20 or less earned at least $5,000.
  • Early pensioners generally retired from high-paying jobs. Their average earnings in the year before retirement were about 50% greater than those who did not retire. Among women, the post-retirement income of young pensioners exceeded the income of those who remained in the workforce.
  • Young pensioners typically bring in about two-thirds of their pre-retirement income the year after they begin collecting their pension—very close to the 70% replacement rate recommended by many financial analysts. Pension income accounts for a greater proportion of the total income of women in this group (66% in 2004 compared with 61% for men).

The 2001 Census figures on income, released on Tuesday May 13, are telling us two very important stories. The first is that Canadian society is becoming increasingly polarized. The richest 10% of our population has seen its income grow by a whopping 14% while the bottom 10% has seen only a slight increase of less than 1%. Moreover the income of many working families has actually declined!

Overall, government transfers have decreased. Although Statistics Canada declined to reveal the dollar value of the decrease, they did provide analysis of the changing significance of government transfers to different income groups.

Among working age families, the proportion of total income represented by government transfers dropped over the decade, from 6.4% to 5.6%. This drop did not actually begin until after 1995, and it reversed a trend of growth in government transfers to working age Canadians which had been evident since 1980.

However, the proportion of income attributable to government transfers has increased throughout the 1990s for the 30% of families at the bottom end of the income distribution. The proportion of their income derived from government transfers increased from 58.4% to 62.2%. Transfers to the other 70% decreased over the decade.

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Median total income, by family type, by province and territory
(All census families)

2001 2002 2003 2004 2005

All census families1

$
Median total income
Canada 53,500 55,000 56,000 58,100 60,600
Newfoundland and Labrador 41,400 43,200 44,800 46,100 47,600
Prince Edward Island 46,900 48,600 49,600 51,300 53,400
Nova Scotia 46,900 48,600 50,000 51,500 54,000
New Brunswick 45,200 46,800 48,000 49,700 51,500
Quebec 49,700 51,600 52,600 54,400 57,000
Ontario 58,400 59,600 60,500 62,500 64,500
Manitoba 49,800 51,200 52,100 54,100 56,100
Saskatchewan 48,900 50,500 51,500 53,500 56,300
Alberta 59,900 61,700 63,000 66,400 71,000
British Columbia 51,700 52,800 53,600 55,900 58,500
Yukon Territory 61,000 63,900 64,300 67,800 71,700
Northwest Territories 70,300 76,000 76,400 79,800 83,900
Nunavut 44,800 48,100 47,900 49,900 52,300

Table 7
Incidence of Low Income: Various Groups, Canada

Market Basket Measure 2000, 2001, 2002
and LICOs-IAT 2002

MBM-2000 MBM-2001 MBM-2002 LICOs-IAT 2002
All persons 14.8 13.6 13.7 11.6
Under 18 years of age 18.4 16.8 16.9 12.2
18-64 15.2 14.0 14.1 12.1
65 and over 5.8 5.5 5.6 7.6
Males 14.0 13.0 13.2 10.7
Under 18 years of age 18.2 16.9 17.7 12.7
18 to 64 13.9 12.9 13.0 11.0
65 and over 5.0 5.1 5.3 4.9
Females 15.6 14.2 14.1 12.4
Under 18 years of age 18.7 16.6 15.9 11.8
18 to 64 16.5 15.1 15.2 13.1
65 and over 6.5 5.8 5.9 9.7
All families 17.7 16.7 16.3 15.5
Economic families 2+ 12.0 10.8 11.2 8.6
Elderly families 4.7 3.9 4.5 2.9
Elderly married couples 2.5 2.8 3.1 1.9
Other elderly families 12.9 8.2 10.0 6.9
Non-elderly families 13.2 11.9 12.3 9.5
Married couples 9.7 8.7 9.0 7.1
Two-parent families with children 11.9 10.6 9.8 6.5
Married couples with other relatives 5.8 6.3 7.1 5.0
Lone-parent families 38.4 37.3 41.1 34.2
Male lone-parent families 18.6 17.8 21.8 12.2
Female lone-parent families 42.5 41.4 45.6 39.4
Other non-elderly families 13.2 9.8 12.0 10.8
Unattached individuals 29.5 28.7 26.5 29.5
Male 28.6 28.4 26.2 27.1
Female 30.4 29.1 26.7 32.0
All Elderly 12.0 11.6 10.0 19.4
Elderly Male 14.2 13.9 11.8 15.9
Elderly Female 11.2 10.7 9.4 20.7
All Non-Elderly 35.8 34.8 32.5 33.2
Non-Elderly Male 31.0 30.8 28.7 29.0
Non-Elderly Female 42.3 40.3 37.6 39.0

  • Two groups among the working age population - those commonly referred to as the "working poor" and five socio-demographic groups at disproportionate risk of persistent low income are featured in this report.
  • The risk of experiencing annual and persistent low income for "working" families (those where the Major Income Recipient (MIR) works 910 hours or more for pay annually) is much lower than for families with weaker attachment to paid work. However, "working poor" families still accounted for almost 30% of all working-age low income families in 2002 and for just over 40% of low income children living in such families in that year.
  • Regardless of the low income measure used, five socio-demographic groups have a disproportionate risk of persistent low income. Two out of the five high-risk groups - unattached individuals aged 45-64 and persons with work-limiting disabilities - significantly improved their incidence of low income between 2000 and 2002. Changes in the incidence of low income for the other three groups - lone parents with at least one child under 18, recent immigrants and Aboriginal Canadians living off-reserve during this period were not statistically significant.
  • Between 2000 and 2002, the Market Basket Measure identified a somewhat larger low income population than is calculated using Statistics Canada's post-income tax Low Income Cut-offs (LICOs-IAT).
  • This difference is more than accounted for by the more stringent definition of economic family disposable income which is compared to the MBM low
  • income thresholds. Several more items are deducted from gross income using the MBM than the LICOs-IAT.
  • These additional deductions from gross income are particularly important in increasing the incidence of low income for children (as deductions include out-of-pocket child care costs) and for working-age families with a strong attachment to paid work (as deductions include payroll taxes and other mandatory payroll deductions).
Taxation in Canada



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