The folly of federal income tax increases

[Anonymous]

By Finn Poschmann of the Fraser Institute



Trudeau's income tax increases have not produced the revenue Trudeau said they would. They have also taken productive hours away from Canadians who need their services.



An old saying explains some folks' tax philosophy: Don't tax you, Don't tax me, tax that fellow behind the tree.



For our federal government since 2015, "that fellow" has meant anyone with an annual income above $200,000.



This means pretty much every obstetrician, anesthetist and dentist has been picked to pay higher income taxes in recent years.



And some veterinarians and fieldworkers, whose incomes can reach numbers like those of bankers and lawyers. Remember, the top 1% of Canadians is still more than 370,000 people.



So, how's it working out? Remember that in late 2015, the newly elected federal government announced a new top income tax rate for "top earners," boosting the federal rate from 29% to 33%.



Because it was pre-announced, everyone able rushed to pull income into 2015 by, for example, selling assets to catch a lower capital gains tax rate and pushing expenses and other deductions into 2016.



Consequently, federal personal income tax revenue jumped in 2015 — and promptly plummeted in 2016. Government revenue has since recovered, but well short of what you would have expected back in early 2015.



Short-term shenanigans aside, what about the longer term when people's choices include more than shifting income or expense timing but shifting themselves elsewhere or working or investing less than otherwise?



People with non-gargantuan incomes can change habits in response to higher tax rates, like by spending more time skiing in Banff or swimming in a Caribbean tax haven.



A recent study by Ergete Ferede of Macewan University (published by the Fraser Institute) raised this long-term question.



Comparing baseline revenue projections to empirical data about how Canadians historically respond to federal tax rate changes, we can make a pretty good estimate.



The study's medium-term estimates show that the federal government does get a little more money, almost in line with its forecasts.



Over time, however, taxpayer responses begin to add up, as taxable income — the federal tax base to which tax rates are applied — grows more slowly than otherwise.



And after about nine years, the study's numbers show federal personal income tax revenue tracking lower than the baseline. Which means the federal tax rate increase causes the government to get less money than had it done nothing, which of course is pain for no gain.



As you would expect.



We are told that if we want less of something, say carbon dioxide emissions, we should tax them more. If we want less smoking, tax it through the roof. And if we want people to earn less income, well, tax it more.



Which takes us to Alberta.



In 2015, the Prentice government opened the gate to tax rate Hades by scrapping Alberta's hard-won flat-rate personal income tax of 10%.



To the surprise of none, after that the province went on to acquire higher tax rates and brackets. And while an oil shock intervened, the province's personal income tax revenue in 2017 was almost exactly where it was in 2014.



Albertans may be disappointed by the Kenney government's quietude on personal income tax rates, but they may be surprised to know that taxpayers outside the province are, too.



That's because Alberta's prior flat-rate heaven was a relative tax haven for Canadians looking for a friendly place to live, work and invest.



Lacking Alberta's competitive tax rate discipline, other provinces have less incentive to restrain their taxing selves, which is less good for everyone. Perhaps Alberta's new premier will appreciate the fiscal folly of trying to tax the fellow behind the tree.

[Anonymous]

When we had a flat tax rate in Alberta, we not only had balanced budgets, we paid off our debt..



And we did it with low royalty revenues.

[Bricktop]

Meanwhile, in Oz...



https://www.9news.com.au/national/tax-cuts-government-secures-crossbench-support-for-158m-plan-politics-news/4629752f-8f59-4d91-811d-90f8336766dc">//https://www.9news.com.au/national/tax-cuts-government-secures-crossbench-support-for-158m-plan-politics-news/4629752f-8f59-4d91-811d-90f8336766dc



And we scrapped the carbon tax.

[Anonymous]

Meanwhile, in Oz...



https://www.9news.com.au/national/tax-cuts-government-secures-crossbench-support-for-158m-plan-politics-news/4629752f-8f59-4d91-811d-90f8336766dc">//https://www.9news.com.au/national/tax-cuts-government-secures-crossbench-support-for-158m-plan-politics-news/4629752f-8f59-4d91-811d-90f8336766dc



And we scrapped the carbon tax.

A tax cut, what's that? Remember, we are Canadians.

[Bricktop]

It's the same thing that Trump provided to Americans.



You get to pay LESS tax!!!



In theory.

[JOE]

Meanwhile, in Oz...



https://www.9news.com.au/national/tax-cuts-government-secures-crossbench-support-for-158m-plan-politics-news/4629752f-8f59-4d91-811d-90f8336766dc">//https://www.9news.com.au/national/tax-cuts-government-secures-crossbench-support-for-158m-plan-politics-news/4629752f-8f59-4d91-811d-90f8336766dc



And we scrapped the carbon tax.

But don't forget...Australia only awarded itself a tax cut after it posted a balanced budget &  a surpkus, BT.



Fool Trump doled out a tax cut the USA cannot afford.



USA added more debt in just 1 year than Australia's national debt since that country was founded.



But don't worry BT.



USA will come hovelking to countries like yours to help baill

them out when theyre really broke!



Thats why they have fiscally prudent countries like yours to keep the less rrsponsible ones afloat.

[Bricktop]

We like to do our bit for a better world.

[Anonymous]

Meanwhile, in Oz...



https://www.9news.com.au/national/tax-cuts-government-secures-crossbench-support-for-158m-plan-politics-news/4629752f-8f59-4d91-811d-90f8336766dc">//https://www.9news.com.au/national/tax-cuts-government-secures-crossbench-support-for-158m-plan-politics-news/4629752f-8f59-4d91-811d-90f8336766dc



And we scrapped the carbon tax.

But don't forget...Australia only awarded itself a tax cut after it posted a balanced budget &  a surpkus, BT.



Fool Trump doled out a tax cut the USA cannot afford.



USA added more debt in just 1 year than Australia's national debt since that country was founded.



But don't worry BT.



USA will come hovelking to countries like yours to help baill

them out when theyre really broke!



Thats why they have fiscally prudent countries like yours to keep the less rrsponsible ones afloat.

Or they can be like Canada and raise taxes and deficits.



For the umpteenth time, revenues are up, not down under Trump. The broad based tax relief has





Federal Tax Revenues Hit Record Highs — Trump's Tax Cuts Paying For Themselves

https://www.investors.com/politics/editorials/federal-tax-revenues-hit-record-highs-are-trumps-tax-cuts-paying-for-themselves/">https://www.investors.com/politics/edit ... hemselves/">https://www.investors.com/politics/editorials/federal-tax-revenues-hit-record-highs-are-trumps-tax-cuts-paying-for-themselves/



For fiscal year 2018, which started last October, taxes are up $50.5 billion compared with the same months last year, and are at a record high level for this five-month span.



net receipts are up by $29.6 billion for the current fiscal year — a 2.4% increase — compared with the same period last year. That's also a record high.



And a faster-growing economy means more money pouring in from these other sources.



Payroll taxes, for example, are dependent on the number of people working and their wages. In February, the economy added 313,000 jobs, unemployment levels are now at or near record lows, and wages are climbing.



As a result, payroll taxes brought in $1.5 billion more in February than they did last year, and are up $11.4 billion this fiscal year. Federal excise taxes and customs duties are up $3.8 billion and $1 billion, respectively, this fiscal year.

[Anonymous]

You and Seoul have told him this before, but he doesn't read posts..



But, he gossip about us on other forums..



I don't understand why a sixty year old enjoys being so nasty all the time.

[Bricktop]

Yeah!!!



Stupid old people.

[Anonymous]

You and Seoul have told him this before, but he doesn't read posts..



But, he gossip about us on other forums..



I don't understand why a sixty year old enjoys being so nasty all the time.

Incels are an unhappy bunch, and rightfully so.

[Anonymous]

You and Seoul have told him this before, but he doesn't read posts..



But, he gossip about us on other forums..



I don't understand why a sixty year old enjoys being so nasty all the time.

Incels are an unhappy bunch, and rightfully so.

The owner of VF provides a platform for attention whoring incels, but it isn't enough for them.

[Anonymous]

Higher taxes on dentists and chiropractors did not lead to higher revenue for Trudeau's inept regime like he claimed. Not that anyone should trust him with our money.



By by my buddy Aaron Wudrick of the Canadian Taxpayers Federation



Imagine if we treated all rich people the way we treat Kawhi



We all want Kawhi Leonard to keep playing basketball for the Raptors. We want him to stay so badly that even Canadian politicians are getting into the polite pleading.



"I see lots of businesses offering Kawhi Leonard free food, an apartment and even a houseplant if he stays with @Raptors. So I feel that I should do my part. Hey Kawhi, if you stay we'll give you free health care!" tweeted Health Minister Ginette Petitpas-taylor.



Now, it goes without saying that health care in Canada is not free; we pay for it through our taxes and we pay a lot. And Leonard, like all people with money, is unlikely to wait on a waiting list for treatment when he can easily pay for care outside our borders.



For now, let's set all of that aside. As far as "area politician tries to show she's hip to current events," the minister's tweet was pretty unremarkable. But it sure offered an interesting contrast to the usual attitude many politicians take when it comes to trying to get wealthy people to stay in the country.



Consider for a moment how most politicians would view any non-celebrities earning Leonard's income of $26 million per year. It definitely would not involve offering them free stuff. More likely is that their first observation would be that they probably aren't paying enough in taxes, even though th[size=150]e top one per cent of earners in Canada already pays 18% of all income taxes.

[/size]

It is obvious why the rich are an easy target for politicians. They're an awfully unsympathetic lot. With millions of Canadians struggling just to fill their gas tanks or pay the rent, it's pretty hard to get choked up about people in the market for a second yacht. And on a practical level, there's an implicit assumption that when you hike taxes on the rich, they'll barely even notice.



But it turns out they do notice — and change their behaviour accordingly.



[size=150]A recent study by the Fraser Institute projects that the recent federal tax increase imposed on high-income earners will yield extra revenue for just nine years — and after that will leave the government with less revenue from this group.

[/size]

Why? Behavioural responses. When tax rates change, incentives change. Some people work less; others undertake more aggressive tax planning. A few even leave the country.



Worst of all for soak-the-rich proponents, there's evidence that the people most sensitive to tax increases are also the richest.



At this point, defenders of soaking the rich usually respond in one of two ways.



The first is to deny that incentives matter and assume the rich won't mind. It's a tricky argument because incentives affect different people differently. Most people still need to buy gas to get to work even if the price goes up 5 cents per litre, but Leonard can easily save millions by picking a team in a low-tax jurisdiction.



The other response is to get angry: if these rich jerks don't want to pay their fair share, they can just leave! But most progressive taxation proposals pin ever higher spending on plans to squeeze a handful of rich people. If that spending depends on a small group of people, it's probably unwise to make that small group even smaller.



It goes without saying that there aren't a lot of folks offering "regular" rich people free health care, a penthouse suite at the Four Seasons or even a lifetime supply of Kraft Dinner.



Leonard is a pretty lucky guy. He's rich, but still beloved. He has the public, and politicians, tripping over themselves to keep him here.



Imagine if other wealthy people got a Kawhi-like welcome. If more of them lived in Canada, they'd cover even more of our tax bill. And we'd be more competitive, in basketball and everything else.

[Anonymous]

About Trudeau raising the top tax bracket to 33% from 29. It's not possible at CP, but at CN they have a few engineers making over two hundred grand a year. That is because they have longer trains, and better bonuses for length and marshalling. Anyway, I hear senior hogheads are working less rather than pay more to Ottawa.

[Anonymous]

As much as I am a fan of reforming federal income taxes, the provincial equalization formula no longer serves the needs of the nation either. In fact, it holds back economic development.



By Franco Terrazzano of the Canadian Taxpayers Federation



Tackle equalization for taxpayers



Ottawa gave Alberta's struggling energy industry a body blow by passing legislation to ban tankers on the West Coast and make the pipeline approval process virtually impossible. It's tempting to seek retribution. So tempting. But there's a better way for Premier Jason Kenney to stand up for Alberta and strengthen Canada: reform equalization.



The Trudeau government passed the Tanker Ban Bill (Bill C-48) and the No More Major Projects Bill (Bill C-69) at the last minute before it rises for the summer and hits the campaign trail for the fall election.



Both bills have come under fire in Alberta.



"[The Tanker Ban] is a prejudicial attack on Alberta, banning from Canada's northwest coast only one product – bitumen – produced in only one province, Alberta," stated Kenney. "[The No More Major Projects Bill is] leading energy industry groups to say that no future pipeline will ever be proposed under this regime."



These laws are just the latest example of politicians kicking Alberta's resource sector while it's down. Quebec's premier calls Alberta oil "dirty energy." British Columbia's politicians have promised to use "every tool available" to block the Trans Mountain expansion.



Then there's the feds who rejected the Northern Gateway Pipeline, moved the regulatory goal posts on Energy East and showered B.C. with infrastructure money even after the province attempted to block Trans Mountain. After all of these hits to Alberta's industry, it's not surprising that Kenney responded to the passing of the federal No More Major Projects Bill and the Tanker Ban by threatening action on equalization. Not only is Kenney standing up for Alberta taxpayers by taking on equalization, he could also help rejuvenate Canada's bludgeoned resource sector from coast to coast. Through equalization, the federal government transfers money to low-income provinces. It sounds nice, but in reality equalization tempts politicians to make bad decisions such as opposing resource development.



"If a have-not province sees an increase in natural resource revenues, the extra money is largely offset by a reduction in equalization payments," explains the Fraser Institute's Ben Eisen.



We've seen equalization-receiving governments continue to ban resource development.



Under former premier Pauline Marois, Quebec's government imposed a moratorium on shale gas exploration in the St. Lawrence Lowlands. In 2018, the Quebec government announced a series of new measures that would ban fracking province-wide and tighten oil and gas drilling. These limits were imposed despite the existence of up to 36 trillion cubic feet of recoverable natural gas in the St. Lawrence that is estimated to be worth between $68 billion and $186 billion.



Nova Scotia also placed a ban on development which limits most of the province's onshore natural gas resources pegged to be worth between $20 billion and $60 billion.



There are different ways Kenney could improve equalization, but the key to addressing its bad incentives is stopping its growth. The larger the equalization cheque, the more likely politicians are to kibosh development. Kenney should also explore changes that would specifically target equalization's negative impact on resource development.



Taking on equalization may never be a political breeze in Canada, but there are some provinces on the receiving end that are now receptive to change. Both New Brunswick Premier Blaine Higgs and Quebec Premier François Legault have acknowledged that the right path forward for "havenot" provinces is to focus less on equalization and more on growing the economy.



Fixing equalization isn't a silver bullet for our resource sector. But Canadians will be more united in the fight against laws such as the Tanker Ban and the No More Major Projects Bill when we all recognize the need to rely on a growing economy to pay for important services.