Friday, February 10, 2006

Hey Harper, get your hands out of my pocket!

I’m reminded of those ****** annoying hands in my pocket commercials right now because it was payday today, for the third time in this New Year.

Usually it's a happy day (I like to treat myself to a McDonald's breakfast buritto breakfast on paydays, yum) , but my joy was tempered when I remembered something from the campaign that had been drown-out amidst the din of beer and popcorn, promises of elected Senators and promises that you need to be elected to sit in a Stephen Harper cabinet: the Conservatives are going to raise our taxes!

But they’re going to cut the dreaded GST, you say, by a whole one per cent! And another one per cent if we behave and give them that majority they want! Quite true. But buried in the fine print was how they were going to pay for it: by canceling tax cuts made by the Liberal government. Or, to describe it more accurately, by raising personal income taxes.

I’ll allow Rick Bell, of all things a Calgary Sun columnist, to explain it:

In November of last year, before the election, the Liberals brought in a one percent reduction to the lowest tax rate. For the first $36,378 of our taxable income, the rate goes down from 16% to 15%. The Grits made the move retroactive to Jan. 1, 2005. By the year 2010, the next two tax rates on incomes higher up the food chain also go down a point.

In addition, the basic amount you can make before forking over anything to the feds is raised by $500 a year.

Harper has said he will allow the new rates for 2005 but will scrap them this year. Nixing the reduction means the 2005 rate of 15% will be-come the 2006 rate of 16% and the personal exemption before you pay taxes will go down $400.

That, dear friends, is a tax increase.

You bet it is Rick. This fiscal stuff can be dry though, which is why the media and politicians like to use examples to help people relate (Billy-Bob and Suzy-May have three children…). I don’t have a crack research staff at my disposal, so I’ll use myself as an example.

Since the beginning of the year, the Liberal tax cut has saved me $16.79 every paycheck (every two weeks). This being the third pay period, that’s an extra $50.37 in my pocket. And no, Scott Reid, I’m actually saving it. Over the course of the year that would be an extra $430 or so in my pocket. To me, that’s real money. Except the Harper Conservatives want to raise my taxes, and take that money away.

Now I’m not a tax lawyer or a mathematician, so correct me if I’m wrong, but here’s how I read this. The Liberals made the tax cut retroactive to 2005, but those with taxes deducted from their pay had it deducted at the higher rate. Therefore, nice refund this April for the overpayment. Score!

However, now that we're in 2006 our taxes are being deducted at the lower, Liberal rate. But Harper has said, while he’s letting the 2005 reduction stand (ain’t he a peach?) for 2006 it’s back to the higher rate. Therefore, when he pulls the trigger on that tax hike my paycheque will go down by $16.79.

Let’s say, being optimistic, he gets this passed April 15. At that point, my Liberal tax cut savings will be $117.53. That's nearly $120 cash in my pocket, if I haven't blown it on Cabarnet and Camembert yet. But I shouldn’t have been paying that lower rate for the past three-and-a-half months. So, if I read this right, Harper will be clawing back that $117.53 on my 2006 tax return, in addition to cutting my pay by $16.79 every two weeks from April 15th on.

Still, we'll have a one per cent lower GST though. Here’s a fun little challenge:

  1. Save your receipts for two weeks, and add up how much you pay in GST.
  2. Calculate how much you’d have saved with a one per cent lower GST.
  3. Compare it to how much the tax deducted from your pay every two weeks has decreased. Which number is bigger?

And I’m on to you Michael Fortier! If you go out and buy a plasma screen TV this week to watch Question Period on be sure you divide the cost out over 12 months. No skewing the statistics, we’re looking for an average here. I’m willing to bet the average Canadian will be saving more on their income tax than they would with the GST cut.

Not to mention the fact a million and one economists will tell you income tax reductions are far more fair and desirable than consumption tax reductions. But don't just take my word for it.

"If you want tax cuts that are going to promote work, going to promote saving, help us invest more and raise living standards in the future, the GST is not the tax you would go after."

-- CD Howe Institute

And Jim Davies, an economics professor at the University of Western Ontario, puts it even more succintly. Here's how he described the Conservative plan.

"Stupid, stupid, stupid, stupid."

-- Jim Davies, UWO

I could see three stupids, but when he pulls out the fourth you know he's serious. Why, even the Canadian Taxpayers Federation (well known Liberal stooges, I know) thinks raising the income tax is a bad idea (shocking, I know). The CTF wants the lower income taxes AND the GST cut! Go big or go home, I guess. Sayeth the CTF:

The Conservatives say they plan to increase the lowest income tax rate from 15 per cent to 16 per cent. Such a change will incur the wrath of taxpayers and peg Mr. Harper as a tax hiker.

I’m not sure how we could afford to do both, although it would fit in with the conservative making government small enough to drag it into the bathroom and drown it in the bathtub mantra.

I do know one thing though, and that’s I don’t want to give Stephen Harper $430.

Stephen, keep your hands out of my pocket!

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Aunty Bertha said...

I agree BCer. I got irritated on Rick Barnes' blog shortly after the election by the comment of someone who was thrilled at his 1% reduction in GST and I made the following point.

On how much money I will save on a 1% drop of the GST.

If I spent my entire gross income on items that are subject to GST, I would save less than $400 per year.

Of course the reality is, I never see my entire income. I see my net income. If spent that on GST subject purchases, I would save under $240 per year.

Of course, there is food and the mortgage to pay, so if I spent my entire disposable income on GST subject items, I would save less than $15 per year

Yeah, Temujin, this really helps me as a single mother of 4.

Put the 1% back and leave my income tax cut and the $500 personal exemption increase just where it is, thank you very much.

Paul said...

A major correction of fact is necessary: although the Liberals proposed lowering income taxes, and introduced legislation at the 11th hour to try to enact it, they did not reduce taxes.

The tax "cuts" were not passed by the House of Commons. They were not passed by the Senate. They were not signed into law.

The Liberals did, however, decide to play political games with taxpayers, for which all taxpayers are now paying the price.

Braeden Caley said...

Paul, that's simply not the case, at least not in most respects. The rate of tax on the lowest income bracket will indeed be 15% this year, not 16%.

A BCer in Toronto said...

You're a little right Paul, but mainly you're wrong, and playing political games. Taxes were reduced. That is a fact. Look at your pay check.

Bill C-80, an act to implement certain income tax reductions, recieved first reading in the HoC Nov. 23. The Liberals, BQ and NDP voted for it, while the Conservatives voted against it. Five days later the opposition voted non-confidence, and the next day the house was disolved.

While it had yet to receive final reading from the HoC, pass the Senate and receive royal assent, under our system of government when tax code changes are proposed they immediately come into effect so dishonest folks can't take advantage of the coming changes unfairly. Since the HoC was brought down the Bill was left in limbo but the tax cuts did indeed come into effect. Which is why these media outlets said:

“The Conservatives voted against those tax cuts in November, but they became law.”
CBC, Jan 7, 2006

“The Conservatives voted against those tax cuts in November, but they became law.”
The National Post, Jan. 10, 2006

Ironic they both used the same words, I think the someone at the National Post did a little cutting and pasting.

But my point is that we will be paying the lower rate on our 2005 return. That’s a fact. The taxes withheld by employers since Jan. 1, 2006 has been at the lower rate. That’s a fact. Harper has said we will pay the higher rate for 2006. That’s a fact.

Here’s a little more from the Post:

The tax returns now being received by Canadians for 2005 reflect this change…Given that the current withholding-tax tables used by employers are based on the lower rate and higher personal exemption, this means somehow or other the government would have to recoup the lost revenue -- either by increasing withholding rates mid-year or by an adjustment to 2006 tax returns.

I liked this line too:

The initial Tory tax promise, a drop in the GST to 6% immediately and another 1% "within five years" actually offers much less to almost everybody, except the super rich, than does the Liberal rate reduction on income taxes...

Paul said...

Civics 101: Bills do not become law until they are signed into law by the Governor-General, having passed the House of Commons and the Senate. That goes for money bills as much as for other bills.

Politics 101: The Liberals ordered the tax forms (presumably by an order-in-council) for the 2005 tax year to be printed and distributed with the lower rate. Correcting that causes more political grief than it's worth, so the Conservatives will (presumably) re-introduce the cuts for the 2005 tax year.

Paul said...

The initial Tory tax promise, a drop in the GST to 6% immediately and another 1% "within five years" actually offers much less to almost everybody, except the super rich

I guess the 30% of Canadians who pay NO income tax are "nobodies" according to the author. How truly elitist.

Penny said...

Paul is clearly a lot smarter than I am. So explain please how it is that I got a small raise on my pension cheques and paid less Income Tax.

You can talk all you want about how Poltics 101 and how there was no tax cut, but I had one last July and another in January. It's on my pay slips.

Also Paul referred to the people who don't pay any Income Tax at all. Right, and there would have been a lot more of them if the Liberals (NDP or Greens) had been elected. Between the tax cut and the basic exemption, a lot of low income people would have had more money in their ragged pockets to enjoy the GST cut with.

Now rumour has it that there's more to Harpo's GST cut than he has talked about. Remember the fiscal imbalance he promised to rectify? Story is he will encourage the provinces to hike the PST.

He also didn't mention whether he would continue the GST refund. Trouble is, when most of your income goes for food and the roof over your head, there isn't much left for taxable items.

Scoop said...

A low income person will save approximately $1.50 or so a week with the GST cut - and that's adding in everything that person would pay GST on, including utility bills and what few material items he or she might buy during the year...

A BCer in Toronto said...

We can discuss Parliamentary procedure and move on to politis 201, 301 and 401, but the fact is the average Canadian doesn't care.

Joe and Jane Canadian have seen their income tax drop on every pay check this year. That's not myth, that's fact. The rate for 2005 is 15 per cent. Even Harper says that.

For 2006, Harper says the rate will be 16 per cent. However, taxes are being deducted at 15 per cent from our checks, so something has to give.

Here's what Canadians know: 16 is higher than 15.

Now, you can go and talk to Joe and Jane about Politics 101 through 401, the houses of parliament, royal assent, tax code force and effect, orders in council and tax form printing to explain why you need to take that money from their pockets. And I wish you luck.

But remember, one law the Liberals never did get around to passing is a hand gun ban, so be careful.

Paul said...

Maybe you're right. Maybe Canada was a better place when the Liberals ran it like a dictatorship and didn't give a **** about the will of Parliament and the rule of law.

A BCer in Toronto said...

Yep, that's exactly what I said once you pass my message through the Karl Rove decoder kit.