Wednesday, March 29, 2006

Harper's hands in my pocket, part two

Get ready to pay more in income taxes, starting as soon as July 1. I really think this is an issue that is going to come back and bite Stephen Harper, the economist, in the ass come the next election. I wonder if the University of Calgary is considering revoking his economics degree?

I've blogged at length here and here about how, to pay for their much ballyhooed one per cent GST cut, the Conservatives will be revoking income tax cuts made by the Liberals that are worth far more to average Canadians that the GST cut would be. Some might call that a tax increase. I know I would. You might also call it robbing the poor to pay the rich, who will benefit far more from the GST cut, but now we're descending into cliché.

Anyway, a story in the Globe and Mail today (buried nice and deep, of course) echoes much of what I've been saying for some time. I hope Canadians start to pay attention, because they sure weren't during the election campaign, and now they're going to have to pay the price.

Here's a few excerpts:

The tax hike in July could be even bigger if the Tories go ahead with plans to scrap the income tax break for the entire 2006 calendar year, as they said during the election.

Canada Revenue Agency would have to clawback extra tax in the second half of 2006 to make up for what wasn't collected in the first six months.

Now, the Conservatives and their supporters will ignore the fact that consumption taxes (like the GST), while politically unpopular, are in fact a far more progressive (fair) way of collecting tax than income taxes. Cutting income taxes will encourage savings, not a bad idea in our high debt society. Or, people can spend their income tax savings. Their choice, and choice is what the Cons are supposedly all about. To get the savings from a GST cut you're forced to spend more, and not on essentials like rent and groceries, because they're already GST exempt. No, its consumer items like cars and plasma screen tvs you need to buy. And the more you spend, the more you save. I know, it sounds weird. Retailers love it though.

The Conservatives will also ignore the fact that the average Canadians they claim to represent, like those guys in the coffee shop in their TV ads, will benefit far more from the Liberal income tax cut, and will be getting hosed under the Conservative plan, which is a great deal for the biscotti Rosedale crowd.

What they'll tell you is the Liberal tax cuts were never really official, because the legislation didn't make it through the HoC and Senate before they brought down the house to force an election. (As a parliamentary convention, tax cuts take effect before the enabling legislation is passed so people can't benefit unfairly during the period between announcement and assent).

We were nice enough to let you keep the savings for 2005, they'll say, but for 2006 it's back to the higher tax rate. But no no no, that's not a tax increase, they'll say. The rate was never really lower, not officially, so going back to the old rate isn't an increase, don't look at your pay stub, it's a mirage, and, and….this is where their faces start to turn (Conservative) blue.

Here's what Canadians know. Beginning this year, their take home pay increased because less income tax was being withheld. As soon as July 1, they'll notice their take home pay has gone down, because more tax is being deducted. Possibly a lot more, if the Cons decide to clawback as far as Jan. 1.

You know what they're going to see that as? If you said a tax hike, you can have an apple. Yes, a tax hike, courtesy Prime Minister Stephen Harper and his Conservative government. And no one is going to be able to convince them otherwise. Go ahead and try, it will be fun. Call a press conference or something. Just remember to let the media know.

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9 comments:

Steve V said...

To get the equivalent benefit of the Liberal's one percentage drop in income tax you would have to spend at "least $32,000 each year on goods and services other than rent or mortgage payments, groceries, prescriptions drugs, tuition, child care, insurance, loan payments and investments, all of which are GST exempt."

The GST cut is a simple way to curry favor with voters, it has no relation to logical tax relief- except for the wealthy of course.

BlastFurnace said...

I totally agree with you BCer. The bottom line for me is I'd much rather see Harper continue to drop income taxes as our interest expenses on the debt continues to decline.

The GST, much as I despise it, should not even be touched until the debt to GDP ratio reaches about 25% -- a level at which the debt could theoretically become self financing.

Anonymous said...

Add up all the tax increases for the last 13 years and then tell me the Liberal government is the party that advocates tax relief. The Liberal party has historically been the party that spends like a drunken sailor and then to make sure the coffers are full, tax the citizens like crazy. Compare the U.S. taxes (put in place by mostly republican governments) to the Canadian taxes (put in place by mostly Liberal governments) and you'll see which party is for taxation and which party is not. In the 2002 election, the Conservatives ran on a platform of tax relief and Paul Martin and all the other Liberals called it the wrong approach to government. They said that Conservative governments always cut taxes and that't not what Canadians want. Now all of a sudden tax relief is the greatest thing since sliced bread. It seems to me that Liberals just want to bitch for the sake of bitching, not for what really matters to Canadians. And as the latest poll shows, whatever Harper and the Conservatives are doing seems to matter to Canadians.

A BCer in Toronto said...

Well, I hate to bust-up a good rant with some facts anon, but here's a few to chew on.

The Liberals made substantial and deep tax cuts during their time in government, once the deficit inherited from the Conservatives was eliminated.

You want to talk about Canadian governments putting taxes in place? I'd refer you to Mulroney, Brian. As for your Republican friends, what's the US debt at now, $9 trillion, give or take? Trickle down economics at work, a fine example to follow.

Targeted tax relief is the right approach, and it is the approach the Liberals took during their time in government.

Anyway, reality check over. The non-sensical ranting may continue.

Pedro said...

Muahahaha! This is one of my favourite blogs. Just as funny as CG.

Demosthenes said...

What I don't get is... why didn't they just do both? Harper was going on and on about how much money was sloshing around in Ottawa, and tax increases are anathema to conservatives, so you'd think Harper would simply keep the one tax cut, enact the other, and hack anything that wasn't covered by the surplus away from programs conservatives like.

As it is, this is a textbook way of alienating the single most important constituency to Harper: Canadians who don't like paying for government.

A BCer in Toronto said...

I don't know the numbers but I don't think they can afford to do both. Not with all the other things they want to do as well. The Canadian Taxpayers Federation wants them to do both, but I don't like the cuts the CTF would endorse to pay for it.

Art said...

Sales taxes are regressive by their very nature. Income taxes are progressive. Sure cutting the GST helps the wealthy in absolute terms more than it does the poor. The income tax cut does absolutely nothing for those who don't pay income taxes though and they are the poorest of the poor.

It would make much more sense from an economic stand point if we had a consumption tax that was collected at source with deductions for income taxes and savings. Make everything taxable, increase consumption tax rebates, and get rid of sales taxes altogether. The obvious advantages are getting rid of the GST and PST bureaucracies as well as the savings to business. Consumption taxes would be part of employer deductions for working people with the settlement at year end processed as part of your income tax return. The less obvious but just as important advantages are the increase in tourism brought about by lower prices at the checkout. No 14 or 15 % sales tax added, as well as the ability of this kind of consumption tax to catch and tax out of country consumption. Guess who consumes the most out of country. The better off of course. Time to get rid of sales taxes folks.

Mark said...

I was waiting for someone to correct that. The GST is practically the definition of a regressive tax. Your point about encouraging saving is entirely true, however.