Canadian Capitalist

29 responses so far ↓

• 1 0xCC // Oct 31, 2007 at 7:35 am

  I’d really rather see an income tax cut than a GST tax cut (in general I think that consumption taxes should be used more than income taxes). Also, some sort of information on what their plans are with respect to the capital gains tax rate would have been nice (even if they don’t plan to do anything for a couple of years). That would have provided a nice counter balance to the shock they gave investors a year ago with the income trust announcement.

• 2 MillionDollarJourney // Oct 31, 2007 at 7:53 am

  I’m still waiting for the capital gains tax cut. All in all though, some tax cuts are better than none.

• 3 Canadian Capitalist // Oct 31, 2007 at 9:02 am

  0xCC: Personally, I am all for a income tax cut rather than a GST cut. But unfortunately, most Canadians hate the GST and it is simply good politics for the conservatives.

  I think the corporate tax cut is a good move. The budget is only a few months away, so the Minister probably is holding something back. At least, I hope so!

• 4 Jon D. // Oct 31, 2007 at 10:05 am

  I’d like to see the personal exemption level bumped up even further past the $10,100 level. I think that would the take a lot of strain off social services such as food banks, goodwill organizations etc.. put monthly cash in the hands of those who need it.

• 5 Warren // Oct 31, 2007 at 10:09 am

  Like others, I’d rather have an income tax cut than GST, but they did cut corporate and personal taxes too, trying to keep everyone happy, so that’s alright.

  I’d also like to see some targeted cuts related to the environment and green policies and technologies, like the eco-auto rebate, which I can finally(!) apply for.

• 6 Canadian Capitalist // Oct 31, 2007 at 10:38 am

  Jon: I agree. In fact, I’d like it raised to $15K. Yes, everyone benefits when the personal exemption is raised but lower income Canadians benefit the most.

  Warren: The government will still end up with a $10B surplus, so hopefully there will be more cuts in the budget (if the government survives till then).

• 7 Dan // Oct 31, 2007 at 12:22 pm

  A tax cut when your income level is below the personal exemption level is worthless. An increase to the GST rebate program would do much more for the working poor. A decrease to the EI premium would help anyone who works and help any buisness that has employees. I feel that a golden opportunity was missed by the Finance Minister to help the low income workers specifially, and everyone who works in general.

• 8 telly // Oct 31, 2007 at 12:23 pm

  Do you really think the GST cut is good politics? I would think the majority of Canadians would prefer an income tax cut (and would thus provide even better politics) but I could be wrong. It may very well be that the average Canadian might only actually notice the GST cut…

• 9 Gregory // Oct 31, 2007 at 12:57 pm

  The tax rate cut from 15.5% to 15% may sound good, however, depending on how much you earn and donate etc, this may result in a puny bottom line change since this rate applies to your personal exemption, EI, CPP, donations etc so your deduction is reduced as well (OK as least the personal amount was raised as well) so compensated this year, but next?).

• 10 Canadian Capitalist // Oct 31, 2007 at 1:18 pm

  telly: I have to admit that I personally don’t know anyone who prefers a GST cut to an income tax cut but I keep hearing in the media that a GST cut is very popular among voters. Not sure if anyone has done a poll to find that out.

  Gregory: If someone earned $37K, they would save about $230 before accounting for CPP, EI etc. So, the savings per year is about $200. For a working couple it is $400 per year. Including the GST cut (assuming $150 in savings per year per family), the total tax savings is $550.

• 11 Canadian Capitalist // Oct 31, 2007 at 1:20 pm

  Here’s an old post that I wrote about preferring an income tax cut:

  Link

• 12 Warren // Oct 31, 2007 at 5:45 pm

  I have no trouble believing the GST is a popular tax to cut. ITs so obvious to everyone every day. Its not hidden in prices like liquor or gas taxes, and its not taken away before you see it, like income tax. I’m left with some questions after this “update”:

  1) How much does the GST cost to administer? I heard it was as high as 1.5-2% of the 7% tax. Assuming no reduction in administrative fees, that’s getting tough to handle when the rate is 5% How soon before it gets eliminated entirely? I’d rather see income tax cuts, but I’ll take red tape elimination any day.

  2) Have GST rebate checks to lower income people gone done proportionately?

  3) The Conservatives rambled on about some “tax back guarantee” that means any interest savings on debt repayments gets put back into our pockets in the form of personal tax reductions. Last year’s payment dropped the interest charge by $1 billion. Is that reflected in the personal exemption limit and lowest bracket change?

  I agree with raising the exemption limit. I think the previous liberal government dealt with the bracket creep issue if I recall correctly. I wouldn’t mind seeing only exemption limit increases without any other rate reductions.

• 13 Canadian Capitalist // Oct 31, 2007 at 7:54 pm

  Warren: I’ll try my best to answer your questions:

  1) That’s exactly one concern an economist was expressing yesterday on BNN. I don’t know the exact figures but I remember reading somewhere that 2% of taxes going to administration. Will the bureaucracy be reduced commensurate with the cut? Probably not.

  2) No. In fact, Minister Flaherty made a point of mentioning that the GST rebate is not cut back.

  3) It’s just politics. I’ll believe a tax cut when I see one. We’ll have to wait for the budget to see what this “guarantee” actually means, I guess.

• 14 WhereDoesAllMyMoneyGo.com // Oct 31, 2007 at 9:25 pm

  I think the claims that the GST cut is popular with voters is due to psychology.

  The CBC raised a good point last night in that the GST favours high income Canadians more as discretionary purchases are generally larger. I think their example was between a $100,000 car and something smaller (I don’t remember what). But $1,000 off a luxury car purchase is more that 1% of a $1000 purchase.

  So in the end, their point was that higher income Canadians reap more of an advantage with a GST cut, versus a bump in the basic personal exemption amount.

  Now, they were elected on their platform which included a promise to bring the GST down by 2%, so they may have been handcuffed by that. Again, psychological in that they used “a drop in 2% of the GST” versus “reducing the basic personal exemption amount by x”.

  The introduction of the GST left a nasty taste in people’s mouths and has been an emotional issue ever since.

• 15 $ // Oct 31, 2007 at 9:36 pm

  I’d rather have a flat income tax. There should be no personal exemption limit, everyone should pay income tax instead of some (poor) people getting away with no paying at all. Poorer people use most of the government services, they should pay.

  Since poor people spend most of their income, the gst cut helps them the most in the actual % of income being saved.

• 16 FinancialJungle.com // Oct 31, 2007 at 9:52 pm

  Flat income tax sounds like a great idea:
  - Improves accounting efficiency for us and the tax departments.
  - Mutes the income splitting issue.
  - Increases incentive to earn more. Improves productivity.

  I’d keep the personal exemption limit though. Not all poor people are poor by choice.

• 17 Nabloid // Oct 31, 2007 at 11:29 pm

  I am still waiting for capital gains tax to drop (and taxes on dividends could still be lower IMO)… Inheritance tax is also a problem with many boomer’s getting older… Imagine the tax money they are going to begin to get due to inheritance tax! They tax the already taxed money… I hate that.

  Flat tax with a personal exemption would be nice… it would make things a LOT easier for corporations and regular tax payers alike and would be cheaper to administer I imagine… while still being fair. Do you know how many Canadians refuse to work over-time PURELY because they think it all the extra money goes to the government (and to be fair a larger portion does!)? Too many.

  GST is a secondary for me as well… I’d rather have personal & corporate tax cuts first and foremost as the GST is a consumption tax and doens’t much matter to the frugle (like moi).

  I’ll take these tax cuts and I’m happy to get them though. I’m still feeling pain from the Income Trust BS and lies. I’m a conservative, but I haven’t forgotten what they did and this doesn’t even begin to make the Income Trust debacle ‘right’.

• 18 Gregory // Nov 1, 2007 at 8:46 am

  I don’t think these tax cuts are that great. Let’s take a look at what these changes mean for a single income family. Looking the 15.5% to 15% cut first (and independantly), for a low income family (less then ~ $37,000), this results in savings of .5% (obvious, and needed break). Once you get out of this tax bracket, you actually loose about $100 (i.e. take home $100 less during the year) based on your personal, spousal, CPP and EI tax credits that are now calculated at 15%. More is lost if you claim medical, tuition, disability, caregiver etc. Now switching to changes in perosnal amounts, the result is our take home increases by about $185 (using the new 15% rate) for single income family (i.e. includes spousal amount) in 2007. The personal rate for 2008 and 2009 would probably not be far off the $9600 and $10,100 with the existing indexing so really only a 2007 bonus. So for me, a single income family earning >$40,000, with some tuition credits, I’m up about $185 this year, and down about $100 in subsequent years compared the way is was prior to this update. It’s the old shell game. While I’d rather real personal tax cuts over a reduction in the GST rates, the savings in the GST cut is at least tangible.

• 19 Canadian Capitalist // Nov 1, 2007 at 10:53 am

  Gregory: Maybe I am missing something, but I don’t understand how you would lose $100 starting next year.

  Current method:
  Income = $45,000
  Federal tax = $7,483
  Personal+Spousal+CPP+EI tax credit = $4,348
  Federal Tax = $3,136

  After fiscal update:
  Income = $45,000
  Federal tax = $7,298
  Personal+Spousal+CPP+EI tax credit = $4,280
  Federal tax = $3,017

  Savings = $119

  To lose this to the cut in tax credits entirely, you need $23,800 worth of tax credit deductions. Now, I am assuming that the spousal amount stays at $8,929. Anyone know if that is bumped up to $9,600 as well?

  The basic personal amount of $9,600 for 2008 is a 7.5% increase over this year’s old amount. I doubt if we would have seen such a big jump.

  I agree with you that the tax cut for a one income family isn’t as good as that for two income families.

  Nabloid: Don’t forget the corporate tax cuts which were very significant. If you hold equities, the corporate tax essentially comes out of your pocket.

• 20 Gregory // Nov 1, 2007 at 2:48 pm

  CC, I stand corrected (I was using my payroll spreadsheet which calculates differently then the federal schedule, I failed to make a few more changes to reflect the tax update). I do get a savings (instead of the $100 loss).

  The spouse is also able to claim 9600 if working, however for single income family, the spousal amount would also be increased (I figure to about $8200, give or take $50, up from $7581).

  Yes $9600 is a big jump and while we probably would not have seen that, it would have been close (2006-2007 was around 7% while previous couple of years were lower). So a savings but not as much as we would think on the surface (given that alot of Canadians are not as aware as those who follow blogs like this, I think they are easily misled that this is a bigger impact than it actually is. Perhaps I’m just jaded in that we are not getting real beneficial tax cuts to help us retire(like some of the other ones discussed like family unit tax, better tax treatment on capital gains if re-invested etc).

  Thank you for keeping up a great blog (one of my favourites, along with MDJ and FP), keeps me upto date and thinking.

• 21 Warren // Nov 1, 2007 at 3:20 pm

  Hi Greg,

  The proof will be in the pudding of budget surpluses. Everyone likes unexpected surpluses, but the public won’t put up with more double digit surpluses for much longer. We all watched the Conservative opposition tear the Liberals apart on “over taxation”.

  Every tax cut helps us retire, or at least gives us more control over our own destiny. Which isn’t to say I don’t support our welfare state and national healthcare, but I’m not too interested in paying previous generations’ debt back overly quickly.

• 22 Canadian Capitalist // Nov 1, 2007 at 3:45 pm

  Greg: I understand your frustration. It is as if one government gives us back some money only for another to take it back (I’m thinking of the Toronto municipal taxes). There is simply no question that we are overtaxed. If you earn anything close to a decent income at least 50% is taxed in one form or the other.

  Warren: At least we can support debt reduction. The problem with surpluses is program spending keeps increasing. Yes, this government tells us that every surplus dollar goes towards the debt but that is only for one year. From the next year on the surplus is simply spent. Even after these “broad-based tax cuts”, the government is still left with a $10B surplus.

• 23 Money Links - Loonie, Options, RESP. | Million Dollar Journey // Nov 2, 2007 at 5:09 am

  [...] Capitalist lists all the new tax breaks that the Harper government has announced.  I'm still waiting for my capital gains tax [...]

• 24 Commander T // Nov 2, 2007 at 9:01 am

  The thing that I have noticed about these tax cuts is that the media seems to think that the personal tax cuts are so much better then the GST tax cuts. However if you look at what was actually cut then in reality these cuts are almost equivalent to the $500 of Ralph Bucks. Increased efficiency is achieved when taxpayers decide to spend their money on a more productive choice such as savings. However, decisions are only changed at the margin and for any person who earns more then around 40,000 per year their marginal situation is identical to before. All that happens is they receive a larger refund at the end of the year. This refund will encourage extra consumption just as the GST reduction does.

  If the government really wanted to increase the productivity of Canada it should have cut the tax rates for all the tax brackets (or just the highest bracket where it would get the most bang for its buck but be a politically stupid move).

• 25 Gates VP // Nov 2, 2007 at 2:33 pm

  GST: Simple Explanation
  Why is the GST cut popular, even if we PF heads don’t like the math?

  1. It was promised
  2. It’s visible
  3. People are bad at math

  Everyone buys stuff and nearly everyone buys big stuff like cars. When they see a GST drop, lots of money falls off in little places. It’s like a constant positive reinforcement.

  But if you look at the personal tax exemption, you get into muddy waters. It’s probably more money for the people who need it, but let’s be real here, the people who need it don’t really know or understand. These are the people who are bad at math and probably don’t understand/do their own taxes.

  And if you’ve followed our social support programs, you’ve noticed that we’re dropping more and more people from the programs b/c we’re using numbers from ‘89. I’m not kidding you, the provincial programs in Manitoba: CRISP, 55+, Housing benefits, etc. are all based on numbers from the late 80’s and early 90’s and they haven’t been indexed. They’ve been servicing less and less people every year since inception. This type of tax cut basically cancels out the loss in low-income support for most of those people.

  So why don’t we get cuts in capital gains taxes?

  B/c nobody knows or cares! There is a very limited set of the population that have non-registered investments that are actually affected by the cuts to capital gains taxes. What’s the number, like 5%?

  Sure you can include all of the homeowners, but they have a different issue: inflation. Plus they don’t tend to notice b/c they skip the tax and just roll up to the next house.

  I like the ideas of cutting taxes across the board, but it’s obviously politically weak. Personally I’d just like to see flat taxes across the board, with government supplementation for “those in need” (which we already have to some extent). But that’s also just a pipe dream

• 26 Warren // Nov 3, 2007 at 12:27 pm

  As an investor, I like the idea of capital gains cuts, but it could be a tricky situation. Case in point: recent tech and housing bubbles. These are purely speculative bubbles that have or will crash in pretty spectacular fashion. Reducing capital gains taxes may only serve to make these bubbles grow faster and pop harder in the future.

• 27 JD MacDonald // Nov 4, 2007 at 1:30 am

  You people have no concept of what it’s like to be really poor. The GST doesn’t hurt those who can afford to pay it–and tax credits aren’t much use when you need the money today. Why don’t you try telling the lady in line in front of me who had to walk out of the store with her tail between her legs because she was 69 cents short…and it was clear that she just didn’t have the money…that a 2% GST cut doesn’t mean much? When are people like you going to realize that the combination of GST and provincial taxes is just too much for some people to pay?

• 28 Canadian Capitalist // Nov 4, 2007 at 10:19 pm

  JD: I’ve been a poor grad student at one time and I do know how difficult it is to live on a very small income. I am not sure if a GST cut would have helped me at that time but a higher personal exemption surely would have. It really hurt when you had to send a cheque for hundreds of dollars at income tax time, when you had barely enough to live on.

• 29 Warren // Nov 4, 2007 at 11:06 pm

  JD, I’m not sure I understand your issue, or what you expect to be done. I grew up in a poor, single parent family, so I know what its like to shop second hand, live on basic food, etc.

  A “poor person”, assuming employment, has just had their income tax reduced, the exemption limit is being raised, and they are still collecting a full GST rebate check. Remember GST is not charged on food (unless in a restaurant), clothing, or shelter. On a small scale the GST is a real “tax the rich, give to the poor” plan. Last time I checked a full GST rebate is about $85 per quarter, or $340/year. That’s the amount of GST you’d pay on $5600+ worth of taxable goods. (these figures are based on my limited experience, nothing researched).

  I’m all in favor of higher personal exemptions, what exactly would you like the government to do?

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