Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Monday, November 03, 2014

A windfall for the rich, a sop for everyone else

Everyone was expecting Prime Minister Harper to announce a significant change to the tax system Thursday — one that would allow income-splitting for families with children aged 18 and younger.

He did a lot more than that. He basically delivered much of the 2015 budget.

According to the material provided with Harper’s announcement, the total cost of the proposed tax changes amounts to $3.1 billion this year and $4.6 billion in 2015-16. In the February budget the government forecast a deficit of $2.9 billion this year and a surplus of $6.4 billion in 2015-16. Clearly, the better-than-expected outcome for the last fiscal year has carried forward into this year and next year, allowing the government to make yesterday’s announcements. (We won’t know the final numbers until Joe Oliver delivers his long-awaited fall Economic and Fiscal Update next month.)

To no one’s surprise, the PM unveiled a new family tax cut for couples with children under the age of 18. The proposal will allow couples to transfer up to $50,000 of taxable income to a spouse in a lower tax bracket — up to a maximum benefit of $2,000. This is a slightly tweaked version of the pitch Harper made in the 2011 election campaign, which has received so much criticism over recent months.

Critics of the original proposal argued that income-splitting would benefit only about 15 per cent of taxpayers. Those who would benefit most would be single-earner families with income exceeding $125,000. Single-parent families would get nothing; nor would dual-income families with two partners in the same tax bracket.

The government has acted to restrict the benefit to high-income Canadians by capping the tax benefit at $2,000. This reduces the tax cut’s total cost but does nothing to change the basic problem with it: 85 per cent of Canadian taxpayers will get precisely nothing from this cut.

According to the Harper government, income-splitting will cost Ottawa $2.4 billion 2014-15 and $1.9 billion in 2015-16. That’s an awful lot of revenue to give up just to make a small group of well-heeled taxpayers happy. Why do these households deserve a deep tax break more than the vast majority of Canadian taxpayer? How can the government justify a re-distribution of income that benefits the wealthy?

Supporters of income-splitting argue that change recognizes the contribution made by stay-at-home spouses caring for young children. They also argue that income-splitting would make the tax code more fair for those households.

Jack Mintz, one of Canada’s leading tax experts, claims that income-splitting would achieve “horizontal equity” — meaning “the equal treatment of equals” where “families with similar economic circumstances should be taxed similarly”. This may sound like a simple principle to apply but (true to form) economists can’t agree on the meaning or measurement of “equal” and “similar economic circumstances”.

One thing is certain: Earned income is an inadequate measure of “similar economic circumstances”. Jonathan Kesselman, another leading Canadian tax expert, writes that “for individuals to be equal they must not only have the same realized incomes but also confront the same costs and opportunities and possess the same preferences”.

In other words, one cannot simply look at tax rates and conclude that, because a two-earner family pays less tax than a single-earner family with the same income, the tax system is treating the single-earner family unfairly.

There is no justification whatsoever for introducing income-splitting on social or economic grounds — certainly not in the current economic environment. The argument that the government makes — that it did it for seniors and therefore it should be applied to other families — doesn’t make a particle of sense. The fact is that the Harper government gave income-splitting to seniors to make amends for its decision to tax income trusts.

Income-splitting is being done to placate a small part of the Conservative base at the expense of virtually everyone else. The rollout will be explicitly political: those households that qualify will be able to collect their tax cut when they file their 2014 tax return, just in time for the election.

It’ll be interesting to see how this tax change plays out with Canadians as they come to understand what it means to them — or rather, what it doesn’t mean. The Harper government obviously is expecting people to be disappointed, which explains their decision to sugar the pill with other tax breaks:

Mr. Harper announced an enrichment of the Universal Child Care Benefit (UCCB), which would benefit almost 1.7 million families with children. First, the monthly benefit for a child under age six will be increased from $100 to $160. Second, under the UCCB, children aged between 6 and 17 will receive $720 per year. Enhanced payments will take effect in January 2015 and will start to show up in monthly payments in July — just before a fall election. The cost of the enhanced UCCB will be offset by the elimination of the existing child tax credit beginning in 2015.

According to the government, the cost of the enhanced UCCB will be $700 million in 2014-15 and $2.6 billion in 2015-16.

The government is also proposing to increase the dollar limits for the Child Care Expense Deduction (CCED) by $1,000. The cost of this change — and the cost of doubling the child fitness tax credit and making it tax-refundable — would be less than $100 million a year.

No surprise, the government has said nothing at all about what the ‘downloaded’ cost of these proposals will be for the provinces. In all likelihood the cost could come in around $1.2 billion in 2014-15. The loss in revenues would be the largest in Ontario. The federal government might be able to afford a tax cut, but the provinces certainly cannot. Once again, we see a complete lack of federal-provincial coordination in fiscal planning.

One thing is certain now: An early election is off the table. Mr. Harper wants these tax changes up and running before he seeks another mandate. To make the changes for the 2014 taxation year, the Canada Revenue Agency needs at least one month to change the applicable tax forms.

Mr. Harper has thrown the gauntlet. He plans to fight the election on putting “money in the pockets of Canadians”. All his tax proposals will be in place in time for 2015. He is daring the NDP and Liberals to reverse them.

And if the wider economy behaves, it just might work for him. Next step is Mr. Oliver’s fall Economic and Fiscal Update. Stay tuned.

Original Article
Source: ipolitics.ca/
Author:  Scott Clark and Peter DeVries

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