Tag Archives: tax policy

You Can’t Nationalize Carbon Costs

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Whether you’re in the carbon credit market or the car or you’re simply looking for ways to generate revenue, it’s not a good idea to think of a carbon tax as a solution, even though some Canadians think it might be the only way to go.

Why?

It’s morally absurd to nationalize (or localize) carbon costs when the local government might be hosting the producers of carbon, but they’re not reaping all of the benefits.

Allow me to explain …

Say you’re a big country with a whole pile of natural resources.  Let’s remind everyone that very few of these natural resources are actually currently owned by the people of that country.

And let’s say that in order to produce, export and consume those products, people already pay an excise tax that is designed to simply extract cash from the pockets of those people to pay for things that they may or may not want, like crappy jets and useless prisons.

And let’s finally agree that the corporations that extract these resources are already getting a free ride because they pay a minimal amount of royalties, all of which are deductible against absurdly low corporate income taxes, most of which are negative because of the vast array of ridiculous writeoffs that we create for these welfare slobs.

And now … we introduce a carbon tax on the people that might use the carbon-based products that non-Canadian companies overcharge us for.

What an insult.

It’s time we got the formula straight.

I will pay carbon taxes when I know that the companies like Shell, BP and Exxon pay a flat tax to the people of Canada for the privilege of extracting our resources.

Until then, adding another tax to Canadian citizens is just another insult to our pocket books and will do nothing – I repeat nothing – to solve the environmental tragedy known as the Tar Sands.

Tax Changes Worth Considering

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In the world of fiscal and monetary policy, once you make specific changes, it’s very difficult to turn back on them.

Unfortunately, this is true for reductions that we’ve seen in the past with specific tools like the GST (now HST) which was reduced by Stephen Harper, Dalton McGuinty and other leaders in an economically questionable tactic to get into office.  Today, our economic instability continues and yet our leaders still commit to reducing corporate tax rates, forcing us to shake our heads at the gross inequality of Canadian citizens compared to capital owners.

With this in mind, I’d like to spin the topic a little towards something more positive:  eliminating or reducing tax deductions.  I’m sure lots has been written about this, but I personally feel that little has been done to explore the impact of altering deductions when it comes to corporate and income tax policy.  Here are some standard deductions, all of which create questionable policy outcomes:

  • Car and gas:  the more I drive for business, the less I pay in tax.  Larger organizations would have entire ‘fleets’ that are deductible for tax purposes.  Also, allowing car, gas and other fleet deductions encourages the consumption of the wrong kind of transportation and carbon-based fuels.  My mind would change if someone actually developed a functional hydrogen vehicle or mode of transport that used an alternative fuel, but allowing these carbon deductions only keeps us stuck in the 20th century.
  • Meals and entertainment:  the more I eat and the more hockey games I go to, the less tax I pay.  This makes no sense.
  • Land and real estate assets:  I don’t know a lot about this, but my instincts are that if we taxed inactive land assets, they would be used for economic activity or put on the market.  While this might push down the value of land in the short-run, it would ease the cost for entrepreneurs to open up office space or local retail locations.  It would also help put an end to the miles of waste that we see everywhere now with closed offices, land for lease and excessive apartment costs.
  • Business losses:  my understanding is that business losses that are accumulated in any given year can be carried forward for use indefinitely years for the company in question and are also transferable to other subsidiary or parent companies.  Are there ways to proactively reduce losses that are carried forward against profitable organizations?  I know I’m playing with fire on this, but at what point should we just force unprofitable companies to be shut down?
  • Charity activity:  ‘charity’ runs counter to the goals of profit maximization, so why do we allow massive deductions against corporate activity (some might argue ‘meddling’) with charities and non-profits?  Why don’t we just increase the deduction at the personal level?
  • Professional services:  how many lawyers are enough?
  • Dividend tax preference:  once again, I’ll concede that the economics on this topic are grey, but giving preferential tax status to dividend income seems to run counter to income earned from non-dividend sources.
  • Special incentives and investment programs:  All levels of government are hobbled by excessive grant giveaways and most of the companies that benefit from these programs have shareholders that simply don’t need handouts from the public.  Great examples of this are the Canadian Magazine Fund and the Canadian Film and Video Tax Credit.  Do we really need to give CTV and Quebecor hundreds of millions of dollars each year to produce what amounts to propaganda?

Of course, most of you who are intensely more familiar with tax policy would quickly jump on me and argue that many of these deductions are equal in the sense that small businesses and co-ops can make use of them as much as a large corporation can.

Unfortunately, most small businesses can’t even afford these expenses and rarely take a moment to spend any more than a couple of hundred dollars per year on the odd hockey game or taking a buddy to brunch.  As someone who describes himself as a small business owner, I know this to be true.

All I’m suggesting is that we consider caps on these deductions and for some, look at ways to eliminate them all together as effective ways to shape social policy and reaction out of prudent fiscal measures.  For example, now that we live in the digital age, why do we need to drive to meetings?  Why don’t we just do more via Skype calls or by leveraging other video-conferencing tools?

In an ideal world, we address simply questions of ‘equality’ and ‘fairness’ by understanding that our tax system is excessively skewed to the benefit of those that own it:  governments and the corporations that own them.

Simple modifications will improve financial liquidity for our governments and ensure that fairness is restored to average citizens.  I think this is something we can all accept, possibly including those with #occupywallstreet.

Ultimately, any or all of these changes push the needle towards a flat tax, but that’s something best discussed in another article.

Open The Books for Everyone

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Here’s a great piece from David Climenhaga contributing to rabble about fiscal openness.

While it’s extremely unlikely that the Harperites will follow his advice, I fully agree that now is the time to open all books for any organization that receives (or received) public funds of any kind.  If unions are being wrenched open – and I don’t see why they shouldn’t – then we have an opportunity to apply ‘what’s fair’ logic to the other organizations listed below:

  • Organizations like the bar, medical, engineering and other professional associations that members must join in order to practice in their fields
  • Private corporations that receive any form of subsidy paid by taxpayers
  • Private corporations that bid on any publicly financed contract
  • Any corporation or organization that exists for the purpose of influencing public policy, including lobbying firms and “think-tanks” not associated with public institutions, which have their own reporting requirements
  • Associations of corporations, businesses or individuals that by definition try to influence public policy and trade practices
  • Churches and religious organizations that raise funds for other than purely spiritual matters, including the operation of chartable, educational or public policy institutions
  • Any organization that can give charitable tax receipts for donations

I would add defense contractors and police organizations to the list, assuming the latter don’t already have to fully disclose details about spending activities (eg. G20 largesse) as part of annual budget reports.

It just makes perfect sense.  If you want to hide and recede from public scrutiny, then stop milking the public teat.  Stop accepting public funds.

If you want to get grants, subsidies or economic benefit of any kind, then accept the fact that the public has a RIGHT to see what you’ve earned, what you did with the money and decide if it was a good use of funds.

If we have this kind of openness, it’ll likely result in a significant reduction in the number of charities that have been set up simply to ensure a tax dodge for their creators and will go a long way to curbing the corruption that we’ve fomented in places like Montreal with programs like the Economic Action Plan.

The age of openness is upon us.  Conservatives ramming this aggressive ideological agenda down the throats of left-of-centre organizations like unions and the CBC will only cause grief for themselves as Canadians demand more insight into the rest of the organizations that they are involved with.

The United Stale Economy

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Back in Feb 2009, I wrote ‘Why Can’t We Just Spend Our Way out of the Depression‘, knowing full well that the American and US economy was being supported by smoke and mirrors and little else.

At the core of this article was the rationale that we’re facing a seismic shock in spending, not because of what people’s attitudes are about the economy, but because of a totally different economic issue:  life-cycle planning.

Boomers have always influenced our economic fortunes or issues.  Bananas, oil shocks, market gyrations and soon, market collapse.

Nearly a year later, I followed up with this piece on the US housing crisis.

It finally seems like the mainstream is catching on to this idea.

Wall Street Journal:  Another Threat to the Economy: Boomers Cutting Back

This piece has an excellent chart in it:

Boomers-Cutting-back

For those brilliant no-minds that just dumped billions into the auto industry:  your (and ours) investment will likely be cut in half within the next couple of years because boomers have cut their demand in half.  This makes sense because we’re seeing the steep rise in empty nesters that don’t need two or three SUVs sitting in their lot.  Instead, they’re buying one convertible or Honda Accord (for those that lost their shirts on one of the many manias in the last 30 years).

Any recovery that we’re seeing with car companies will be short-lived.  GM will have to design a marketing strategy other than giving cars away.  Chrysler will have to end ’employee’ pricing.

A lot of change will happen in the next 10 years and it won’t be pretty.  Pensions will go bust and pensioners will have to take up part-time work at dumps like Wal-Mart of Costco.

The notable increases are with health insurance and drugs.  These companies will likely be one of the only profitable sectors over the next decade, despite the cries of communism coming in the wake of Obama-care.

To pay for everything, all savings will be liquidated and converted to Viagra, Lipitor and a moderately decent nursing home.  Don’t be surprised if the best-selling horror stories are those related to retirement home abuse (or STDs).

US Is Bankrupt …

This one comes to us from Bloomberg.

The US is incapable of paying its bills and there’s suggestion that the situation will be worse than Greece within a few years.

Gerald Calente Video

Believe it or not, Gerald Calente is not the source of my predictions.  One of the people that captured some of these ideas best was David Foot, who wrote Boom Bust Echo a while ago.

Next Steps?

The US administrators will continue to try to bail out industry over the next decade.

Every time they do, they will face an economic wall.  Bailouts require that they print money, printed money = inflation, inflation = dollar deflation, falling dollar = rising commodity prices, rising commodity prices = economic collapse.

This cycle was best recently described by Jeremy Rifkin as an Economic Endgame.

What To Do?

Realistically, there are three things we can do:

  1. Stop spending, particularly on stupid wastes like car companies, prisons and military;
  2. Start taxing the rich and taxing consumption;
  3. Start slashing what corporations can deduct from their taxes.

People like Bill Gates and Warren Buffett are smart because they’re getting old and they saw it coming a while ago.  The Bill and Melinda Gates Foundation and other efforts are great ways to say ‘I’ve made all of this money and I’m going to protect it before the government comes and takes it away’.

Fine … we’ll tax the charities too, especially the religious ones.

As people like me get older, we won’t have the luxury of avoiding the wealthiest in our effort to feed our parents and kids at the same time.

We’re going to lift every rock to find money and we’re going to start at the top.

Progressive Platform: Tax Policy, I

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Author’s Note:

I’ve decided that I’m going to air my suggestions about what I’d like to see in a progressive platform.

I believe that the space defined as ‘progressive’ voters is WIDE open in this country, as neither the Liberals or NDP seem capable of claiming this vital territory and owning it.

Regardless, I’ve become party agnostic.  Neither the Liberals or NDP cater to my interests, but by posting my thoughts on what a progressive platform should look like, maybe both of them will snatch snippets of it, making me (and presumable all of us) better off and happier.

Progressive Platform:  Tax Policy, I

Don’t Raise Taxes (Yet), but Reduce Deductions

Much of the economic platform of the Conservative Party of Canada relies on tax cuts, reducing the size of government and a philosophy that in the kindest of words would be ‘regressive’.

Tax cuts offer no benefit to those who have lower incomes or who don’t own a business.  Tax cuts don’t benefit the Jane and Joe Six-Pack that punch the clock at Wal-Mart.  Tax cuts don’t return the money that we’ve spent at Wal-Mart and just act to enrich other treasuries around the globe.

Tax cuts bring nothing to our economy.

Of course, the Conservative ‘platform’ is also in conflict with what we’re seeing as a reality:  massive and unprecedented spending;  mortgaging the future of our economy, environment and society by slashing public services for those who can’t afford to sustain themselves; and, of course, making the assumption that consumption is a bottomless pit that will save us all economically (and politically for the Cons).

Pushing an economic platform that blindly slashes at taxes and social infrastructure ignores the reality of our current global crisis, most of which is rooted in over-consumption.

Having just finished my annual taxes, the wounds are still deep, but the inspiration has been catapulted to a new level.

Tax Shaping, Not Tax Cuts (or Increases)

I recommend a very simple approach to tax policy that I call ‘Tax Shaping”.

Instead of worrying about which taxes we’d raise, a progressive platform would slowly eliminate specific deductions that do nothing but encourage over-indulgence with our expenses.

We would shape taxes to reflect the policy directions that we want to encourage.

Let’s think about deductions related to your car, something that’s allowed for all businesses, including small businesses, but not individuals.

Here are just a few expenses related to cars and transportation that are deductible as a business:

  • Gas.  Gas and most other car-related expenses are not deductible by individual taxpayers, so why we make it deductible for businesses does not make for solid social and progressive policy.
  • Regular car payments, including interest on car payments and leases
  • Insurance
  • Maintenance and repairs
  • License and registration fees
  • Etc.

In 2009, these expenses wound up being about 15% of my overall deductions.  I believe that there are more than a million businesses registered in this country and altering the tax structure in this respect would like result in billions of dollars per year in new revenue for the federal coffers.

Please note that I know I’m a hypocrite, but I’m also an economic animal:  I make these deductions because I can.

If they were not deductible, and other forms of transportation were, like bus and rail passes, I’d change my economic behaviour to favour those options.

Or if we proceeded with this kind of tax shaping, me and only myself would be responsible for bearing the cost of putting another car on the road, something that our planet really can’t sustain any more.

Tax Shaping Example #2: Entertainment

When you start picking apart the deductions that we’ve made available to the business world, it becomes really easy to identify ways that we can encourage specific directions in economic decision making without implementing policy as a government.

The second obvious example is the deduction related to “Meals and Entertainment”.  How many claims have been made with strip clubs or other ‘suspicious vendors’ as a significant line item?

How many people have submitted bottles of wine bought at the LCBO and claimed that they were related to a party for an employee, only to tuck them away in their cellar?

Or the deduction of season’s tickets with a hockey team or baseball team that might be used a few times and that rarely actually lead to new business being struck.

This time, I’m happy to say that I’m not guilty of any of these activities, but I know people who flaunt these angles related to “Meals and Entertainment” and it has to end.
Once “Meals and Entertainment” becomes less of a priority from the perspective of a business deduction, perhaps they’ll become less of a priority for society at large.

The simplest approach is to reduce what people can claim on an annual basis in the process of earning income.

Other Examples

Looking at the tax code, it’s easy to come up with other examples of deductions that could be shaped to reflect a progressive platform:

  • Subscriptions and memberships:  this category is similar to Meals and Entertainment, but includes stuff like conferences and seminars that are grossly over-inflated in price and value.
  • Interest on loans.  This one is debatable and vast financial models have been created to justify some leverage that comes from borrowing.
  • Travel.  In an age of digital communications and Skype calls, do we really need to hop on a plane when a client calls or can we encourage a lower frequency of jet-setting?

Summary: Tax Policy, I

The act of discouraging certain consumption patterns has tremendously positive implications with our societal and economic structure.

By making certain activities less attractive because we’re forced to treat them differently financially, we will make better choices.

More energy will be devoted to building a car that will last for 20 years, but will also go 1,000 km on a single litre of gas.  Such tactics will shatter demand for fuel and force an explosion in demand for renewable energies.

Of course, there’s the whole other side of this discussion that I haven’t even begun to dive into:  deductions that are perceived to be GOOD for our economy, environment and society at large.

If you have ideas or suggestions, please post them in the comments.

Thanks!
Liam.


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