Solution 17: Bad Answer to Mythical Problem
This article in intended to point out the bad points of ``Solution 17''. I feel that increasing personal and spousal exemptions is a better way to cut taxes, if cutting taxes is determined to be the best course. See my article How To Cut Taxes.
I have not seen an analysis of the advantages or disadvantages of using the $100 billion that the CA calculates will be given back as tax cuts over five years to repay our debt instead. Perhaps it would be better to do this, and use the resulting decrease in interest charges to increase personal exemptions.
In any case, the CA party is touting highly their ``Solution 17'' tax plan. Come; let's take a look at it together. You can read the entirety of this insanity at the CA's Web site. Their summary, point by point:
CA
Creates a single marginal tax rate of 17% from 17%, 26% and 29% - tax savings $17.2B
This is the dumbest part of the entire proposal. The only thing this accomplishes is giving a huge tax cut to the richest Canadians ($17.2 billion if their calculations are correct). In fact, the higher your income, the more of the tax cut you'll see. This is quite clearly unfair.
Also, the middle rate has been lowered to 23% by the current federal budget (a better move would have been to raise personal exemptions by a greater amount).
Using the increases in personal exemptions below and some quick calculations, it is obvious that this cutting plan doles out the tax cut in a drastically unfair manner.
If you are making $29500 or less, your tax savings are $240. However, if you are making $200000, your tax savings are $18830. The person making $200000 makes six times what the person making $29500 does, yet sees almost 80 times as much tax savings under ``Solution 17''. This is not an equitable way to cut taxes.
If you think $29500 is too high, the lowest you could go and still see $240 of savings is $10000, but this is still only 1/20th of $200000 and the tax savings is still only 1/80th.
CA
Increases Basic Personal & Spousal credits to $10,000 from $7,131 / $6,055. The enhanced level of credits will be protected from inflation once phased in - tax savings $8.3B
One of the few good points of the proposal, raising personal exemptions is the only good way to cut taxes (see How To Cut Taxes). The current budget raises personal exemptions to $8000.
CA
Introduces a $3,000 per year per child tax deduction to recognize the cost and value of child rearing - tax savings $2.4B
This is another high point of the proposal. There are already child deductions in the current tax system, if my tax guide is correct, in that you can deduct child care expenses. This would be a useful addition (provided gays and lesbians aren't excluded, as seems likely given other Reform ranting on this topic). The current federal budget includes plans to introduce such a deduction and increase it to $2400 by 2004, which makes this point fairly moot.
CA
Decreases EI rate to $2.00 / $2.80 from $2.40 / $3.36. Reduces tax on jobs. - tax savings $2.7B
EI is not a ``tax on jobs'' any more than the rest of the income tax program is.
CA
Eliminates 5% surtax - tax savings $762M
This was eliminated in the last federal budget. Moot point.
CA
Increases RRSP / RPP contribution limit to $16,500 (30% of income) from $13,500 (18% of income), and allowable foreign content to 100% (from 20%) over the five-year phase-in. Improves the ability of middle-income earners to maximizes contributions and better plan for their retirement - tax savings $600M
The RRSP contribution limit has nothing to do with middle-income earners; the limit applies equally to all incomes. The foreign content change is not a smart move; the purpose of allowing Canadians to deduct their RRSP contributions is to encourage investment inCanada. Allowing people to deduct thier Canadian investments is not intended to preclude foreign investing, but works to encourage some amount of investing in Canada's industries by Canadians.
Increasing the contribution limit is likely better for higher-incomeCanadians; people earning $40k and trying to support a family probablydon't have $7200 left to invest, let alone $12k. Perhaps they do,though. I am not sure what percentage of middle income Canadiansmaximize their RRSP contriubtions, however; if the percentage is highenough than this increase is likely a good move. (Thisdocument likely contains such information, but I'm not paying $33 for it. Anyone have free statistics on this?)
Lowering the Candian content rules is dumb; just dumb. Encouraging investing by Canadians in Canada is a Good Thing.
CA
Reduces capital gains tax rate to about 20% from nearly 40%. Encourages success and risk taking.
I fail to see how this encourages ``success'' (even if you narrowly and wrongly define ``success'' as ``acquiring lots and lots of money''). Really, it allows for more investment speculation which generally takes place by people with lots of disposable income. Bad point.
CA
Reduces general corporate tax rate to 21% (equal to that levied on manufacturing and resource firms) from 28%. Eliminates the discrimination against the ?new economy? -tax savings $1.89B
Corporate taxes don't need to be cut. I think Manning has read too many issues of Wired; selling underwear over the Internet does not a New Economy make (no matter how often you say it), just another way of doing the same thing.
Further, this has already been done for small business taxes and the current federal budget calls, unfortunately, for this to happen to the rest of business taxes by 2004.
CA
Reduces small business corporate tax rate to 10% from 12%. Encourage the start up of new firms. -tax savings $340M
Small business tax cuts could be beneficial, but I would rather see them come at the expense of increases in other corporate taxes than by a drop in spending.
CA
Total Tax savings in 2004-05 $34 billion!
Increases program spending $1B per year, starting from $111.5B and rising to $116.5B. Approximately in line with population growth which is currently below 1% p.a.
This low increase is premised on the assumption that, ``the overall growth in spending is less than growth in inflation and population''. It is over three times lower than the current proposed spending increases. Additionally, with current revenues of $158 billion, the CA deigns that growth will (somehow) make up for their cuts of $34 billion. I find this hard to believe.
CA
Removes 1.9 million low income taxpayers from the tax rolls
Many, many more could be removed if a fair plan of simply increasing personal and spousal exemptions was implemented. Again, see How To Cut Taxes.
CA
Eliminates the current discrimination against single-income families vis--vis dual income families. Currently a single-earner family of four earning $45,000 pays 136.5% more in federal tax than a dual-earner family of four with the same income level.[3]
The better way to do this would be to increase the spousal exemption. Of course, at extremely high incomes there will still be a discrepancy, but at that point it's rather academic.
CA
Single parents receive a significant increase in the amount that can be earned before earnings become taxable. The threshold for a single-parent of one will increase to $23,000 from the current $13,186 - a $9,814 increase!
Yippie; if the same drop in spending was used to raise personal exemptions alone, this figure would be far, far higher. The only reason ``every Canadian would see lower taxes under this plan'' is because of personal exemption increases; most of the revenue drop comes from eliminiating the brackets, meaning most of the tax cuts go to people earning over $30000 (and even more of the cuts would go to people over $60000).
Characterizing lost tax revenues as ``savings'' is typical of Reform rhetoric; government spending supports programs such as health care and education, which need re-investment, not more cuts; an AngusReid poll from March this year shows that Healthcare (59%) and Education (28%) are far, far more important to Canadians than taxes (20%). There are perhaps some things which could be cut, but totaling these to $34 billion would be quite difficult. CA continually uses ``the HRDC Scandal!!!'' as an example of why government spending is somehow bad. Sure, there are always examples of screw-ups, but Reform suggests that since a single, small part of the federal government's budget was a waste then somehow all spending by government is necessarily bad. This is simply not the case.
Further, it is not clear that our economy needs ``spurring'' as the CA will loudly tell you it does. The latest federalbudget shows that our unemployment rate is already at 6.8% (the rate predicted for the following year with the CA plan). Further, ``both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) expect Canada to post the second fastest economic growth among the Group of Seven major industrial countries in 2000 and to lead in job creation.'' This doesn't sound like an economy in need of boosting to me.
If our economy is growing healthily and our unemployment rate is dropping, drastic and sweeping changes as proposed by Manning are not what is needed. Tax cuts for the wealthiest Canadians, as proposed with ``Solutiuon 17'', are not the answer to a mystical and non-existant ``problem'' with our economy. If taxes are cut at all, they should be cut in a manner which gives the tax cut equally to all Canadians: an increase in spousal and personal exemptions alone.
``Solution 17'' is a bad answer to a problem which doesn't exist.