The Self Benevolent Tax Policies of Jim Flaherty

Jim Flaherty flatters himself by portraying his own self as an average everyday kind of guy who frequents the Tim Horton’s in Whitby. This is part of a grander ruse to deflect Canadian’s attention from the fact that Jim Flaherty’s tax policies are designed with his own personal circumstances in the forefront of his mind. Jim Flaherty served as Ontario’s Finance Minister for 14 months back in 2001 and now as Canada’s Finance Minister for about as long. During these cumulative two and half short years, Jim Flaherty has wasted no time whatsoever feathering his own nest with a total of four Jim Flaherty specific tax breaks, one at the provincial level and three at the federal level.

(1) As Provincial Finance Minister, Jim Flaherty was the misguided person who on the one hand advocated jailing the homeless while at the same time introduced tax refunds for parents sending their children to private school. That was 2002, the year that Flaherty sent two of his boys to Trinity College School, a private boarding school in Port Hope.

(2) Jim Flaherty’s third son is developmentally challenged. This no doubt was the inspiration behind one of the select number of targeted tax breaks for individuals in Flaherty’s recent budget that helps parents save toward the long-term financial security of persons with severe disabilities under the new Registered Disability Savings Plan allowing them to set aside up to $200,000 tax-free for their children’s care. Not being one to be exposed to the whims of the provinces, Jim Flaherty also discussed the plan with provincial finance ministers in mid-December. Flaherty considers that provincial reforms are essential to ensure that family contributions are not clawed back by provincial disability income programs.

(3) Jim Flaherty has been both an MPP and an MP. When Jim Flaherty vacated his provincial seat to run federally, his wife ran successfully for his vacated provincial seat and is now an MPP. When Flaherty was in provincial politics he was active in the abolishment of pensions for MPPs. This was not an altruistic endeavour, as all sitting MPPs like himself received undisclosed lump sum cash payouts in lieu of pensions. Therefore Flaherty will have a pension as an MP, but neither he nor his wife will have one for their service as MPPs. Flaherty’s income splitting for seniors in the recent budget is again ideally suited to his own personal circumstances. Income splitting for seniors is actually only pension income splitting that applies to only 14% of seniors. Flaherty and his wife are part of that select 14% of targeted Canadians to receive this most generous of tax benefits.

(4) Jim Flaherty and his wife were partners in a law firm known as Flaherty Dow Elliott. Flaherty Dow Elliott is a private limited partnership that operates as a tax flow through entity or FTE. There are a myriad number of FTE’s including mutual funds, limited partnerships, trusts, etc. whereby earnings are not taxed at the FTE level , but rather in the hands of the individual taxpayers who own the FTE. Jim Flaherty thought that there was something particularly pernicious about certain FTEs but not others. He claimed certain FTEs but not others resulted in tax leakage and represented a tax loophole and caused great damage to the prosperity of our economy. The particular subset of FTEs that Jim Flaherty targeted for a new form of double taxation at the rate of 31.5% was public income trusts and public limited partnerships. Flaherty Dow Elliott is not a public limited partnership, but simply a private limited partnership.

What’s the distinction? Well, if Flaherty Dow Elliott were a public limited partnership then individuals who are not lawyers but rather average Canadians seeking to provide a form of stable retirement income in a protracted low interest rate environment could become fractional owners of Flaherty Dow Elliott. As with public income trusts many thought that public limited partnerships represented a new form of democratization of the Canadian capital markets. Obviously, the notion of the democratization of the Canadian capital markets represented competition for Canadian’s limited, but growing, investment capital, capital that had previously been captive to the products and securities of those who actually run Canada, namely Corporate Canada. Something had to be done. Flaherty was their man, since Jim Flaherty is the master of self benevolent tax policies and gross fiscal hypocrisy. Let’s double tax RRSPs at a rate up to 64%, and thereby tax the living existence out of income trusts for the benefit of foreign private equity, large Canadian life companies, pension plans and Corporate Canada at large. We’ll call it the Tax Fairness Plan. The fact that we promised Canadians that we would never tax income trusts won’t stop us and nor will the fact that it will actually induce the very outcome it is ostensibly meant to serve, namely tax leakage. Tax leakage that didn’t even exist in the first place. Who cares so long as it plays well at the Whitby Tim Horton’s, the epicentre of Flaherty’s political hypocrisy and self benevolent tax policies.