Friday, July 27, 2007

A balanced and measured approach?

Let’s suspend disbelief for a moment and accept that everything Jim Flaherty has said about income trusts and his policy goals to be true. Entering this twilight zone is a very easy thing to do since it only requires you to believe his true intent is to level the playing field between trusts and corporations, and to accept the notion that RRSP withdrawals are never subject to taxation. Keep in mind that for the latter to be true would mean that the government would forfeit $9 billion in taxes annually from the taxation of just such RRSP and pension withdrawals.

As recently as this week , Flaherty would have us believe that income trusts cost the government $3 billion in lost taxes. This is based on Flaherty’s own assertion that six years of losses at $500 million a year equates to $3 billion. Therefore to achieve the goals of leveling the playing field and stemming this loss of taxes, he has introduced a 31.5% tax on income trust distributions, that is non refundable to RRSP investors and foreign investors who make up 38% and 16%, respectively of all income trust investors, according to the government itself. Again, according to the government, the $200 billion income trust market pays out $16 billion in annual distributions, which are fully taxable in the hands of investors. The new additional tax burden will mean that the government will now receive an additional $2.7 billion in annual taxes to counteract an alleged loss of $500 million in taxes. Talk about belt and suspenders overkill to the extreme by a factor of no less than 5.4 times. Even assuming this $500 million tax loss to be real, which we all know it isn’t, the required level of taxation needed to stem tax leakage and to create the much vaunted level playing field would only be a 5.58% tax, but then whose counting?

The astonishing thing is that we don’t even need the details behind the 18 pages of blacked out documents to figure this out. Maybe that’s why Flaherty and his wise counselors in the Department of Fraud now want them back as they don’t exactly paint a picture of fiscal probity or a balanced and measured approach to what Flaherty himself calls a “clear and present danger to tax fairness.”. More like a case of fanning the flames and cooking the books.

Can the case against Flaherty be made any simpler? Can tax fairness get any fairer than this? No doubt we will all learn the answer to that in Flaherty’s next budget, or whomever Harper’s new Minister of Fraud will be.


Dr Mike said...

Hey guys check this out--I received this letter today from Mr Flaherty in response to a letter I had written him concerning my opposition to the Tax Fairness Plan.

Pay particular attention to he dates.

July 27, 2007

Dr. Michael Popovich

Dear Dr. Popovich:

Thank you for your correspondence of December 22, 2006 regarding the estimated federal revenue impact of income trusts and the Tax Fairness Plan that was announced October 31, 2006. Please excuse the delay in replying.

I understand the concerns expressed to me concerning this decision. It was clearly a difficult decision to make, but was necessitated by the rapid acceleration of conversions to income trusts in 2006.

On January 30, 2007, I appeared before a special hearing of the House of Commons Standing Committee on Finance and stated that Canada’s new Government intends to proceed with the Tax Fairness Plan. I also provided the Committee with a detailed accounting of the estimated federal revenue loss of $500 million for 2006 due to the special tax advantage for income trusts – a burden that was unfairly being shifted to ordinary taxpayers and other tax-paying corporations. As I indicated to the Committee, we believe the $500-million federal revenue loss is a conservative estimate.

For more information, please refer to the following links for the Department of Finance website:

· My remarks to the House of Commons Standing Committee on Finance:;

· Charts and tables:;

· My remarks on the Tax Fairness Plan:; and

· The Estimated Federal Revenue Impact from Flow-Through Entities background document:

Thank you for communicating your concerns.


James M. Flaherty

All I can say about this is thank you Jimmy for your unprompt & untimely reply!!!

I won`t bother responding since the reply will not arrive back to me till next spring & by then he will be history--hopefully he takes the rest of his cronies with him.

Dr Mike

Anonymous said...

Minister of Fraud? Yikes, that’s so harsh. It’d would be slander – except that it is true. We have a senior Minister of the Crown who is widely recognized as a fraudster. But let’s check some basic terminology.

A fraud is a “deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage” (Random House Unabridged Dictionary.) And a fraudster is one who commits fraud.

We know that the finance Minister has been deceitful about the 31.5% tax on trusts. He claimed that the conversion of BCE and Telus to income trusts would cause a massive erosion of Canada’s tax base. That claim is false, and can be easily seen to be so for BCE. There are three annual tax results for BCE:
- As a corporation: $0
- As a public trust: $800 million
- As a private trust: $480 million

Why was this deceit perpetrated? Who profits or gains some unfair or dishonest advantage? What is the unfair or dishonest advantage?

The unfair or dishonest advantage is that publicly traded income trusts have been effectively banned from competing for ownership of Canadian businesses. And existing public trusts have been impeded in developing their businesses.

Who profits or gains some unfair or dishonest advantage? Clearly the large pension funds such as Ontario Teachers, OMERS and the Public Pension Investment Board have been give advantages over public income trusts. Similarly foreign investors can now do what public income trusts cannot do—selected foreign investors can buy an ownership percentage of BCE.

When the numbers are worked out, it will be seen that BCE earnings will reduce pension fund deficits or increase pension fund surpluses. In short, in the case of BCE, the profit flows to the Government of Ontario through the backdoor of reduced pension costs.

Why was this deceit perpetrated? To profit pension funds that have deficits and companies and individuals associated with those pension funds. In addition, the 31.5% tax on trusts will force some Canadians to work longer or save more for their retirement. For those who are forced to work longer, the corporations will profit and governments will save from having more workers in the labour-force, and governments will earn more tax on employment income.

Minister of Fraud? A shoe will be worn only when it fits.

nineofiveland said...

hey dr mike .. did you know that flaherty's middle name is michael? .. some of us think it should be richard and we all know the short form for that name!

Canada's New Government .. gimme a break.

Randy Meyer said...

Here's a great video from Mr. Tory himself Ralph Klein telling Harper he should have kept his word.

Harper could learn a lot from Ralph. Honesty would be a start.

Dr Mike said...

Honesty is not in their vocabulary--Ralph is beyond the comprehension of these guys--after all Mr Klein knew how to get re-elected--these guys do not!!!!

First it will be good riddance to Jimmy--then good riddance , shortly after Jimmy hits the door , to the rest of these guys.

I for one am looking forward to this day--THE SOONER THE BETTER , BEFORE IT IS TOO LATE!!


Randy Meyer said...

Dr. Mike

We need to keep pushing the case. The form letter you received was a joke. Although I didn't see your letter to him, no doubt you pointed out many errors in his logic and he didn't respond to any of them.

I have written 5 times to my MP - Harper but have yet to receive one considered response. We may as well have no MP as he simply is Mr. Vacant. Oh, wait. Yes, he was seen at our local stampede breakfast flipping pan cakes for a bit. How wonderful.

Dr Mike said...

If you think the flaherty response was a joke , I have something better than that.

MY wife & i sent several hand written letters to all members of the NDP caucus & to it`s leader Jack Layton--we had expressed our concern with their stand on the trust issue & we listed all the points that we thought were in need of clarification--we wrongly assumed that hand written would be better--as a response we received a letter thanking us for our support for their position on trusts.

Go Figure--these guys are all the same--they just don`t care.

I would love to flip them all "the bird" & go on my merry way--if it were only that easy............


Randy Meyer said...


I thought I heard it all until your latest post. It just proves that the political system is broken. The sad fact is though that most Canadians don't care, don't have a clue and really are ultimately the root of the problem.

Mike, there are only a few guys like you. I appreciate your efforts to inform and to raise the issues. I think though what is truly sad, as I am a parent, is that these clowns are in charge of our armed forces. If they can't get a simple spreadsheet right, what are we to think when they want to send our finest men and women in harms way?

I grieve for those parents who've lost their most precious life's blood -- their children. How can they be comforted? Harper and company are totally ambivalent to pain and wouldn't know the truth if it hit them in the head like a two by four.

I feel personally responsible for having voted for this guy.

Anonymous said...

Hi Friends,
Why would Harper lie about his approach on Income Trusts?
Why was the information from the the Gov't blanked out?
Why would they be afraid to debate the merits of their decision?
Why was there the urgency to have the legislation passed when the taxes from this decision would not be coming in until 2011. If in fact their is such a windfall of tax benefit for the Gov't.
Whats in it for the Politicians?
We know from Harpers actions what he says and what he does are not remotely the same.
Why did he Immediately after being elected bring Emerson into the Cabinet?
Why did he appointment a Senator to be the Minister of the biggest Dept in gov/t?
All these decision were contrary to they way he would supposedly run the Gov't.
Prior to the Election many thought he had a hidden agenda and it is now obvious he did.
Politicians do not make these kind of decisions unless their is something in it for them.So whats in it for them?
How about money?
If you can slam dunk the Income Trusts to the tune of $35 billion dollars and your an insider think of the opportunity this presents?
It would be interesting to know the stock trading practices of the insiders family ,relatives, friends etc.prior to Oct 31,2006.
I wonder if we have any cabinet ministers who have spouses that were involved directly in the Investment Industry and what was their stock trading and investment advice to their clients prior to Oct 31? I would bet you will find that the Adscam pales compared to the financial gains made by the Politicians and their Associates.
Any how I suggest our Association take on the Task to see if my hunch is correct. I am prepared to provide additional funding to carry out an Independent Investigation to answer some of these Questions.
Are you the members curious enough to support this type of initiative?


Randy Meyer said...


I'd be interested and willing to kick in a few bucks.

There's got to be a reason for Harper's actions.

Dr Mike said...

Hi Guys,
I would like to know which politicians owned trusts & which ones did not--from those I have talked to , all are much brighter than us old farts & did not own any--if it turns out that no politicians had trust units , then we were lined up for the executioner right from the beginning--everyone but us knew the Cons were lying to us in this case.

Obviously , none of us were the sharpest pencils in the box or we were just trusting as most canadians are known to be--I prefer to think it is the latter!!!!

I would certainly throw in a few bucks to have these questions answered.


Anonymous said...

Thanks Mike and Randy,

I suggest one way to kick start our investigation is to have John McCallum introduce a Bill in the House of Commons to have all Members of Parliament and their families disclose their Income Trust holdings in March 2006 and on Oct.15, 2006. If the Conservatives are so keen on "Transparancy" this should not be a problem for them to support this,right? Certainly the Bloc,NDP and the Liberals should not be opposed, right?
If the Conservatives oppose this disclosure then that will tell us something,right? However the Opposition parties collectively could could win this one, right? I am sure they would be curious enough to want to know the facts.

While this this is going on I suggest we raise some funds and have a private investigation in to the Income Trust trading patterns during this period. I know that the Trust I had took a free fall during the Month of Sept. The question is why? There was nothing in terms of the Trust operation that warranted this downward fall. One explanation is" Insider Trading" So who are the "Insiders"?

Its time to quite complaining and lets take some positive action to get to the bottom of this.Lets face it the Income Trust decision does not make sense any way you look at it.