Wednesday, April 1, 2009

The Liberals must call upon Flaherty for updated tax leakage numbers

The income trust tax was predicated on the argument that income trusts cause tax leakage and that a 31.5% was the tax that was required to “level the playing field”.

In a speech during the last election. Michael Ignatieff referred to Stephen Harper’s income trust tax as an act of vandalism. More recently, during a Vancouver radio call-in show he said that Flaherty’s tax leakage argument was fallacious. I couldn’t have said it better myself. However now is the time for actions and deeds, not words.

Flaherty’s tax leakage argument is more fallacious than Ignatieff himself realizes, which is why the Liberals must call upon the Harper government for an updated tax leakage analysis. Mind you we never received any such analysis in the first place, that’s because Flaherty is desperately trying to conceal the fact that our dishonest Department of Finance officials contrived that false argument by leaving out all the taxes that are collected on the 38% of income trusts held in RRSP. I repeat, 38%! Even Jack Mintz acknowledged that to be dead wrong when he wrote to me and declared: “I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero.”

That observation, from someone who would know, was provided to me on November 23, 2006. It only served to confirm what I already knew on November 1, 2006 when I read the definitive study entitled: “The tax revenue implications of income trusts” written by HLB Decision Economics following their collaborative work with the Department of Finance during the Goodale CONSULTATIVE round, something which did not occur under Flaherty’s drive-by policy making and vandalism exercise.

So, not only is the methodology upon which this bogus tax leakage analysis is based known to be wrong, so too, now are the metrics upon which it is based.

Given that the 31.5% tax was held out to be the equilibrium point at which the playing field between the taxes on income trusts was leveled with corporations, then by definition some lower number is now required in light of the fact that the federal government lowered the tax rate for corporations and now the Ontario government (where 40% of income trusts reside) is doing likewise. Subsequent to the 31.5% tax rate being established, Flaherty reduced the corporate income tax rate will by one-third by 2012. So where’s the corresponding reduction in the 31.5% tax rate and the government’s revised analysis of tax leakage? Now we have the Ontario government reducing the corporate tax rate by 28% from 14% to 10% over the next four years. Again I ask the question, so where’s the corresponding reduction in the 31.5% tax rate and the government’s revised analysis of tax leakage?

The world has not been static over this period. So why is the analysis allowed to remain static? What is being hidden from the public? Why has Flaherty never even released his original analysis to back up his otherwise empty claims of tax leakage?

If a policy’s stated goal is to “level the playing field” and to reduce alleged tax leakage, then does it not follow that reducing the corporate tax rate should result in a concomitant decrease in the income trust tax? And does it not follow that taxpayers who are owed transparency and accountability from their government should receive the analysis upon which this alleged tax leakage has been based?

The Liberals need to put their words into action. Failure by the Liberals to pursue this issue and to demand updated disclosure on alleged tax leakage will simply mean that they are culpable in this vandalism of Canadians’ retirement savings and retirement well being that they speak of and are simply allowing themselves to become participants in the fallacious analysis on which it is based.

One would think that an enterprising Opposition Party that seeks to endear itself to a huge constituency of the Canadian electorate could see the immense voter potential that is being described in the following comment from Rob Granatstein of the Toronto Sun:

From: Rob Granatstein []
Sent: Sunday, March 29, 2009 12:19 PM
To: jack ellefson
Subject: RE: story for the kids

I hear ya. The seniors who have lost too much in both income trusts and the stock market are a real issue.

That's a group that can't be forgotten.

Thanks for writing.

Rob Granatstein
Editorial Page Editor
Toronto Sun


Dr Mike said...

Adding to this debacle was the fact that the Cons would not let the trust tax be a stand-alone piece of legislation but was hidden within the budget bill which allowed passage without due diligence by the opposition all in the name of election avoidance.

All parties except for the Green are to blame for this mess--all of the opposition parties do have it within their power to make amends for what they have done.

The time is right as the amount of free economic stimulus by reversal of the "Flaherty" tax would be immense .

Dr Mike.

CAITI said...

Re $500 million collected from the underground economy.

See the AG report from yesterday. One of the areas identified as "unsatisfactory" in making progress, was the CRA Underground Economy Initiative.

Sheila Fraser reports that CRA has collected far less than the $500 million reported. Strangely, she reports that CRA spends a disproportionate amount of time pursuing "low risk" tax payers and far less on those identified in their risk assessment programme as high risk for unreported large earnings.

Elizabeth May