Wednesday, April 15, 2009

Two POPULIST tax revenue increase measures for the Liberals

Now that Michael Ignatieff has raised the very real prospect that taxes will have to be raised at some point to deal with the budget deficit that has been caused by Harper’s mismanagement of the nations books, he needs to put some meat on the bone of that idea. All the better, if doing so reveals Harper to be the incompetent bungler that he is, whose true constituency is Corporations and not Canadians. Ordinarily the concept of POPULIST tax revenue increases is considered an oxymoron, however not insofar as my two suggestions to the Liberals are concerned, for I would implement the following two tax changes, both of which increase tax revenues, in a way that would be demonstrative of “smart government” and POPULIST in nature and appeal:

(1) Eliminate the capital gains treatment on executive/employee stock options. Apart from increasing tax revenues, the policy reasons for eliminating the capital gains treatment of executive/employee stock options are two fold. First, we have witnessed that the global financial meltdown was caused in large measure by the manner in which people in our society are compensated. Misaligned compensation leads to misaligned results. In brief, stick options lead to results that are misaligned with shareholders. The examples and evidence for this are legion. Meanwhile the idea that individuals who gain profit from employment activities in which they have ZERO capital at risk is taxes as if they had capital at risk, as opposed to income from employment is a structural absurdity in our tax code and an offence to those in society who have capital at risk in growing and investing in the economy and those in society who pay their fair share of taxes on income from employment. The capital gains treatment of income derived from employment by way of stock options is made even more absurd and grossly unfair when it is acknowledged that employee stock options are often “repriced” in which the strike price is lowered, and stock options have been known to be illegally “backdated” as occurred in a massive way just recently. This suggested move would be very much in tune with our times and would increase tax revenues and restore much needed tax fairness to Canada’s tax code and would be viewed as both a smart and populist measure.

(2) Speaking of tax fairness, the second POPULIST tax revenue increase measure would be for the Liberals to highlight their stated intention to repeal Harper’s so called “Tax Fairness Plan” and eliminate Harper’s double taxation of investments made in the Canadians economy by way of their RRSPs. By this I am referring to Harper’s income trust tax, that taxes Canadians RRSPs by amounts of up to 62%. To grow and sustain our economy, Harper was unwise to tax investments in it, by an additional 31.5% imposed on Canadians, when that very tax can easily be circumvented by foreigners, the effect of which has caused the predicted wave of foreign takeovers of trusts. To date their has been some $100 billion of takeover activity caused by this policy, consisting of $56 billion in income trusts and the BCE LBO at $55 billion (debt plus equity). The only thing stopping the BCE LBO was the availability of capital. Once the availability of capital is restored, we will witness a further rash of takeovers of the remaining three quarters of the trust sector. The takeovers of trusts to date has cost taxpayers to lose well over $1 billion a year in taxes. Once the entire sector suffers the same fate, the loss of taxes to Ottawa is expected to be $7.5 billion ANNUALLY. These foregone tax revenues are is the equivalent of a 1.5% GST decrease. Therefore, the restoration of these lost taxes would require that Harper increase GST by 1.5%, in order to put himself in the same structural deficit position he is currently in because of his 2% GST decrease.

These are my suggested POPULIST tax revenue increase measures for the Liberals. Here is the perfect opportunity to demonstrate to Canadians that yours is a SMART government who can act intelligently and prudently and raise tax revenues without taxing average Canadians and do so in a manner that has enormous ancillary policy benefits for Canada as well.

Over to you. I require none of the credit. I simply wish to live in a smart country, which Canada presently is not, under the "leadership" of Hapless Harper, the hominid fool.


Anonymous said...

let the elections begin, this is well put Brent


Dr Mike said...

Reversing the trust tax makes so much sense that the compliant media has missed this totally.

The reversal would cost the taxpayer nothing other than the tax already lost due to the policy itself--stopping it would halt the inevitable future tax losses as the rest of the trusts would be take-over targets once the current credit freeze is over.

The instant cash flow to the unit holders would enhance spending & result in job gains.

Many of the remaining trusts would remain in public Canadian hands resulting in enhanced stability for the future.

It is time for everyone involved to open their eyes to the benefits that could be generated with very little work & virtually no cash.

A win win for everyone--well , except maybe for the corporations out there who would actually have to learn to compete & not just piss away their profits.

Dr Mike Popovich

Anonymous said...

Brilliant suggestions Brent...though I very much doubt that the elite few who benefit from stock options as currently designed, would give much support to your 1st suggestion...

Kephalos said...

Say, do we throw it off the bridge and then take it behind the barn to shoot? Or shoot behind the barn and then throw off the bridge?

Ah... when do we give 'er the concrete boots solution. That's gotta be before the throw from the bridge, eh?