Wednesday, May 6, 2009

How Acronym Jim gave the boots to all taxpayers at the behest of narrow Bay Street interests, re: TFP, HST and the ABCP bailout

Taken individually and taken collectively, Jim Flaherty’s bailout of ABCP, his HST and the TFP which saw income trusts in RRSPs taxed at rates of 62% are all measures designed to curry favour with Bay Street and put the boots to all taxpayers. That is an irrefutable fact, in the same way that “tax leakage” from income trusts is an irrefutable lie or that “leveling the playing field” between income trusts and corporations is anything more than killing income trusts by arbitrarily destroying the natural competitive advantage that is conferred on this business arrangement, not through tax code, but rather by the market’s preference for a business model where all excess earnings are repatriated to the owners to reinvest into the economy, rather than by the paid business managers and where the paid business managers are only authorized and empowered to make acquisitions or pursue initiatives withing the business that are “accretive” to the business. Neither of these conditions exist within businesses that are governed as corporations and these freedoms on the part of corporate managers have been so abused and so exploited over the years that the corporate model has brought about its own demise vis-à-vis the emergence of the disciplined business model.

Corporate managers have themselves to blame for the market’s value assignment preference for the income trust model vis-à-vis the corporation. This has absolutely nothing to do with tax code per se, or what the marginal tax rate on dividends is versus he marginal tax rate on income trusts distribution, or whether one model double taxes and the other single taxes with a dividend gross up of x or y, etc. etc. , but has everything to do with the discipline of repatriating excess earnings to the true owners of a business and having built in restraints on business managers from doing dumb things. Income trusts command a premium in the marketplace because, unlike corporations, a business formed as a trust is like a corporation, with a premium built in for “schmuck insurance”, that protects the owners from acts of schmuckery on the part of the business managers. It’s no different than if you had two teenage children who were identical in all respects, one who followed the rules and curfews established for him and the other who consistently did not. Which child would be most favoured by the average parent?

The income trust business model can be thought of as a “tax regime” rather than a tax rate per se, that enforces the payout discipline and curfews on business managers, that are favoured and therefore more highly valued by the investment marketplace and the essential capital provider part of the equation. That part of the equation that Ottawa is completely oblivious to and without representation and extensive lobbying efforts in Ottawa, save and except for the public sector pension plans like Teachers’ OMERs Caisse and PSP, who lobby for special dispensations and carve outs that destroy why RRSPs were created as a policy initiative in the first place. RRSPs represents the single largest pool of investment capital in this country. At over half a trillion dollars, you don’t hear much about RRSPs blowing up on ABCP in the way that Caisse did, or having to write $1.2 billion reverse break fees for failed BCE leveraged buyouts the way that Teachers’ will have to. That’s because apart for being the largest pool of investment capital in this country, RRSPs are also the most diverse and robust, since these are the collective investment decisions being made by millions of Canadians and not some one stock jockey in Toronto who thinks turning Canada’s largest telco into an insolvent basket case is the road to riches, and that leverage buyouts are something more than the most recent hula hoop fad from hell.

Meanwhile without representation in Ottawa, and with zero regard on the part of politicians about the ESSENTIAL nature of the capital provider side of the capital markets equation, the largest pool of capital in this country gets stuck with a retroactive double tax that applies only to it and not to its pension fund counterparts and is justifies using the false and fabricated argument that income trusts cause tax leakage. What are the chances of that ever going down if the tables were reversed and the tax was apllied to Teachers and not to RRSPs? That wouldn’t happen in a million years, and if you don’t believe me, ask Ralph Goodale as he tried that very thing in 2005 and was met with righteous outrage by the pension funds and the measure was summarily dropped. Then Flaherty comes along and takes aim at RRSPs to achieve what these corporate managers, cum saboteurs, have asked him to do at their self serving behest.

Apart from acts of schmuckery, these business managers of corporations have become so inured at “gaming the system” that they are also capable of acts of sabotage, which is exactly how the income trust tax came into effect and the false justification of “tax leakage:” was the opiate for the masses on which this fraud was perpetrated, as revealed in this Globe article of November 2, 2006:

“High-profile directors and CEOs, meanwhile, had approached Mr. Flaherty personally to express their concerns: Many felt they were being pressed into trusts because of their duty to maximize shareholder value, despite their misgivings about the structure. Paul Desmarais Jr., the well-connected chairman of Power Corp. of Canada, even railed against trusts in a conversation with Prime Minister Stephen Harper during a trip to Mexico.”

So what hath this got to do with taxpayers you might ask? Or the bailout of ABCP or the HST for that matter. Allow me to summarise the treachery of Acronym Jim Flaherty in bringing about bondage of taxpayers at the behest of Bay Street:

TFP (the Income trust tax):

Tax leakage never existed. It was a ruse. A manufactured ruse that creates the notion of “tax leakage” by assigning ZERO value to the taxes paid by the 38% of trusts held in RRSPs. Doing so completely contradicts the policy reasons and the sole benefit of why RRSPs were created and the means by which they work. Meanwhile pension funds were bought off by Flaherty by giving them an exemption from the 31.5% tax. They are happy to discriminate against RRSPs if it si to their advantage, even though public pension funds are funded by these very taxpayers whom the pension funds are treading upon.

Eventough no tax leakage existed in the first place the income trust tax has caused enormous tax leakage to occur because these devalued income trusts were the perfect takeover targets for foreign private equity and others to acquire by way of the tax stripping technique known as leveraged buyouts. Ottawa did know such an outcome would occur as evidenced by internal Department of Finance memos and the warnings contained in many submissions ( eg TD Bank) that were provided to Ottawa during the Goodale CONSULTATION round of 2005, It was also during the Goodale CONSULTATION round that tax leakage was completely debunked as the myth it remains today (courtesy of toadies and sycophants employed in Canada’s enormously corporately conflicted and highly corporately concentrated press and main stream misleadia),

Evidently the Ambulance Chasing Insurance Company Litigator that Canada has pretending to be our Finance Minister didn’t take the time to read these submissions and internal memos or didn;t have the knowledge base to even comprehend what was being warned about, because when the onslaught of takeovers of trusts became to much to deny, all Flaherty offered up in his “defense” was “It’s not my fault”. If that isn;t the response of the “Teenager from Hell”, then I don’t know what ism since Acronym Jim’s TFP has caused some $100 billion in policy related takeovers that is COSTING taxpayers the LOSS of over $1 billion in ANNUAL TAX REVENUES. “Annual” as in “per year”. Left unchecked by the Liberals and the NDP and the Bloc, this will inevitably increase to $7.5 billion a year, the equivalent of a 1.5% GST increase to taxpayers and BORNE by ALL TAXPAYERS.

That will be the legacy of the Liberal, NDP and Bloc for sitting on their hands and allowing this teenager from hell to keep on with his reckless ways, and allowing this teenagers tax leakage lie to go unchallenged. They are the opposition parties to this Finance Minister in a manner that is analogous to being the PARENT of the TEENAGER FROM HELL. Speaking of Hell, what the Hell are they doing about it, pray tell?

This policy from hell was the “brain child” of Jim Flaherty, designed to burden all taxpayers at the behest of narrow Bay Street interests.


This is a tax grab from hell, that sees $4 billion of taxes imposed on every consumer in Ontario on every purchase or consumption of a good or service, that will see the underground economy flourish like never before and will dampen the economy big time, all in order to hand corporations a $4 billion widfall profit , for which the corporations have to do NOTHING different from what they are presently doing to receive. Apart from making no economic sense, it makes no political sense and is simply more money being takeb from the many to unjustly enrich the few. This measure to reduce corporate taxes at the provincial level is far too premature, assuming it is even needed, since we have yet to witness what effect the lowering of corporate taxes at the federal level will have on investment activity in Ontario. It’s the equivalent of pouring more salt on your steak, without even tasting it first. Meanwhile the salt that is being wasted is having enormous cost to those who are providing itm namely all Ontario taxpayers.

This policy from hell was the “brain child” of Jim Flaherty, designed to burden all taxpayers at the behest of narrow Bay Street interests.

Bailout of ABCP:

There is no one on Bay Street who can say with a straight face that ABCP was anything more than an elaborate check kiting scheme that attempted to achieve financial alchemy to turn long term fixed rate interest payments into a stream of short term floating interest rates sufficient to keep this game of musical chairs going for another month at a time and with sufficient chairs to occupy in order that someone is not left standing. Banks like TD Bank declined to participate in the ABCP shell game for that very reason. Everyone else behind this scheme (Caisse, and all the other Banks) were driven by either greed or stupidity). Meanwhile 98% of the investors in ABCP were institutions who should have known better and the other 2% of investors were “Accredited investors” who signed release documents claiming that they DID know better.

So where, pray tell, is the public policy justification in any of this to warrant $1.5 billion of taxpayer dollars to put Humpty Dumpty back together again? It doesn’t help that the $1.5 billion in taxpayer dollars is part of a deal that gives the perpetrators of this ponze scheme a complete waiver of their legal liabilities, either?

The only remote justification for the bailout of ABCP is the one offered by Flaherty about the effects that the money that is tied up in ABCP by corporations which was intended as a short term investment to be deployed at a later date, but which is now unavailable since the scheme came crashing to the ground and these people are now simply entitled to the assets that backed their commercial paper at the outset, which are long term. That is a legitimate problem, however it is one of their own foreknowledge and made known to them at the outset. How is that a problem of government or taxpayers? That is a problem of those who created these conduits and those who invested in them. If this disruption to capital markets were so important of a consideration, then why did Flaherty’s nuke the income trust market? The income trust market was ten fold more significant than the ABCP market could ever pretend or aspire to be. The income trust market was a real market that represented investment in Canada’s real economy as was not an attempt to mimic something it was not, as ABCP did, unsuccessfully I might add. Furthermore the income trust market was one made up of 95% retail investors and not the other war around with ABCP and therefore the moral imperative. Moral hazard and social responsibility associated with the income trust market was immense vis-à-vis the ABCP market and due care and due caution should have been exercised, but it was not. Also ignored was the enormous deleterious effect on capital raining and capital formation in Canada for capital providers and capital users alike.

Unlike the income trust market. ABCP was not responsible for 50% of new issue equity capital in Canada or 50% of the IPOs. That’s be cause ABCP is simply debt by another name. Synthetic derivative debt at that, conducted in the most incestuous of markets, as described in a Financial Post article in December 2008, as being:

“When you look at the ownership of ABCP sponsors, it's rife with conflicts. Pension plan Caisse de depot et placement du Quebec was a part owner in the pioneer behind the non-bank ABCP market, Coventree Inc. National Bank played an important role. (IIROC was unable to obtain information about ownership in one of the companies involved.) When it came to ABCP distributors, there were nine dealers and four banks. You get the picture. They had their hands in every part of this market.”


The TFP, HST and bailout of ABCP are merely example of how Acronym Jim gave the boots to all taxpayers at the behest of narrow Bay Street interests. Which is why Danny Williams is on the right track, when he says to vote ABC.....Anybody But Conservative....or better yet ABB....Anybody But Bay Street-centric political parties. whomever those parties might prove themselves to be by first exposing Harper's patent lies about tax leakage?

1 comment:

Dr Mike said...

"Schmuck insurance"---I love it.

Without killing the competition there was no way in the world that corporations could compete for the investment dollar.

Unless , of course , the corporations would wise-up to their own shortcomings & tighten their ships in order to increase payouts to compete.

That would mean that CEOs & their Boards would have to do without the gross payouts to themselves & they would have to stop the bone-headed investments of company cash into the off-the-wall projects which cost the investor their dividends.

Cripes , sounds like killing the trust model was a lot easier.

Dr Mike