The Marshall Savings Plan -2010 Budget Proposal

Here’s a HUGE opportunity for all Canadians in the upcoming 2010 Budget that (1) addresses Canada’s structural deficit by generating $6 billion in additional tax revenue, (2) addresses Canada’ pension crisis and, (3) resolves the Conservatives’ income trust fiasco in a completely face-saving manner, from David Marshall of Cornwall, Ontario, that calls for the creation of a third retirement savings vehicle, the Marshall Savings Plan, that is a hybrid of the TFSP and the RRSP savings vehicles, borrowing the best features of both (as viewed from the government’s perspective).

There is no conceivable rational reason for this proposal not to proceed.

January 14, 2010

Mr. Guy Lauzon MP
621 Pitt Street
Cornwall, Ontario
K6J 3R8

Cc Kevin Page, Parliamentary Budget Officer, pagek@parl.gc.ca
Stephen Harper, HarpeS@parl.gc.ca
Jim Flaherty, FlaheJ@parl.gc.ca
Michael Ignatieff, IgnatM@parl.gc.ca
Jack Layton, LaytoJ@parl.gc.ca
Gilles Duceppe, DucepG@parl.gc.ca
Dalton McGuinty dalton.mcguinty@premier.gov.on.
Marjory LeBreton Marjory.LeBreton@pco-bcp.gc.ca
Pamella Wallin, wallinp@sen.parl.gc.ca
Elaine McCoy senator@albertasenator.ca
Newsroom, The Cornwall Standard Freeholder, news@standard-freeholder.com
Diane Francis, Editor at Large, Financial Post, dfrancis@nationalpost.com
Greg Hebert, CFRA 580 Business New Radio, Ottawa, Greg.Hebert@chumradio.com>
Jennifer McGuire, Editor in Chief of CBC News, Jennifer.McGuire@CBC.ca
Kate Malloy, Hill Times. kmalloy@hilltimes.com
Steven Chase, Globe and Mail, schase@globeandmail.com
Parvaneh Pessian, Whitby This Week ,PPessian@durhamregion.com,
Rob Granatstein, Editor Toronto Sun, rob.granatstein@sunmedia.ca
Chantal Hébert, Toronto Star, Chebert@torontostar.ca
Chris Sorensen Macleans, christopher.sorensen@macleans.rogers.com
Theophilos Argitis, Bloomberg News, targitis@bloomberg.net.
Brent Fullard, CAITI, brent.fullard@rogers.com


Mr. Lauzon:

Re: Your letter of yesterday that reads: “I am asking you for your ideas and suggestions as to how the government can lay the groundwork to continue Canada's progress in dealing with the current global recession and address the temporary deficit resulting from the stimulus funding” and “Experience has taught me that some of the best ideas for programs and services originate from grass root Canadians”

It is our hope that your government is serious in making this representation, and that you are truly looking for suggestions from grass root Canadians, that you will treat them seriously and that if our suggestions meet the objectives that you have outlined above and are beneficial to all Canadians as opposed to just some, that you will implement them.

In that regard we am submitting to your government what we refer to as Canada’s Marshall Plan for dealing with Canada’s pension crisis.

We have broken this letter into two parts and highlighted the salient points, as follows:

Benefits to all Canadians of the Marshall Plan:

(1) It will resolve Jim Flaherty’s income trust policy fiasco of Halloween 2006 that caused seniors, like myself and my wife, and 2.5 million Canadians, many of them seniors, to lose $35 billion of their life savings and an essential source of retirement income for the 75% of Canadians who, unlike MPs, are without pensions

(2) It will create a massive new stream of cash tax revenue for the government that is presently being “deferred” to future periods. The concept of “deferred taxes” and your treatment of them in a manner inconsistent with the Auditor General’s rules of Accrual Method Accounting are the sole source of your government’s “tax leakage” argument from income trusts. My proposal turns these deferred taxes collected in future periods into cash taxes collected in the present period. This will be a MAJOR help in dealing with Canada’s structural deficit in a manner that will be free of any taxpayer backlash or need to reduce spending programs like health care and other essential social programs that Canadians rely on

(3) This new source of revenue provides the equivalent of a 0.75% GST increase, but with no GST increase required. Think of it as found money, measured in billions of dollars per year, estimated as approximately $6.0 billion per year, since income trust distributions are taxed at an average rate of 38% (according to the Department of Finance) and there is approximately $16 billion of income trusts distributions that are paid by the remaining 169 income trusts (versus the 220 trusts that existed previously before they were taken over by foreigners and tax deferred pension funds, whose taxes aren’t otherwise collected, similar to the alleged problem with RRSPs that your income trust tax was intended to solve, but clearly did not)

(4) It will help seniors like ourselves along with the 75% of Canadians without pensions to restore an essential source of income for retirement, that is presently going to be lost when your government’s income trust tax comes into effect in one year’s time that will see all these income trusts convert to corporations and start paying taxes (in total) that are significantly less (in total) than would be paid to Revenue Canada under my proposal (in total) amounting to the difference referred to in (2) above

(5) It will avoid the continued rash of takeovers of vulnerable income trusts by foreign corporations, foreign state-owned entities and foreign private equity and the accompanying permanent additional erosion of the tax base, that will accelerate in pace now that the one year deadline is looming

(6) It will restore a level playing field between the 75% of Canadians without pensions (RRSPs) with the 25% of Canadians with pensions (eg OTPP), who are presently able to own income trusts (privately) and not pay the 31.5%, whereas we pay the 31.5% tax in our RRSP on income trust investments.

(7) It will promote saving and investment in Canada and provide corporations with a lower cost of capital and allow them to compete on a level playing field with US companies who use an identical structure to income trusts called MLPs.

(8) It will direct the vast pool of Canadians’ retirement savings into real investment in the Canadian economy, rather than into synthetic, derivative type savings products, such as Manulife’s Income Plus. As we witnessed during the Global Financial Meltdown, many of these products like Manulife’s Income Plus were not being hedged properly by those entrusted to manage them, with the result that Manulife became unstable financially and almost became “AIG north”, and therefore the Marshall Savings Plan averts a “too big to fail” taxpayer bailout in the years ahead from failed derivative investment strategies or other synthetic income investment products like Asset Backed Commercial Paper (ABCP). Seniors like ourselves should not be exposed to investment products that are similarly defective and whose defects only become apparent when it's too late, putting us in the same situation as say, a Nortel pensioner or a GM pensioner, who were ultimately bailed out by taxpayers like us.

(9) The Marshall Savings Plan avoids the systemic risks to our economy from toxic investments like ABCP and Manulife’s Income Plus and whatever the next get-rich synthetic scheme might be dreamed up, thereby lowering the “country risk” assigned too Canada in the global capital markets and translating into a higher credit rating on Canada’s debt and minimizing the country’s cost of borrowing, an important consideration now that Canada has to fund some $50+ billion in deficit financing


Description of the Marshall Plan:

Our proposal is to create a new retirement savings vehicle, called the Marshall Savings Plan (MSP).

The MSP is a hybrid that will position itself between the existing RRSP and the TFSP (your government’s Tax Free Savings Plan) and borrows all of its measures from either the RRSP and/or the TFSP, and maximizes tax collection for Ottawa, while solving your government’s income trust problem by way of the following features:

- as with RRSPs, monies can be contributed to MSPs from individuals’ pretax earnings in amounts equal to the contributions that can be made to RRSPs, such that each $1,000 of a taxpayers’ contribution eligibility can be apportioned between a RRSP or an MSP

- all INCOME earned in a MSP is taxable in the hands of the holder of the account, in the year received, which means more tax dollars are collected by Ottawa relative to either RRSPs or TFSPs

- all CAPITAL GAINS earned in a MSP can be deferred under circumstances where new securities are purchased during a six month period, consistent with your party’s election promise of 2006 to provide for the rollover of capital gains, but this benefit would be restricted to MSPs only. This will raise significantly more tax dollars that the TFSP and will raise no less tax dollars than the RRSP

- for a transition period of 12 months, Canadians will be allowed to transfer their holdings of income trusts in their RRSP to a MSP, with no tax effect. As such their former RRSP holdings of income trusts that will now attract a cash tax averaging 38% (according to the Department of Finance) rather than the 31.5% tax. To facilitate the payment of these cash taxes to Ottawa, all income earned within MSPs would be available for payout to the account holder

- The cost base of such transferred income trusts will be assigned a value of zero, which is the effective cost base of these income trusts within RRSPs, for all intents and purposes. Importantly, this means Ottawa is “kept whole” on any capital gains taxes.

- as such, the existing 31.5% tax will continue come into effect for all income trusts held in RRSPs and Pension Plans, exactly as planned, although you would be well advised to remove this tax insofar as foreign investors are concerned and/or lower it substantially (given you were the ones who reduced the withholding tax on corporate interest to zero from 15%)

Conclusion:

The effects of this policy are all beneficial and introduce no trade-offs. The Marshall Savings Plan will solve the original problem associated with your government’s alleged “tax leakage” converns of income trusts, since Ottawa will now be receiving full rates of taxation on the 38% of income trusts held in RRSP in the form of CASH since they are now held in MSPs, rather than deferring these taxes for payment in future tax years, as would be the case if these income trusts remained in RRSPs.

The Marshall Savings Plan would deal with the issue that faced your government in 2006, but in a much more elegant, inherently fair and refined manner, while restoring true tax fairness and leveling the playing field for investors while fully addressing the following policy concern that was at the heart of your government’s income trust tax, in the first place, namely:

“As Minister of Finance, I have a fiduciary obligation to the taxpayers of Canada today, not tomorrow, an obligation to pay for needed social, environmental and economic programs today, not tomorrow. I cannot, and I will not, fund
today’s programs from tomorrow's revenues.” Jim Flaherty, January 30, 2007, Finance Committee Public Hearings on Income Trusts.

The Marshall Savings Plans meets that objective along with a host of other important policy objectives and for these reasons needs to come a marquis aspect part of your governments upcoming 2010 Budget, as there is no plausible reason why The Marshall Savings Plan should not be implemented to help address the economic and social challenges facing this country and the 75% of Canadians without pensions.

To provide for retirement savings and essential retirement income, Canadians need more options, not fewer. Rather than taking investment options away from Canadians, by killing income trusts, to deal with your party’s concerns about alleged tax leakage, this proposal of ours is designed to increase the number of options that Canadians are presented with for retirement, while at the same turning your party’s concerns about alleged tax leakage into a windfall source of tax revenue of $6 billion per annum. We can not conceive of any reason why this proposal would not be a key element of your government’s 2010 Budget, especially now that you have actively solicited the “grass roots” views of Canadians like ourselves.

If you have any questions please do not hesitate to contact us. We are only a mouse click away.


Yours very truly,

David and Lorraine Marshall
326 Gloucester Street
Cornwall, Ontario
K6H 3W9



---- Original Message -----
To: David and Lorriane Marshall
From: LauzoG@parl.gc.ca
Sent: Wednesday, January 13, 2010 1:44 PM
Subject: Budget Consulations


Dear Constituent,

Our government will be holding a National Caucus meeting January 22. The object of this meeting is to give Members of Parliament and Senators an opportunity to have input into the upcoming Throne Speech and to also make suggestions for inclusion in the upcoming budget.

Experience has taught me that some of the best ideas for programs and services originate from grass root Canadians. The very popular Home Renovation Tax Credit program included in our last budget is a classical example.

I am asking you for your ideas and suggestions as to how the government can lay the groundwork to continue Canada's progress in dealing with the current global recession and address the temporary deficit resulting from the stimulus funding.

Prime Minister Harper and our Cabinet Ministers are meeting with major stake holders across the country but they feel it is imperative to have input from each and every Canadian.

Due to the volume of suggestions I expect, I am asking you to keep you suggestions brief so that they can be properly vetted and presented at the January 22 meeting.
Your input is invaluable. Please take the time to send me your ideas and suggestions by return email before Wednesday January 23.

In closing I thank you for your ongoing help and support in my efforts to effectively represent the riding of Stormont Dundas and South Glengarry.

Best regards,

Guy