Thursday, January 14, 2010

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

17 comments:

Dr Mike said...

Way to go Lorraine & Dave---excellent letter & even better plan.

It is a win/win situation for all involved.

It saves our bacon & produces plenty of Gov`t incentives to make them want to implement this life saving venture.

As I say , way to go.

Now all we have to hope is that these people in Ottawa are not as near sighted as in the past.

Dr Mike Popovich

Anonymous said...

The Marshall plan, has it all, everything been checked nothing to critic from what I can see ?
It covers the pension angle and the access to capital etc..
I am still working on the "JSC" Healthcare Infrastructure Income Trust Model to deliever healthcare to Canadians at a lower cost than presently.

JSC

Anonymous said...

Income trust fix: the Marshall Plan

Absolutely brilliant Brent.

CAITI said...

Thanks Anonymous!

Not bad for a three year old, eh?

Anonymous said...

While the Marhsall plan is brilliant the Finance Minister is not.

I'm ever hopeful that he will listen to the Marshalls that have taken the time to put together a solution. These are people who are problem solvers and deserve major kudos.

However, our Finance Minster doesn't know how to work a calculator so I'm fearful that he simply won't get it.

Anyway, I say thank you to the Marhsalls and good luck.

Railhound

Anonymous said...

The simplest solution and the best one is to get rid of that Halloween tax legislation entirely, thereby restoring the viability of IT's as an income producing vehicle, for anyone. It might even restore a "sense" that we are actually living in a democracy. It would keep Canadian ownership of our resources and immediately improve the economy- providing investment capital to our hamstrung Canadian companies, increase tax revenues and maintain "the profit sharing model"- the way it used to be. Remember the story of "the flood of unexplainable tax revenue"? (before the Halloween massacre)

The Marshall Plan seems a bit complex. Why not just DISallow the IT within RRSP's? There's no advantage of having anything other than interest bearing vehicles inside an RSP, because everything coming out of that RSP is taxed as income or interest - full taxation. There's no ability to take advantage of the capital gains/losses, dividends, return of capital, that exist in most Income Trusts.

If the government's argument of "tax leakage" only stemmed from the deferred taxes of the RSP, which was their only proffered argument (we all know the other secret reasons) then this is all they had to do in the first place.

CAITI said...

Anonymous said..

"Why not just DISallow the IT within RRSP's?"

Well that's in effect what the schemers like Carney have done, by taxing ITs in RRSPs twice, both inside at 31.5% and outside at the average rate of 38%.

This is how they killed income trusts by making the place where most of them reside highly unattractive once the tax kicks in.

With 38% of all trusts in RRSPs of the overall $200 billion market, this created and insolvable problem as people don't have the cash or the means to "buy" their trusts out of their RRSPs in order to rid them of this draconian tax.

The MSP provides the means to do so. It is actually incredibly simple when you think of it in those terms.

Enjoyed your comment.

Brent Fullard

Anonymous said...

Thanks Brent.
Just trying to really understand the Marshall Plan proposal.
If my understanding is correct, it is, simply, a way to rescue current IT holdings from RRSP's, where they are going to be taxed twice. And it basically just allows the government to save face and wipes out the argument for putting the tax on.

Outside of an RRSP, are the IT's going to be taxed twice, but the paltry DTC will give some of it back after grossing up?

I still believe that the /06 Halloween massacre tax legislation has to be DROPPED.

The profit sharing model that IT's are, should not be yanked away.

(And in the USA, a proposal to force 401k and IRA investments to hold a certain percentage of treasury debt.)

The Middle Class are being fleeced and flushed in both countries.

CAITI said...

Anonymous:

Yes in a nutshell you are correct.

This is a face saving way to get some degree of justice from a grossly unfair policy. It is clear the Liberals do not want to expose Harper's lies about tax leakage, so we had to take matters into our own hands and out all of these pols in acorner where failure to endorse and adopt the MSP would only serve to reveal who they care more about. ie Desmarais et all more that you and I

As for the taxation outside of RRSPs my understanding is that the application of the SIFT tax as is (and keep in mind we aren't asking them to change) is that it has little net effect on what you receive AFTER TAX, "pre" versus "post" this 31.5% income trust tax.

Brent Fullard

Anonymous said...

Thanks again Brent.

For any trolls out there, I just wish to say that Brent is held in the highest esteem by me and many others. The Marshall Plan is a fine one for those who hold these "time bombs" in a registered retirement portfolio. For those that did not have them in a registered retirement portfolio, the Marshall Plan has no direct affect.

If the 2.5 Million (estimated) Canadians that lost $35 BILLION+ and still counting (all Canadians are affected!) were actually represented by the politicians, the tax would be dropped.

Now, take what amounts to maybe 8% of the Canadian population that has lost so much - and that is 8% of Canada's population that was able to spend, now having to be being extremely frugal.

This 8% of Canada's population are all of voting age.

Anonymous said...

Thanks Brent, I listened the radio show already, and also spotted the newspaper article you had here on your blog.

I don’t quite understand how this Marshall plan would work.

Right now if I put money into an RRSP, I defer the tax, and pay it when I withdraw the money. Since income trusts are not taxed, then when the money comes out, it is taxed. The government is grumbling because they have to wait for their money? Not much difference than putting wages into an RRSP. If I collect wages, then that is an expense to a company, so they don’t pay any income tax on it, I don’t pay any income tax on it if it goes into an RRSP, and pay tax on it when it comes out. What’s the big deal?

If I understand correctly I would put after tax money into the Marshall Plan, but not pay any tax when withdrawn, like the TFSP? The government gets their money up front, which they want, but not at the end, when we need it to retire? Is that correct?

Now one thing I am struggling with right now is Dividend Income. I get some great dividend income from Superior propane, but don’t want to put it into an RRSP as right not up to $40,000 in dividend income is tax free, so why put it into an RRSP if I am going to pay tax on it when it comes out. Best to put it in regular investment income. No tax in or out on the dividend as the corporation has already paid the tax, only on the capital gains if I ever sell it. I am putting trust investments into the TFSA as I won’t pay any tax on the income or the capital gain.

Mike

CAITI said...

Mike:

Here are the answers in the order of your questions:

Your understanding is Correct, there is no reason for this to be a big deal but they have used it as their excuse to kill income trusts for other nefarious reasons.


No. contributions to the Marshall Plan would be like contributions to RRSPs....from pre tax earnings


At this point in time I did not to get too “prescriptive” in the terms of the MSP, because to do so might give other people (in Ottawa) silly reasons to criticize it. There are some aspects that are “must haves” and there are other aspects that are “nice to have”.

I have stuck to defining the "must haves".

Brent Fullard

Coetsee said...
This comment has been removed by a blog administrator.
John Hamilton said...

Hey Brent and David;

I am having some trouble understanding how the Marshall Plan will benefit me. I have no ITs in my RIF although 22% of my portfolio is in ITs and that much again in used-to-be ITs. I did have much more at the Holloween slaughter. Not withstanding that the Plan if implemented would help the price of ITs, it will not re-institute them. Maybe it should be consider just a first step.

Can you enlighten me on how the Plan will help me?

Brent Fullard said...

Hi John:

Good question, that I will provide a summary answer to.

The trust tax killed the trust market for the simple fact that it hit holdings of trusts in RRSPs the hardest, and since RRRPs are the holders of 38% of all trusts and taking trusts out of RRSPs and into your cash account (where the effects of the trust tax are less) requires you have sufficient cash to do so and have no problem triggering the tax (and who fits that category?), it becomes an impossible problem to solve.

Therefore the Marshall Plan is designed to overcome this impediment in a way that also blows away Flaherty's tax leakage hoax argument.

By solving the source of the original destruction of the overall market (ie the double taxation of income trusts in RRSPs) you solve the problem that overhangs the entire market and so therefore, even if your holdings are outside of the directly affected RRSPs, you and all investors will benefit from the uplift and the rejuvenation of a once dead and dormant market.

Make sense?

Brent Fullard

John Hamilton said...

Brent;
Thanks for the reply.
Where-as I hope that the Plan implementation is successful I don't hold much faith in that as you because of the following aspect which I hope you will publish:



What does the blanked out document say that Flaherty and Harper must hide?

Well, follow the money-

Whose ox is being gored by Unit Trusts?

How would you like to be flogging Certificates of Deposits, High interest savings accounts, bonds, stocks with yield, mutual funds, ETFs when Trusts offered 4 to 20 % return?
And how could you get people to trade when their holdings offered these returns?
What would people trade to?

Who was selling these things?

Would they have lobbyists?

Go figure-

Brent Fullard said...

John: No one has been in greater pursuit of exposing Flaherty's lie about tax leakage that I.

See for example this full page ad we ran in the Toronto Star:

http://caiti-online-media.blogspot.com/2007/04/to-finance-minister-flaherty-your-tax.html