Monday, January 18, 2010

Instead of leakage, what if income trusts could be made to cause a tax motherlode?

....the $6 billion tax motherlode that would occur to all Canadians' benefit if Stephen Harper adopted the Marshall Savings Plan suggestion put to his government by way of various members of his caucus.

This is THE QUESTION that we all need to put to Kevin Page and to every PAID ELECTED Member of Parliament. in order to stop this public policy train wreck. Email them today by clicking on the links embedded above.

As such, here’s a question I would like to pose to every Canadian in this country including journalists and politicians alike, as well as Canada’s Parliamentary Budget Officer, Kevin Page, copied on this email.

What if, instead of leakage, it was possible to transform the income trust matter by turning things on their head, such that income trusts would now begin to have billions in cash taxes flow into Revenue Canada to fund much needed social programs and help deal with Canada’s massive structural deficit? This is exactly what the Marshall Savings Plan solution does.It has been submitted to the Conservative government as part of Stephen Harper’s solicitation of suggestions to be incorporated into the 2010 Budget.

The Marshall Savings Plan (MSP) achieves this result by transforming the deferred taxes that are paid in future periods on income trusts held in RRSPs into cash taxes paid to Revenue Canada in the year incurred. The details of the MSP are less important than the thought process of how to assess such a wonderful opportunity, but can be found here on Diane Francis’ site, where she calls the Marshall Plan, “brilliant”.

The Marshall Savings Plan.

One of the great virtues of the MSP solution is that it is a completely face saving solution for all of those whose mistakenly jumped prematurely, and armed with virtually no facts or studies, onto Jim Flaherty’s bandwagon back on the fateful Halloween day in 2006.

It takes an honest person to admit a mistake, like the income trust policy, but it takes a petty and spiteful person to not support a policy solution that addresses and resolves ALL of the reasons why the policy made any sense in the first place.

Like Warren Buffett said during the Global Financial Meltdown, “You don’t know who’s swimming naked until the tide goes out?” The arrival of the Marshall Savings Plan solution on the Canadians political and fiscal landscape at a time of massive budget deficits and a looming pension crisis, especially for the 75% of Canadians who don’t have pensions who came to rely on the profit sharing investment vehicle known as income trusts, is like the tide going out. We will soon find out who is swimming naked, as their are no longer any reasons that remain standing as to why this policy was implemented in the first place.

In the stark presence of the Marshall Plan, any one who now argues against preserving the average Canadians' profit sharing income trust vehicles will simply be making bald face arguments on behalf of the ulterior reasons why this policy was foisted on to Canadians in the first place, namely on behalf of these utterly self serving greedy dudes from boardrooms and corner offices in Canada and from the massive life insurance lobbyists like Paul Desmarais whose idea of good competition is for the government to destroy it on his behalf. Something that Stephen Harper was too pleased to actively do on Paul Desmarais and Dominic D’Alessandro’s behalf:

So what did these people charged with a fiduciary duty to maximize shareholder value do? They went to the government to, in effect, sabotage their shareholders, the very OWNERS of their companies to whom they owed a fiduciary duty, as follows:

Globe and Mail, 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.”

In this instance however the political dynamic is QUITE DIFFERENT. For example, if Michael Ignatieff and the Liberal Party (same for the Bloc) were to do nothing to promote this brilliant idea for inclusion in Harper’s 2010 Budget, as Harper asks the opposition parties for good suggestions to deal with issues like the deficit and the pension crisis, then he will have enjoined himself into the entire income trusts imbroglio. Not acting will mean that Michael Ignatieff and the Liberals will be co-joined at the hip for allowing a policy that brought about everyone of the negative outcomes that was predicted by myself and many others, including this submission to the Goodale Consultative Round in the fall of 2005 by non other than Don Drummond and the TD Bank.

Given that the income trust matter is far from a lost cause, given that the GLASS IS 75% FULL, with 169 of the original 220 non-REIT trusts still out there, the time to act is NOW by embracing the win win win solution to Jim Flaherty’s income trust fiacso in a completely face saving way, himself included, and allow Canadians from all levels of society, not just the rich and powerful (and immensely greedy) participate in a profit sharing vehicle that will allow them to direct their retirement savings dollars into the country they are CITIZENs of, rather than being taken advantage of some Bay Street genius intent on extracting some fee stream from them under the next scheme invsestment product to blow up, like ABCP or Manulife’s variable rate unhedged annuities like Income Plus.

The failure to act and to embrace the Marshall Savings Plan, will simply mean that every journalist, every TV host, every network, every politician will have made themselves part of the problem and not part of the solution, namely the Marshall Savings Plan solution that will avert all of the following from perpetuating in the 12 months left that we have to fix this Beverley Hillbilly of a tax policy that must have been conceived of by back water mountain folk in the hills of Kentucky and the product of too much in-family breeding. Do you really want to be associated in any way with the following, as failure to act will make this YOUR LEGACY as well as JIM FLAHERTY’s LEGACY.

This is what blacked out documents as “proof” of tax leakage will buy you. Equally this is what not implementing the Marshall Savings Plan will buy you, as your lasting legacy:

Subject: TD Bank, accurately, predicted a major "welfare loss" from Flaherty's income trust tax:

TD Bank Financial Group Submission to the Department of Finance on Flow Through Entities: Goodale Round: Flaherty ignored EACH and EVERY ONE of these warnings and still had the temerity to say “it’s not my fault”. The immense negative outcomes and “welfare loss” that would result, were predictable from the very outset. Those who lobbied for this policy and those who implemented and supported it should be ashamed of themselves

(1) Warned against applying a distribution tax (ie like Flaherty’s 31.5% tax), stating

(2) At this point we must return to one of our original points of “do no harm”.

(3) A distribution tax would inevitably reduce demand for FTEs and hence lower their market $35 billion permanent loss of Canadians retirement savings purchasing power

(4) Further, it would provide a competitive edge to private LBOs, performed mainly by U.S. Equity firms, at the expense of Canadian-made income exactly what happened with BCE and many others like Union Energy Waterheasters Income Fund

(5) Lower market values would wipe out the wealth of Canadians and cause a revenue loss to the federal date the takeovers have caused REAL tax leakage of over $1 billion to address phanton tax leakage of half that amount

(6) Hence, we must be very careful that any policy move does not have the ultimate result of hurting Canadians......that’s the only thing that this policy has caused, harm to all Canadians, with no offsetting benefits

(7) So if the distribution tax is very large, the market values would plummet and Canadians would be badly hurt.....what’s the permanent loss of $35 billion in purchasing power between friends

(8) The above arguments suggest that a distribution tax effectively targeted at foreigners would be counterproductive to Canadian interests....this is exactly what Flaherty did

(9) The same arguments can be made for a tax that would target the Canadian tax-deferred sector. Again the superficial appeal of such a tax is understandable.

(10) If any distribution tax were not creditable to the tax-deferreds, market values could greatly fall and badly hurt taxable Canadians....Flaherty totally ignore this warning

(11) If non-taxable entities essentially determine the market for business trusts and overall equity, such a distribution tax could raise the cost of capital for all firms.

(12) Further ,any tax in income trusts might simply cause a substitution to entities avoiding corporate taxes by purchasing debt and using LBOs as a substitute for an income trust.......this describes exactly what happened with B

(13) A welfare loss would also be inflicted on Canadians if the pension funds substituted offshore holdings for Canadian FTEs.....this is exactly where most of the CPP’s and other large shore public pension plans money is going...offshore. Meanwhile CPP lost $300 million as a direct result of Flaherty and the NDP’s income trust tax from their trust portfolio’s that for a “welfare loss”?

Welfare loss: A situation where marginal social benefit is not equal to marginal social cost and society does not achieve maximum utility.


Anonymous said...


Actually the MSP should be adopted in the USA.

Wow, the USA has a dedicated sites to MLP and alternative income sources for income investors


Fillibluster said...


It would sure be easier, dealing with intelligent people I mean.

People like Barack Obama, rather than....[insert Canadian politcian name here].

Brent Fullard

Kephalos said...

Political scientists of the empirical kind should be happy to have the example of Jim Flaherty and the Income Trust Debacle.

The Debacle proves that the attitude "Beggar thy neighbor" can be used to promote false information and bad public policy. The Debacle also proves that you cannot cheat an honest taxpayer.

On the eve of Halloween 2006, Flaherty sold the double-taxation on income trusts by using the mantra "If trusts do not pay corporate income tax, hard-working Canadian families will have to pay more".

The average Canadian bot it. Now we hear of an emergent structural deficit whereby the sources of tax revenue will not pay for budgeted expenses. Tax revenue from corporations a personal dividend income are falling. But Jim Flaherty promised they would increase, right?

In time, as the Government raises personal taxes, the naive Canadians who bot Flaherty's lie in 2006 will pay more taxes.

The next time a politician promises to lower your taxes by increasing someone's tax, don't shake his hand and don't let him kiss anyone in your family.

Dr Mike said...

The next time a politician promises to lower your taxes by increasing someone's tax, don't shake his hand and don't let him kiss anyone in your family~~~~~Kephalos

Beauty--everyone should write that one down & remember it!!!!!


The gov`t should look at one thing & one thing only , the added bonus dollars (billions & billions) that they would incur with this plan.

They would be unlocking a treasure that would not be accessible for years to come--the same treasure that Mr Flaherty said he could not wait for back in 2006 in his diatribe against trusts owned within RRSPs.

Here is your chance Mr Flaherty to save us poor old trust investors & your chance to make yourself look like a brilliant strategist all in one fell swoop.

Remember , it is billions & billions at a time when we need every penny we can scrape together.

Remember this people , do you want higher taxes or do you want these billions.

The Marshall Plan , get yours now.

Dr Mike Popovich

Ps--look out for any politician that wants to shake your hand or kiss you stuff because he probably is heading for your wallet.