The only person dumber and less socially responsible on the income trust tax than Jim Flaherty is Thomas Mulcair, Finance Critic for the False Reliance Party (FRP), formerly the NDP, who rely exclusively on blacked out documents as "proof" of tax leakage, resulting in these outcomes:
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”.
(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 value......ie $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 trusts....ie 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 government....to date the takeovers have caused REAL tax leakage of over $1 billion to address phantom 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 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 Mulcair’s income trust tax from their trust portfolio holdings....how’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.