12.19.2005

the inevitable

Among the catcalls I used to hear from wingnuts, outraged that someone might actually want to leave the US, was "Enjoy being taxed to death!" or words to that effect. Several American friends - decidedly non-wingnuts - also mentioned that Canadians pay very high taxes. And many Canadians have the impression that Americans pay significantly less taxes than they do.

If this were true, Allan and I had no problem with paying higher taxes in return for living in a decent society. The main question for me has always been, Where do my taxes go? In the US, my money was supporting foreign wars and no-bid contracts for billionaires. In Canada, a portion of my earnings support health care - my own, and everyone else's. This is a simplification, of course, but there's truth in it.

However, the wingnuts' comments begged the question, Don't you pay taxes, too? We paid taxes in the US - plenty of them. And since starting work here in Canada, we don't see much of a difference.

There's the GST, of course, and I'm inclined to view a consumption tax as regressive. My freelance income is paid in flat fees, so I don't yet know what Canada Revenue is going to take. But Allan's paycheque has the standard withholding, and it doesn't look all that different from his check in the US. In fact, he takes home a greater percentage, because we no longer have massive deductions for health insurance. We had decent health insurance, but, like most working Americans insured through their employers, we paid a small fortune for it.

This Op-Ed in today's Globe And Mail argues that Canadians shouldn't be looking for tax breaks. (I agree.)
By international standards, however, Canada is a low-tax jurisdiction, and increasingly so. In 2004, according to the Organization for Economic Co-operation and Development, tax collections by all levels of government absorbed one-third of our GDP. That ranked us 21st out of 30 industrialized nations, and fifth among the seven largest. Moreover, we have already engineered among the deepest tax cuts of any country since 1999 (when our deficits were vanquished): a decline in the aggregate tax burden that's worth $40-billion a year, and growing. We place firmly in the lowest-tax third of the industrialized world, and are slipping quickly down the list.

So we pay less taxes than most -- and we have less to show for it, too. Our education programs (including postsecondary) are underfunded compared to other jurisdictions. Our poverty is worse, and increasingly ghettoized. Our health system is stressed. Our public housing is abominable. Even our basic infrastructure (roads, bridges, and other mundane facilities) is tattered.

Most Canadians would have trouble even noticing the incremental cash from another tax cut.
Then there's the issue of corporate taxes. Most US corporations pay no taxes at all. Is this the case in Canada? I searched a little online, but didn't come up with anything solid. This article by progressive writer Thom Hartmann has been reprinted on many Canadian websites, but it doesn't say anything specific about Canada.

Perhaps come tax time, Revenue Canada will ask for a big chunk of money that we don't have, and we'll discover the wingnuts were right. Or perhaps "Canadians are taxed to death" gets filed under Persistent Myths, along with "liberal US media" and "Jews run the world".

Thoughts?

47 comments:

James said...

A few years ago there was a study that showed that, while the overall average (income) tax in Canada was higher than the overall average tax in the US, middle class taxes were higher in the US. The difference in the overall averages was almost entirely because it's easier to get out of paying income taxes in the US if you're rich enough.

And it's only gotten worse in the US, with Bush's tax cuts at the high end dumping more burden on the middle and low end of the spectrum.

I believe it's also harder for corporations to get out of paying taxes here, though that didn't figure into the study.

As far as I'm concerned, I don't think Canada needs tax cuts. I think we need to pay down the debt and re-invest in infrastructure and social programs.

Lone Primate said...

I agree that this is not the time to be talking about cutting taxes in this country. I'm distressed that that poison pill seems to have been so readily swallowed. The one thing Paul Martin can point to is the decent stewardship he's displayed in navigating the Canadian economy over the past decade. Now he's talking about handing the gas back. Sorry, Paul, but we all know you can't get from here to all the stops you want to make without the gas. Not without sending us back into deficits. Please don't send us back into deficit spending.

Why is it so hard for people to grasp the idea that the more of our debt we pay off, the more money we have to work with, because we're not shoveling such a large percentage of it out the door as interest? Interest accrues. The faster we pay off the debt, the less we pay in the long run. The slower, the more we'll pay, and increasingly so.

Don't cut taxes; PAY DOWN THE DEBT. The savings on interest will cover more and more of the costs of the things we would like or are obliged to do.

Kyle_From_Ottawa said...

It's the "next door to the U.S." factor. Somebody said something along the lines of when two things are similar, the differences are magnified.

Our tax burden is very low compared most of the Western world, but it is somewhat higher then the U.S. Because we seem to be so narrowly focused on our Southern neighbor, that gap (which isn't that much in the grand scheme of things) seems huge.

Gas is another good example. The average price of gas in the U.S. is $2.04 (US)/gallon. At the moment, the average price here in Ottawa would work out to about $2.63 (US)/gallon. Someone in the UK pays an average of $5.63 (US)/gallon. To the Briton, the difference of 60 cents would seem paltry, considering he's paying $3 more then the Canadian. But the Canadian sees he's paying 60 cents more per gallon then the American, and screams "gas is so expensive in Canada!".

brickbat said...

Four words.Try living in England. We pay a lot of tax. Everytime we have an election people want better public services and to pay less tax.And the politcians aways come up withsome hokum way of doing it. It scary really.

L-girl said...

Four words. Try living in England.

Not sure who you're directing this at. No one here is complaining about their taxes. Maybe you need to read more carefully.

L-girl said...

Our tax burden is very low compared most of the Western world, but it is somewhat higher then the U.S.

But is this really true? I'm not sure it is. As James said above, middle class income taxes are actually higher in the US. We don't see any difference at all yet. We wouldn't mind if we did - but we don't.

Amateur said...

I'll be interested to see your take on the total income tax comparison. It's hard for me to compare, from my personal experience, because when I lived in the US I was a graduate student (read: poor) and now I am employed.

Income tax aside, though, there are definitely some very visible differences that are easy to point to: particularly the federal sales tax (GST), gas taxes, and 'sin' taxes on alcohol and cigarettes. Also, I believe that homeowners get to deduct their mortgage interest in the US (is that right?), which is again something that's easy to point to and say 'gee, I wish I had that!'

I also will not be basing my vote in the upcoming election on the promise of tax cuts.

L-girl said...

Income tax aside, though, there are definitely some very visible differences that are easy to point to: particularly the federal sales tax (GST), gas taxes, and 'sin' taxes on alcohol and cigarettes.

Right. I mentioned the GST. The other taxes are regulated by state in the US. New York certainly has tax on all of those - gas, alcohol and cigarettes. Plus there is also New York City tax (in addition to New York State). Maybe that's why I don't think taxes in Canada are high!

I believe that homeowners get to deduct their mortgage interest in the US (is that right?)

Yes, mortgage interest is deductible. It's over-rated in terms of what you get for that, but it is a deduction.

Lone Primate said...

Plus there is also New York City tax

Yeah, Laura's got a point here. Municipalities in Canada can't do this.

Yet.

RobfromAlberta said...

Our tax burden is very low compared most of the Western world, but it is somewhat higher then the U.S. Because we seem to be so narrowly focused on our Southern neighbor, that gap (which isn't that much in the grand scheme of things) seems huge.

Considering that our trade with the US exceeds the sum total of all our trade with the rest of the world, tax comparisons with the US are far more relevent than with any other country. Having said that, the tax differences between Canada and the more highly-taxed states such as Massachusetts are not significant. It is the low-tax jurisdictions (predominantly Republican states in the West and Southeast) that have the big edge in taxation.

L-girl said...

It is the low-tax jurisdictions (predominantly Republican states in the West and Southeast) that have the big edge in taxation.

True. Taxes in Alabama are low. So is education, infrastructure and health care. On the other hand, teen pregnancy and illiteracy is very high. Quite the edge.

(Rob, this sneer is not directed at you.)

RobfromAlberta said...

I agree with you. The South still has a lot of work to do.

Lone Primate said...

I agree with you. The South still has a lot of work to do.

It probably sounded more convincing in 1865 than it does in 2005. :)

L-girl said...

I don't mean to pick on the South. That stereotype only goes so far, anyway. I meant more that low taxes will buy you low public services.

Echo Mouse said...

I'm surprised that American Corporations don't pay any tax. How is that possible?

Anyway, here are the Canadian tax rates for 2006. These won't apply to income earned in 2005 but really, from year to year there's usually little difference. You will be paying Federal and Provincial taxes. There are all sorts of credits available though, plus you might have moving expenses which qualify. I would strongly suggest you see a good Canadian Chartered Accountant for this, your first year of filing. After that, you can probably do it on your own easily enough. But being a former financial controller, and knowing all the credits and deductions that might exist for you two, it's worth hiring a pro this year I think. :)

As for Canadians complaining about taxes, this is what it is to be Canadian LOL. We bitch and moan but never do much about things. We're apathetic, a lot of us. Although, in recent years, we seem to be finding our voices and that's making me happy :)

Echo Mouse said...

Shoot, I forgot the link:-

http://www.cra-arc.gc.ca/tax/
individuals/faq/taxrates-e.html

Kyahgirl said...

bottom line for me?
you couldn't pay me to live anywhere else.

Kyle_From_Ottawa said...

True. Taxes in Alabama are low. So is education, infrastructure and health care.

This contributes to the tax misconceptions again. Canadians hear the average American tax rate in statistics (which is pulled down by states like Alabama), but visit the states closest to the border (which tend to have high tax rates). This causes Ontarians to believe that New Yorkers are paying amazingly low taxes, yet are getting comparable services.

Wrye said...

Count me in for thise who want to see debt reduction prioritized over tax cuts, in a big way. Our success so far could be wiped out overnight in the hands of a prolifigate administration.

Expat Traveler said...

I'd totally agree that trying to re-duce the tax here in Canada isn't exactly a good thing.

OR paying back excess to the people. I think this happened around 2001 in the US when we got a $300 check back from taxes that year for excess. With how much it cost just to send out that money, I would have rather seen it go to good use. BAD Idea.

But also remember there are some good tax advantages in Canada too. For instance, when winning the lottery you get to take it all. And in the US, they nearly take it all from you. Well it's anywhere from (approx.) 41% to 65% of the sum.

I really won't have a say on taxes for another year or two but hopefully I can way out the differences also. For now, I still feel really left out as I'm just starting the PR process.

L-girl said...

I'm surprised that American Corporations don't pay any tax. How is that possible?

One big gambit is incorporating in the Cayman Islands.

There are many ways of doing it, though. Corporate America owns the government. Contribute mightily to election campaigns, get major tax breaks in return.

There are all sorts of credits available though, plus you might have moving expenses which qualify. I would strongly suggest you see a good Canadian Chartered Accountant for this, your first year of filing. After that, you can probably do it on your own easily enough.

Thanks for the tip!

This causes Ontarians to believe that New Yorkers are paying amazingly low taxes, yet are getting comparable services.

Right, I know what you mean - but New Yorkers don't have comparable services. No health care, no child care (hot-button topic, I know, but none in NYS).

I think this happened around 2001 in the US when we got a $300 check back from taxes that year for excess.

Yes, Moron's bribe money. $300 per person. We donated ours to the causes that would be destroyed (peace, reproductive rights, environment) and urged everyone we knew to do the same.

when winning the lottery you get to take it all. And in the US, they nearly take it all from you. Well it's anywhere from (approx.) 41% to 65% of the sum.

This is true, but obviously applies to very few people.

RobfromAlberta said...

There are many ways of doing it, though. Corporate America owns the government. Contribute mightily to election campaigns, get major tax breaks in return.

I've always considered "corporate tax" to be the biggest red herring, but it's a real vote-getter for the Left. Who pays corporate taxes? Rich executives? Not a chance. Corporate taxes are paid by customers and shareholders, the former in the form of higher prices, the latter in the form of reduced dividends. Those fatcat corporate execs still get their big salaries regardless of the corporate tax rate, but if it helps people to sleep at night by thinking they're sticking it to the rich, while their RRSP is earning 0.5% a year due to excessive taxation, I guess it's worth it.

L-girl said...

It sure ain't a vote-getter for the left in the US. (Probably because there is no left in the US!)

I mean taxes paid by corporations on their profit. Why shouldn't Wal-Mart, Nike or McDonald's put a healthy percentage of profits back into the system? And not through voluntary, feel-good, charitable donations - through taxes like everyone else pays.

RobfromAlberta said...

It doesn't matter how much corporations are forced to pay in taxes, it's still you and I that are paying. Tax the oil companies, they raise the price of oil. If it's a really competitive industry and the corporations can't raise prices, they cut dividends and our union pension plans, mutual funds and retirement savings plans take the hit instead. The middle class taxpayer is the ultimate source of all tax revenue.

L-girl said...

I know what you're saying, but I'm not sure it holds up to scrutiny. If Wal-Mart, for example, were forced to pay taxes on its enormous profits, it couldn't really pass the costs along to its customers, because its entire existence is based on low prices. If shareholders earn less, well, I'm inclined to think they should. A percentage of profits should go back into the public coffers, not only into private shareholder's pockets.

Letting corporations off the hook for taxes because it would come back around to consumers anyway strikes me as very regressive thinking.

Profit should be taxed! Why mince those words?

L-girl said...

And conversely, the idea that corporations are somehow paying their fare shares by keeping dividends high and prices low is patently ridiculous. That doesn't contribute to the greater good.

The private sector should contribute to the public sector. They profit from the system and should contribute to it.

RobfromAlberta said...

I have no problem with the private sector paying taxes, that's not what I'm getting at. It's the perception that corporate taxes are some kind of free lunch because it's just "big companies" that pay. You can be as undisciplined as you want with tax dollars if they come from corporations, rather than real people, right?

Lone Primate said...

It doesn't matter how much corporations are forced to pay in taxes, it's still you and I that are paying.

So? We're paying for EVERYTHING they do or get... profits, dividends, salaries, mergers, write-offs, bonuses, acquisitions... higher prices pay for all those things. Why shouldn't taxes be in there too? They use our transportation networks, communications systems, legal system, government services... why shouldn't society defray that cost by taxing them? And if they want to jack their prices too high to recover it, a competitor will certainly use that to kneecap them. Free enterprise at its best.

Those fatcat corporate execs still get their big salaries regardless of the corporate tax rate

That's a matter for their shareholders to take up with them.

while their RRSP is earning 0.5% a year due to excessive taxation

There's not much point in HAVING an RRSP if I'll be paying half of it in income tax thirty years from now while McMegaGiant Corp. creams billions on the back of our infrastructure and offers nothing in return but middle class wages for the government to feed on -- and grudgingly at that. If a corporation has the legal status of a person, it has the obligations of a person as well.

Lone Primate said...

You can be as undisciplined as you want with tax dollars if they come from corporations, rather than real people, right?

Well, zing, you got us there. That must explain why the US, with lower corporate taxes, is so much more adept at fiscal responsibility than Canada these days.

L-girl said...

It's the perception that corporate taxes are some kind of free lunch because it's just "big companies" that pay. You can be as undisciplined as you want with tax dollars if they come from corporations, rather than real people, right?

I don't see that happening in the real world. I see the US with its gargantuan deficit, completely undisciplined, spending wildly, corporations getting a free ride, and ordinary people getting fuck-all for all the taxes they pay.

I don't see anything approaching that in Canada.

Free lunch? With the taxes US corporations pay, you can't even buy a snack.

RobfromAlberta said...

We're paying for EVERYTHING they do or get... profits, dividends, salaries, mergers, write-offs, bonuses, acquisitions... higher prices pay for all those things. Why shouldn't taxes be in there too?

I never claimed they shouldn't.

That must explain why the US, with lower corporate taxes, is so much more adept at fiscal responsibility than Canada these days.

That's a non sequitor.

RobfromAlberta said...

I don't see that happening in the real world.

I never I thought I'd see Paul Martin, a once very prudent finance minister, commit to tens of billions of dollars in extra spending in order to cling to power either. But it happened.

L-girl said...

I never I thought I'd see Paul Martin, a once very prudent finance minister, commit to tens of billions of dollars in extra spending in order to cling to power either. But it happened.

Well that seems a bit non-sequitor-ish to me, but maybe I don't get your point. Do you feel corporate taxes are too high in Canada?

RobfromAlberta said...

I think corporate taxes are probably ok right now. I will credit Paul Martin with being very knowledgeable about finance and his natural instinct is pro-business. The problem is, we are entering a cycle of minority governments and the NDP (which never saw a tax opportunity it didn't like) will be holding the Liberals' leash for the next few years and Martin has demonstrated a willingness to do almost anything to remain in power, including spend frivolously and initiate unnecessary confrontations with the US. I expect a made-in-Canada recession is looming if NDP policies become Liberal government policies.

Lone Primate said...

That must explain why the US, with lower corporate taxes, is so much more adept at fiscal responsibility than Canada these days.

That's a non sequitor.


Well, the non sequitur was you tossing out the notion the corporate taxes would be spent irresponsibly. First of all, it was tangential at best to the point we were discussing; and secondly, given that a higher percentage of taxes in the US are being paid by voters rather than corporations (as opposed to the situation in, for example, Canada), your suggestion is dismissible on the basis of the vast, historically unprecidented fiscal irresponsibility in evidence there.

What's the point, though? Governments will only misspend the money they collect from corporations, therefore they shouldn't be taxed? Was there some other bottom line to that?

I never I thought I'd see Paul Martin, a once very prudent finance minister, commit to tens of billions of dollars in extra spending in order to cling to power either. But it happened.

It's disappointing, but it's the nature of electorate to want more money... either spent, or back. I really wish we could lock in a percentage and commit it to the debt, at least for as long as we're in the black.

Scott M. said...

If you are interested in seeing what the damage could be in the spring, gather your stuff and go to: http://www.quicktaxweb.com

For just goofing around, it's free. You only pay if you print or netfile (online filing), neither of which you'd want to do.

You can fill in your forms and get help for the 2004 tax year. Fortunatetly, very little has changed in the tax structure, so it will give you a very good idea of what you'll be paying.

Allot between one and two hours depending on how detailed you want to go.

Have you heard about RRSPs yet? :)

Lone Primate said...

and initiate unnecessary confrontations with the US

Without meaning to be initially confrontational, I'm curious. Which issues do you see as unnecessary, and/or initiated by us?

James said...

I've always considered "corporate tax" to be the biggest red herring, but it's a real vote-getter for the Left. Who pays corporate taxes? Rich executives? Not a chance. Corporate taxes are paid by customers and shareholders, the former in the form of higher prices, the latter in the form of reduced dividends.

I'm curious why you'd think anyone would think any differently? Of course the money comes from the customers and shareholders; all the money corporations spend comes from customers and investors (not necessarily shareholders, though). But then, customers and investors generally get their money from the companies that employ them... Which gets that money from other customers and investors... etc.

If you use the services of the company I work for, you are helping pay my taxes. For that matter, if you use the services of a company that employs someone who uses the services of the company I work for, you are helping pay my taxes. And so on.

RobfromAlberta said...

Which issues do you see as unnecessary, and/or initiated by us?

Kyoto/greenhouse gas emissions

Lone Primate said...

Which issues do you see as unnecessary, and/or initiated by us?

Kyoto/greenhouse gas emissions


Touché.

L-girl said...

If you are interested in seeing what the damage could be in the spring, gather your stuff and go to: http://www.quicktaxweb.com

. . .

Fortunatetly, very little has changed in the tax structure, so it will give you a very good idea of what you'll be paying.


Interesting - thank you! This might be very useful. Most of our 2005 income will still be US, but 2006 will be more Canadian.

Have you heard about RRSPs yet? :)

Yes, I have. :)

Wrye said...

Kyoto/greenhouse gas emissions

I agree, that's a baffler, given our poor performance.

Andrea said...

I have never complained about the taxes I paid in Canada. MY father does, but when he starts a ranting it is not the amount he pays that makes him angry but how it is spent.
We would both like to see university education MUCH cheaper to the point of free. An educated population pays more taxes in the end.
Here in Japan we pay a 5% flat consumer tax. Our salery tax is floating depending on income (10% to 37%) but we get very little for it. Education is only government covered up to grade 9!! All roads are toll etc.... Our medical is good but if you have a decent income it is very expensive. Our pension payments are HUGE.
I asked this question on my blog a few weeks back and no one from Canada complained about their taxes.
http://andreainjapan.blogspot.com/2005/12/lets-talk-about-tax.html

Expat Traveler said...

http://www.quicktaxweb.com

I like the link - maybe I can put it to use this year.

Scott M. said...

If you want to do your taxes by paper you can really cheat and have Quicktaxweb do all the calculations then transcribe them manually for free.

However, if you submit your taxes by mail it takes 6-8 weeks before you get a refund. If you submit it using Netfile (which has been around for many years now), you can get it within a week typically. There are a lot of products that use Netfile (Quicktax and QuicktaxWeb are just two of them... I just recommended the Web based because it's free to play with). Check out Netfile's site.

NOTE THOUGH: You won't be able to Netfile in the year you immigrate due to Netfile restrictions.

brickbat said...

L- Girl, I wasn't suggesting anyone was complaining, I was bemoaning the perception of taxation in the UK itself.Your post gave me the impression that people in the US have a perception that Canadians pay high taxes. You go on to debunk this later in your post. What I was trying to say in my clumsy way, was that we too have a problem with our perception of our tax system in the UK. People demand public services but also demand tax cuts at the same time. It is infuriating to hear people complain about the state of our National Health Service and the rate of tax in the same breath.

L-girl said...

Brickbat, I gotcha now. Sorry if I snapped at you, I misread your post.

I get a lot of unfriendly "oh yeah? well try living [here]!" comments. Makes me a bit touchy!

Thanks for stopping by. :)