Apr 26, 2011

The Big Con

Subtitle: How I Learned to Live with the NDP's Higher Taxes, and Love It!

Normally, Jack's promises and his stated cost of those promises don't get much scrutiny during an election, since there's perceived to be no chance of the NDP forming a government or being the official opposition. But this election is different. So it's probably a good idea to take a look at what Jack's platform looks like, and its impact on us, since it always involves a "tax, tax, tax" and "spend, spend, spend" philosophy.

A Quickie on the "Taxpayer".

In real life, there is only one taxpayer ... you and me. Yes, governments COLLECT taxes from a variety of sources, but it is only you and me that ends up PAYING the whole shot. In addition to our income taxes (federal and provincial), municipal taxes (property taxes), HST/GST/PST on what we buy and whatnot, we also pay a hidden tax on everything we purchase ... our share of corporate taxes.

Yes, we pay corporate income taxes. All of them, in fact. Every last cent. Here's why.

Let's say a company makes widgets. And let's say it costs this company $1.00 to make each of these widgets. They add on a profit of (let's say) $0.30 or 30 cents, and sell them for $1.30 each to you and me. Out of their 30 cents profit they have to pay corporate income tax, make new investments in equipment and people for future growth and competitiveness, and pay any shareholders they have a dividend (interest) on the investment/risk they made to get the company going; the investor also pays tax on these dividends, and on any profit realized by selling shares in the company. A real simple example, on purpose.

No business operates at a loss for long; they go out of business if they do, throwing people out of work and reducing taxes to governments. If their cost of making the widget goes up, they must increase their prices ... which you and I pay, and the government collects more money on income and HST/GST/PST taxes when we buy these widgets.

One of those costs is corporate income taxes. If they go up, the company passes those increased taxes on to us. If government removes a tax incentive for the company, that cost of the lost financial incentive gets passed on to us. If government increases EI premiums, or health premiums, those costs are passed on to, and paid by us, in the end. So are increases in materials, energy, transportation and labour needed to make a widget. You and me pay the whole shot. No exception.

So when a politician gleefully says he or she is going to raise corporate income taxes, what is really being said is that you and I should start bending over.

Where Jack Gets His "Funny Money" From ...

Jack counts on you and me being really stupid, in believing his "free money" claims, and in being "real happy" that he's going to go after those "Big Corporations to pay their fair share of taxes!". Alas, as we have seen from the example above, companies (big and small) don't pay those taxes ... you and I do. The ultimate con job. Here's where Jack thinks he can find all the money he needs to pay for all those spending promises he is making:

Increase Corporate Taxes (from 15.5% to 19.5%): Jack thinks he's going to get $33.7 billion in NEW taxes (increased price of stuff we buy everyday) from you and me. And, we pay more HST/GST/PST on those higher prices! Double-Dipping at it's best.

Eliminate Fuel Creation Incentives ($8 bil over 4 years): As I wrote earlier, whether Jack increases taxes, or reduces incentives to companies, it's a tax increase that you and I will pay in the price of things we buy. Jack's going to "soak" those nasty people (you and me) by another $8 billion in increased fuel prices that we are going to have to pay. Don't like the price of gasoline when you fill up your tank at the pumps, or fuel oil, or electricity costs, etc? Bend over, Jack's going to raise prices to us, and collect even more taxes from each sale in the form of excise taxes, energy taxes, HST/GST/PST, and whatever other taxes are already paid by us.

Tax Haven Crackdown ($8.6 bil over 4 years): First off, if there was that type of money available for easy picking out there, the Feds would have already got all of it, believe me. They've already had good success going after the Swiss bank account type of "undeclared money". But this amount is so huge in comparison that it boggles the mind. Personally, I think Jack's spending spree got so large that he had to invent a mythical revenue source to balance his platform costs. It ain't gonna happen, folks!

But, let's say that companies (foreign and domestic) are booking profits in jurisdictions around the world. They pick the lowest tax rate, safest jurisdiction to do so. A lot of money (profits) is booked here, and they pay taxes on it to our government, helping us. If corporate tax rates are increased, that money will be moved elsewhere, and some other country will get the benefit.

If Jack thinks that he's going to get one orange cent of those profits that will be moved/booked offshore to another country, he's dreaming in technicolour. So, no cost to us directly; it's impossible to tax an imaginary figure. It's just that the taxes that used to be paid to our government from these booked profits won't be paid any more, and Jack's tax revenue from these sources will go down, not up. Congratulations, Jack! Your phony costings are even further in the hole! And that's not even taking into account $500 million over 4 years that Jack claims he will get from "Crime Legislation Saving". How's that work? He doesn't explain. Pull the other foot, Jack!

Cap & Trade Taxes ($21.5 bil over 4 years): The Whopper of all tax increases, also known as the Green Shaft, Carbon Tax, Tax Certificates or whatever. It's nearly $7.5 billion just in its 4th year alone, and increasing at a rapid rate thereafter.

Jack's proud new tax works like this. Jack's going to invent a new type of "certificate" that he will auction off ("sell") to polluting companies and businesses. That's going to improve our environment, somehow. No details, of course, since that would really scare everyone away from voting for him. A business must achieve zero emissions. It can spend lots of money to do this, and increase the price of its products to us, to pay for it. Or, it can "buy" one of Jack's newly-invented tax schemes called a Carbon Credit Certificate to allow it to continue its emissions. Since the cost of this certificate is just another cost of producing its widgets, that cost is passed along to us to pay in the price of the widgets we buy. Either way, you and I pay, and Jack gets more money to pay for his spending promises.

That Great Sucking Sound Is ...

In total, then, Jack is effectively raising new taxes on you and me by $62.2 billion over the next 4 years, with the cost/year increasing dramatically each and every year thereafter. It's already $22 billion in year 4 alone! That's money out of our wallets. To be spent for Jack giving a lot of money out to other folks, through his really generous spending promises.

Jack's NEW spending promises add up to just under the $62+ billion that he's going to take out of our wallets over the next 4 years. They include such payoffs as $4 billion to Aboriginals (he and Paul Martin promised Aboriginals at least $5 billion in the 1993/4 Kelowna Agreement, so this is just a down payment) and $2 billion in increased foreign aid (feel better now?). Something for everyone (NOT). No cost. Free money, says Jack.

Of course, Jack's mythical "Tax Haven Crackdown" and "Crime Legislation Saving" are completely bogus, so that's $9.1 billion that he's in the hole to start with. And if you consider that it will probably take Jack two years to get his Cap & Trade tax-sucker working and revenues flowing, we should deduct the $7.9 billion in taxes he claimed he would collect from this in the first two years, shouldn't we?

So, Jack's short at least $17 billion (out of the claimed $62.2 billion) to start with. Twenty-seven percent error rate to start with! That must set a new record for even the NDP, in the area of simple budgeting. That is, if you believe ANY of Jack's figures, which I wouldn't. For example, he assumes tax revenues from companies continue to increase at a rapid pace after be raises their tax rate from 15.5% to 19.5%. But there's not going to be much growth, if at all, by this wonderful tax measure. In fact, jobs and companies will be lost. So how can his tax revenues increase? Beats me. I guess it's just that magical "NDP Funny Money" at work, that's all.

And Then Reality Sets In...

Jack doesn't have one of his orange cents invested in keeping the economy going, creating new permanent and worthwhile jobs, or attracting new businesses to Canada, keeping current businesses, or creating new businesses. In fact, all his measures are anti-business, despite words/sops such as "encourage new small business investment". No, companies who have booked revenue and investments here because of Canada's ever-decreasing corporate tax rate, are going to take a hike elsewhere. Companies who can find lower costs, including taxes, will go elsewhere. Goodbye jobs. Goodbye growth. Goodbye tax revenue and growth.

Western Canada energy producers aren't going to look favourably on disincentives for investing in new production, and are going to be facing a hostile tax and investment climate. The last time the Liberals penalized the West in such a manner though their Pierre Elliot Trudeau socialist "National Energy Program", the economy of Western Canada tanked into a min-depression, as did the rest of Canada. This Son of NEP should be worse. And remember, Alberta alone pays about $14 billion a year (more than it receives) into Provincial Equalization Grants that go to other provinces. Good luck counting on that revenue in the future, with the province effectively closed down by Jack's hostile policies. Not to worry; separation may be the West's salvation.

Ontario should especially swoon over Jack's money-sucking schemes too. The Nanticoke coal-fired power-generating station alone is the largest polluter in Canada. In fact, Ontario's 4 plants coal stations make up 30% of Canada's pollution, and would therefore be the biggest purchaser of Jack's new/instant make-believe "Green Tax Certificates". The huge cost of those purchases (let's say 30% of the $21.4 billion, or about $6.5 billion over 4 years) will be paid by even higher electricity bills that arrive at your house each month. Plus another $2.2 billion (increasing each year) each and every year thereafter. Plus considerable increases in your gas or oil fuel bill, and so on. Be happy, Ontario, Jack's saving the planet for you!

Except, he's really not. All we are doing is paying more money to keep our environment almost the same. And to allow US coal plants to continue to send their emissions to us. And to make some space for China to send more emissions to us, at the rate of more than 100 new, giant coal-fired plants/year, on eastward flowing breezes. Yup, all these new "Jack Taxes" are wonderful.

Just a Few Other Things to Consider ...

Of course, our economy will have cratered well before year 4 of Jack's Master Plan for Bankruptcy. The world economy is fragile, very fragile, as Harper says. Developed nations and economies around the world have suddenly found out that there's no money to pay for the already lavish social spending programs implemented in better times. Higher taxes are only part of the solution. Massive social spending cutbacks are needed too. And financial bailouts of bankrupt nations. Forever (it's not a one-shot deal, regardless of what politicians say).

The US is a basket case, being kept alive only by the Federal Reserves printing presses, aka "quantitative easing" or debasing the US currency via inflation. That's why prices/inflation is rising. And it's costing the US more than a $trillion per year just to pay the interest on their accumulated Federal/National (not even massive State or Municipal) debt. They will have a budget deficit (expenditures minus tax revenues) of an additional $1.5 trillion this year alone. Insanity. And about 80% of what we produce goes to the US, which is going further and further into the dumper. You can begin to see the risk problem, the "fragility" now. And all that is just the tip of the global economic iceberg.

The Alternatives

At this point in the election, it seems at a high level that the choices are between a Conservative financial management approach, or the tax and spend, hate-Business approach of the Coalition in its many guises (any combination of NDP/Liberal, and/or Bloc). The Liberals and the NDP have virtually the same programs, each with huge revenue holes in costing of their promises. The Bloc is just a conduit for more money to Quebec, with someone else (you and me) paying. So, if they ever had a platform, it would be "100% spend with a $cost of zero".

Harper and the Conservatives know that tough times lie ahead. They want to get the yearly operating budget balanced (zero deficit) as soon as possible, so there's no financial millstone hanging around Canada's neck while it tries to swim in the swamp with financial alligators. That's why there's modest new spending promises. A zero budget deficit will be achieved in 2014-15 fiscal year. Incentives to business (corporate tax reductions), that create jobs and growth, will be continued until 2012. There will be no disincentives/penalties to create and keep jobs and growth in Canada. And you and I will not be hit in our wallets by new taxes.

Both the NDP and the Liberals have absolutely no way of achieving a balanced (zero deficit) budget by 2015-16, let alone any time in the foreseeable future. Maybe never. The Liberals, it should be noted, never said in their platform when they would achieve a balanced budget. And they have the same Carbon Tax (Cap & Trade) as the NDP in their platform.

Bonus: Ontarians should think back to how Bob Rae's NDP government in that province practically bankrupted it, bringing economic "growth" into negative numbers, Rae days, etc. Well, Bob "ruin an economy" Rae is now in the Liberal Party, but his ghost lives on at the federal level in the form of Jack Layton and his "tax and spend" NDP.

Extra Bonus: There's another hidden tax that no one has discussed, for any party "lucky" enough to acquire a considerable number of Quebec seats. It's called "The Quebec Tax". Just think of the (very real) cost of keeping Quebec happy. Constantly. Expensively. Be still my heart. For other occasions, there's MasterCard!

It's your choice. It's your children's future and tax burden that you are deciding too. Choose wisely. BUT VOTE!

References: Depressing, but Mandatory Reading Material:
NDP Calvacade of Promises
NDP Phoney Invoice for these Promises


shikari said...

Kudos on this worthwhile blog.

I do not believe that this NDP blip will translate into seats--not if voters examine the NDP platform--but herein lies the Canadian voter tragedy.

I have talked to many Leftists who shrilly welcome the arrival of a Bloc balance of power coalition and have asked them how the potential coalition would work---they havent a clue!!Just parroting leftist dogma.

I have asked others,school teachers,why they intend to vote NDP--answer--I always have!!--no clue what is in the NDP platform.

All these people head to the polls without a clue of the potential consequences and they make a completely uninformed vote.

I talk to conservatives and every single one can tell me why they are voting conservative.

They want stability and good government for Canada--no dogma!!

It should be mandatory somehow for anyone casting a vote to have read and understood all parties platforms and understand the consequences of what they are doing.Right now perhalps half the voting electorate has no clue except some foggy impetus to justify why they are voting for whom!!

burpnrun said...

I fully agree. Ther problem is, how do we educate youngsters/teenagers in our schools about Democracy 101 and Accounting 101. Plus, of course, the "single taxpayer" concept.

Anonymous said...

Very well done! Thanks.

Anonymous said...

Excellent summary of Jack "up your taxes" Layton's plans. Scary reading for those of us who want Canada's economy to prosper.

H Texmes said...

Very good synopsis of what would be a horrible outcome on May 2.


Menno said...

I would agree with you that the NDP plan needs tweaking, but I would disagree that taxing corporations is necessarily a bad thing. I really think that both left/right sides really need to view the debate a little bit more objectively and outside of traditional party ideologies.

The facts are clear that massive tax cuts for corporations just don't give the kind of benefits that hard core conservatives say they do. Saying that higher tax rates only encourage companies to move is facetious as it does not take into account many other things that encourage business growth, such as access to an educated and healthy workforce. We've seen time and time again that cutting taxes for businesses just doesn't lead to massive growth. Trickle down economics is a farce.

At the same time, the idea that we're going to get rid of the debt by tightening tax loopholes, or dramatically raising taxes, is just as ludicrous.

The argument that we have a spending/revenue problem is framed all wrong. We have both of those problems. It's not a matter of one or the other. To pay off the debt we might just have to consider controlled/less social spending AND marginal tax increases for business and regular citizens until our books are balanced.

Anonymous said...

An excellent analysis, but you forgot one significant factor. As a country we have billions in savings and investments (RRSP's, pension funds, GIC's etc) that is primarily being invested in Canadian industry.

If those investors start to see any kind of negative change, whether in tax increases or even decreased stability, there will be a massive capital from Canada.

As an investor who's retirement depends on my own investments, I'd rather move my investment capital to a higher tax but more stable and predictable environment than leave it here and risk another collapse.

Whether its the Liberals or NDP, both platforms would drive a fairly massive inflation over the next few years. If one assumes you're depending on 5-6% income from your retirement savings to keep you going for the next 30 years, and these guys are driving 5-10% inflation, then your retirement is going to start looking pretty sad.

burpnrun said...

@Menno: Nice cut and paste job. Obviously you never read the post. CORPORATIONS PAY NO TAX. ONLY WE DO!

Is it clearer now? There's no "fine-tuning" to be done. The NDP platform costs are a high pile of BS!

Jack has no respect for Canadians when he lies to them this way. Absolutely none.

Anonymous said...

You Cons crack me up! Your absolute belief in the rightness of your position, and outright refusal to consider it in the cool light of reason, is why people are scared by Harper. Hitler and the National Socialists were very sure of their own rightness.

I absolutely agree in the idea of the "single taxpayer". But what you folks refuse to acknowledge is that each taxpayer is also a citizen/member/owner of all that encompasses the state we call Canada. We need not whore ourselves to an ultra-wealthy cadre of power hungry capitalists interested in lining their own pockets at the expense of others. The resources that this country holds should enrich all Canadians. I would rather work for my neighbour, whether across the road, or across the continent, than some greedy money lover from Wall Street or Fleet Street.

Canadians are starting to realize that the great Con con is leading them ever deeper into poverty, and the only way to stop the trend is to elect someone like Jack Layton who has no other interest at heart than the well-being of every Canadian.

The right's willingness to act as pimp to the Corporate johns from around the world, so they can gain their sycophantic trinkets, purring at the feet of their capitalist masters, while their fellow citizens are impoverished... well, it makes me want to vomit.

Have a nice day! ;-)

J Barbosa said...

Well done. I moved to the Southern US 5 years ago to escape Canada's tax and spend liberal lunacy. I hope that one day, it will make financial sense for me to return to Canada. I currently earn in the 200K range and would get financially raped if I returned now.

Alethia said...

I am conservative so you know I would agree with you for the most part. If it wasn't for the fact the Canadian economy is largely an export economy, not only a domestic one.

If we were selling widgets only to ourselves, then you would be correct that Canadians pay in a compensatory way for increased corporate taxes.

But Canada sells most of its widgets to the world: primarily the USA. So the tax burden shifts "off-shore" through corporate taxation, whereas many of the other tax schemes are paid for by you and I.

Jen said...

I smell OBAMA like in Layton, both want moratorium, protectionism, higher taxes cap and trade.

From the silence in the media they are in favour of LAYTON'S intentions.
$300 million election so that we can go from where we are at in G7 to where hell is.

What I find strange is why the media and coalition are all over the conservatives's deficit which is at 20billion dollars to that which layton bloc and lib proposals to be at 60-90billion in deficits.
And if we go into another recession, we will truly be in a downward spiral.

Graham Fletcher said...

Hey Anonymous: the bulk of corporate profits end up as investments in capital equipment, hiring, or dividends into pension funds or straight payments to bond and stockholders. This lase ensures lower CPP or EI payments. All payments end up as taxable revenue except in capital gains in TFSAs. Your rant is ill informed and stupid