Quotulatiousness

August 31, 2015

The NDP and federal corporate taxes

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 04:00

In Maclean’s, Stephen Gordon looks at how the New Democratic Party is talking about their approach to corporate taxation during the current election campaign:

… the OECD says that the current combined (that is, federal plus state/provincial) corporate income tax rate in the US is 39 per cent. In Canada, it’s 26.3 per cent (the federal rate of 15 per cent plus an average provincial rate of 11.3 per cent.) Getting us up to something resembling the U.S. rate (in the absence of changes in provincial rates) would require increasing the federal rate to around 27 per cent.

The NDP has made use of several different reference points since then. For example, rolling back the cuts made under the Conservative government would bring the rate back up to 22 per cent. Increasing the federal rate to 19 per cent would bring us up to the average of the other G7 countries. The NDP’s target is apparently now down to 17 per cent or so.

As far as the prospects for Canadian economic growth go, this steady reduction is good news: corporate income taxes are the most harmful to economic growth. The growing recognition of the negative effects of corporate tax rates explains why Canada and other OECD countries have made it a point to reduce corporate income taxes over the past few decades […]

If you look at just the relationship between federal corporate income tax rates and federal income tax revenues, you get pretty much the same story. Even though federal corporate tax rates have fallen by more than half over the past 30 years, corporate income tax revenues have continued to fluctuate around two per cent of GDP.

Canadian corporate tax rates and revenue 1985-2014

There are at least two reasons why you might think that higher corporate tax rates might not result in higher corporate tax revenues:

  1. Higher corporate tax rates reduce the after-tax rate of return on investment. Everything else being equal, this reduces investment, capital accumulation and profits. Less profits means less corporate income to tax.
  2. Higher corporate taxes produce an incentive for multinational firms to shift taxable activities away from high-tax jurisdictions.

In the short and medium term, the second point is probably more important.

August 26, 2015

Harper’s “boutique” tax credits

Filed under: Cancon, Economics, Government, Politics — Tags: , , — Nicholas @ 03:00

Colby Cosh explains why Stephen Harper is so fond of certain kinds of tax system distortions (tl;dr — they work … politically if not economically):

On Sunday, Conservative Leader Stephen Harper announced that his government, if re-elected, would introduce a tax credit for memberships in service clubs like the Canadian Legion or the Kiwanis. This modest measure — and Harper himself emphasized its modesty — is already being greeted with some derision. Apparently this is because a tax break for service clubs is an absurd, baroque complication of the tax code, unfit to stand alongside sensible traditions like the Prince Edward Island aerospace tax credit, the Nova Scotia digital media tax credit, the British Columbia book publishing tax credit, the Ontario computer animation tax credit, the Manitoba odour control tax credit for farms, Quebec’s tax credit “for the modernization of a tourist accommodation establishment” or the various items exempted almost randomly from the GST, such as condominium fees and music lessons.

One senses that the Canadian media have decided, curiously late in the country’s history, that tax-code wrinkles introduced with the aim of social engineering are ridiculous, if the aims thereof are conservative ones. Furthermore, we have concluded that lifting taxes on Elks or Knights of Columbus memberships, and thus putting them on more or less the same footing as religious tithes, is especially ridiculous.

The Conservative party will be awfully disappointed if the press does not engage in some snickering here. The work of the Kinsmen or Rotary is not especially visible if you never cross Eglinton Avenue; the very names of these groups have a rustic flavour on the tongue, carry a whiff of old-school WASP dominance and gray-flannel respectability. Break out into the smaller cities, if you dare, and the traces become somewhat clearer: a seniors’ centre here, an air-ambulance fundraiser there. In smaller towns, service clubs are often practically synonymous with capital-S Society. Laugh at the idea of a tax break for the Legion, but make sure you are still laughing on election night.

August 19, 2015

Canada looks very good on an international ranking you won’t hear about from our media

Filed under: Cancon, Economics — Tags: , , , — Nicholas @ 05:00

Our traditional media are quick to pump up the volume for “studies” that find that we rank highly on various rankings of cities or what-have-you, but here’s someone pointing out that Canada’s ranking is quite good, but it’s not the kind of measurement our media want to encourage or publicize:

First, we must identify a nation’s currently employed population. Next, all public sector employees are removed to obtain an adjusted productive workforce. It may be objectionable that certain professions, like teaching, nurses in single payer systems and fire fighters, are classified as an unproductive workforce, but as our system is currently designed, the salaries of these individuals are not covered by the immediate beneficiaries like any other business but are paid through dispersed taxation methods.

Finally, this productive population is divided into the nation’s total population to identify the total number of individuals a worker is expected to support in his country. To remove bias toward non-working spouses and children, the average household size is subtracted from this result to get the final number of individuals that an individual must support that are not part of their own voluntary household. In other words, how many total strangers is this individual providing for?

The Implied Public Reliance metric does a far better job of predicting economic performance:

Canada - implied public reliance

Greece, the nation with the debt problem, is currently expecting each employed person to support 6.1 other people above and beyond their own families. This explains much of the pressure to work long hours and also explains the unstable debt loads. Since a single Greek worker can’t possibly hope to support what amounts to a complete baseball team on a single salary, the difference is covered by Greek public debt, debt that the underlying social system cannot hope to repay as the incentives are to maintain the current system of subsidies. To demonstrate how difficult it is to change these systems within a democratic society, we just have to look at the percentage of the population that is reliant on public subsidy.

Canada - reliant on public funding

Oh, and by the way … Greece is doomed:

The numbers imply that 67 percent of the population of Greece is wholly reliant on the Greek government to provide their incomes. With such a commanding supermajority, changing this system with the democratic process is impossible as the 67 percent have strong incentives to continue to vote for the other 33 percent — and also foreign entities — to cover their living expenses.

August 8, 2015

Election issue – the Netflix tax, “much ado about nothing?”

Filed under: Business, Cancon, Media, Politics — Tags: , , , , , — Nicholas @ 04:00

Michael Geist looks at the major federal party leaders’ reactions to discussion of a “Netflix tax”:

As part of the digital strategy discussion, I stated that questions abound, including “are new regulations over services such as Netflix on the horizon?”

Prime Minister Stephen Harper addressed that question yesterday with a video and tweet in which he pledged that the Conservatives will never tax digital streaming services like Netflix and Youtube. Harper added that the Liberals and NDP have left the door open to a Netflix tax, but that he is 100% opposed, “always has been, always will be.” Both opposition parties quickly responded with the NDP saying they have not proposed a Netflix tax and the Liberals saying they have never supported a Netflix tax and do not support a Netflix tax.

So is this much ado about nothing?

Not exactly. First, there are groups and provincial governments that support a Netflix tax or mandated contribution to fund the creation of Canadian content. These include the Ontario and Quebec governments along with many creator groups. Earlier this year, I obtained documents under the Ontario Freedom of Information and Protection of Privacy Act that showed that the Ontario government spent months working toward a recommendation to expand the regulation of new media, including Canadian content requirements and increased regulation of foreign online video providers.

Second, while the Liberals and NDP have not proposed a Netflix tax, they have called for requirements that online video providers disclose revenues, Canadian content availability, and subscriber numbers to Canadian regulators. This is a very soft form of regulation that Netflix and Google have rejected as beyond the power of the Broadcasting Act. Providing information to allow for more informed regulatory analysis does not seem particularly unreasonable, but the companies unsurprisingly fear that that analysis could ultimately lead to calls for more regulation or payments.

Third, the real Netflix tax is the prospect of a levying sales taxes on digital products such as music downloads or online video services. It was the Conservatives that raised this possibility in the 2014 budget, launching a consultation on the issue that garnered supportive comments from companies such as Rogers, which noted that Canadian-based online video services such as Shomi operate at a disadvantage since they collect GST/HST, but Netflix does not. With many countries moving toward some form of digital taxation (as I noted in a January 2015 column on the issue, the real challenge lies in the cost of implementation), it seems inevitable that Canada will do the same in order to level the playing field and recoup a growing source of revenue. The Conservatives would presumably seek to differentiate between a generally applicable sales tax and a tax or fee targeting online streaming services, though many may feel it is a distinction without a difference.

July 16, 2015

QotD: The proper role of government

Filed under: Government, Liberty, Quotations, USA — Tags: , , — Nicholas @ 01:00

Good government is a constable — it keeps the peace and protects property. Parasitic government — which is, sad to say, practically the only form known in the modern world — is at its best a middleman that takes a cut of every transaction by positioning itself as a nuisance separating you from your goals. At its worst, it is functionally identical to a goon running a protection racket.

[…]

The desire to be left alone is a powerful one, and an American one. It is not, contrary to the rhetoric proffered by the off-brand Cherokee princess currently representing the masochistic masses of Massachusetts in the Senate, an anti-social sentiment. It is not that we necessarily desire to be left alone full stop — it is that we desire to be left alone by people who intend to forcibly seize our assets for their own use. You need not be a radical to desire to live in your own home, to drive your own car, and to perform your own work without having to beg the permission of a politician — and pay them 40 percent for the privilege.

Principles are dangerous things — whiskey is for drinking, water and principles are for fighting over. The anti-ideological current in conservative thinking appreciates this: If we all seek complete and comprehensive satisfaction of our principles, then there will never be peace. This is why scale matters and why priorities matter. In a world in which the public sector consumes 5 percent of my income and uses it for such legitimate public goods as law enforcement and border security, I do not much care whether the tax system is fair or just on a theoretical level; and while I may resent it as a matter of principle, the cost of my consent is relatively low, and I have other things to think about. But in a world in which the parasites take half, and use it mainly to buy political support from an increasingly ovine and dependent electorate, then I care intensely.

Kevin D. Williamson, “Property and Peace”, National Review, 2014-07-20.

July 3, 2015

“People with money have alternatives”

Filed under: Cancon, Economics — Tags: , , , — Nicholas @ 02:00

Frances Woolley on the hidden advantages even a modest amount of money can provide:

Less often observed is that wealth itself generates consumption benefits, even if one never spends a dime of it.

I own a 12 year old Toyota Matrix. The front fender has collided with one too many snow banks, and is now held together with string. The exhaust system has seen better days. It breaks down occasionally. But overall it’s very cheap to run.

If I was poor, it would be tough having an old, unreliable car. The unexpected, yet inevitable, major repairs would be a financial nightmare. $750 to repair the clutch. $200 to fix the axle seal. If the car broke broke down, and I couldn’t get to work, I might lose my job.

But because I’m financially secure, I can afford a cheap car. I can self-insure against financial risks: unexpected repair costs, taxi fares, rental cars, and so on. I can afford to get my car towed. If it was beyond repair, I could get another car tomorrow.

The real value of having $10,000 in the bank isn’t $200 in interest income, or the stuff $200 in interest income might buy. $10,000 in the bank creates a little bit of room to take risks. One could call it the “implicit value of self-insurance generated by own capital.” It’s the comfort of being rich (or having rich relatives). It’s real. It’s valuable. But it wouldn’t be taxed if Canada had a consumption tax.

Admittedly, the insurance value of having wealth isn’t taxed under an income tax either. But at least under an income tax some of the return on wealth is taxed, so there is, at least potentially, some shifting of the tax burden onto those with wealth.

The greatest freedom money offers is the freedom to walk away. Your bank doesn’t offer you unlimited everything with no monthly fees? Walk away. There’s always someone else who wants your money. Your phone plan is too expensive? Walk away (o.k., that may not be the best example).

People with money have alternatives, which makes their demand for goods and services elastic. Food may or may not cost more in poor areas. But a rich person can shop at Value Village if he chooses. A poor person may not be able to afford expensive purchases which save money in the long run, like bread machines or high efficiency appliances or pressure cookers. Consumption taxes aim to tax the amount of stuff people actually consume. But if poor people pay a higher price for their stuff than rich people, is a system that taxes only consumption spending, without taking into account the ability to command consumption wealth conveys, fair?

June 27, 2015

QotD: The corporate tax game

Filed under: Bureaucracy, Business, Law, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

You can think of corporate taxation as a sort of long chess match: The government makes a move. Corporations move in response — sometimes literally, to another country where the tax burden is less onerous. This upsets the government greatly, and the Barack Obama administration in particular. Treasury Secretary Jack Lew has written a letter to Congress, urging it to make it stop by passing rules that make it harder to execute these “inversions.”

I’ve got a better idea: What if we made our tax system so attractive to corporations that they would have no interest in moving themselves abroad?

The problem with this extended chess game is that every move is very costly. First, it adds to the complexity of the tax code. With every new rule — no matter how earnestly said rule attempts to close a “loophole” — it becomes harder to know whether you are in compliance with the law. This is true on both sides; corporate tax law has now passed well beyond the point where it is possible for a single expert to be familiar with its ins and outs. This makes it harder to plan business expansions, harder to forecast government revenue, and it requires both sides to hire more experts in order to determine whether corporations are compliant. It also means more lawsuits, and longer ones, as both sides wrangle over how this morass of laws should be applied to real-world situations.

You can think of it this way: Every new law has possible intersections with every other tax law in existence. As the number of laws grows, the number of possible intersections grows even faster. And each of those intersections represents both a possible way to avoid taxes and a potential for unintended consequences that inadvertently outlaw something Congress never intended to touch. This growing complexity makes it more and more difficult for either companies or lawmakers to forecast the ultimate effects of new tax laws.

Megan McArdle, “We Don’t Need a Corporate Income Tax”, Bloomberg View, 2014-07-16.

June 17, 2015

When you tax something, you get less of it

Filed under: Economics, Government, Politics, USA — Tags: , — Nicholas @ 03:00

At International Liberty, Dan Mitchell points out an example of leftists who genuinely want higher taxes on “the rich” even when the higher rate will return less money to the government:

Every so often, I’ll assert that some statists are so consumed by envy and spite that they favor high tax rates on the “rich” even if the net effect (because of diminished economic output) is less revenue for government.

The Laffer Curve

In other words, they deliberately and openly want to be on the right side (which is definitely the wrong side) of the Laffer Curve.

Critics sometimes accuse me of misrepresenting the left’s ideology, to which I respond by pointing to a poll of left-wing voters who strongly favored soak-the-rich tax hikes even if there was no extra tax collected.

But now I have an even better example.

Writing for Vox, Matthew Yglesias openly argues that we should be on the downward-sloping portion of the Laffer Curve. Just in case you think I’m exaggerating, “the case for confiscatory taxation” is part of the title for his article.

Here’s some of what he wrote.

    Maybe at least some taxes should be really high. Maybe even really really high. So high as to useless for revenue-raising purposes — but powerful for achieving other ends. We already accept this principle for tobacco taxes. If all we wanted to do was raise revenue, we might want to slightly cut cigarette taxes. …But we don’t do that because we care about public health. We tax tobacco not to make money but to discourage smoking.

The tobacco tax analogy is very appropriate.

May 16, 2015

QotD: The true nature of government

Filed under: Government, Quotations, USA — Tags: , — Nicholas @ 01:00

The governments of these United States, from the federal to the local level, have managed to insinuate themselves between citizens and their property at every point of significance. In that, our governments are very much like most other governments, liberal and illiberal, democratic and undemocratic. We have allowed ourselves to be in effect converted from a nation of owners to a nation of renters. But while medieval serfs had only the one landlord, we have a rogue’s gallery of them: the local school board, the criminals at the IRS, the vehicle-registry office, etc. Never-ending property taxes ensure that as a matter of economic function, you never really own your house — you rent it from the government. Vehicle registration fees and, in some jurisdiction, outright taxes on automobile ownership ensure in precisely the same way that you never really own your car: You rent it from the government. Stock portfolio? Held at the sufferance of politicians. A profitable business? You’ll keep what income they decide you can keep. Your own body? Not yours — not if you use it for profitable labor.

A Who down in Whoville? You should be so lucky: Welcome to Whomville, peon.

Kevin D. Williamson, “Property and Peace”, National Review, 2014-07-20.

May 12, 2015

Tax Revenue and Deadweight Loss

Filed under: Economics, Government — Tags: , — Nicholas @ 04:00

Published on 27 Jan 2015

Why do taxes exist? What are the effects of taxes? We discuss how taxes affect consumer surplus and producer surplus and discuss the concept of deadweight loss at length. We’ll also look at a real-world example of deadweight loss: taxing luxury yachts in the 1990s.

May 11, 2015

Who Pays the Tax?

Filed under: Economics — Tags: , — Nicholas @ 03:00

Published on 27 Jan 2015

Who bears the burden of a tax? Buyers or sellers? Why is it that the more elastic side of the market pays a smaller share of a tax? Again, we’ll apply what we know to the example of Social Security taxes and also look at the health insurance mandate as a part of the Affordable Care Act. Who pays for the mandate? The employers or the workers? We’ll also look at supply and demand of labor. Is the demand for labor more elastic than the supply?

May 7, 2015

Commodity Taxes

Filed under: Economics — Tags: , — Nicholas @ 02:00

Published on 27 Jan 2015

In this video we cover taxes and tax revenue and subsidies on goods. We discuss commodity taxes, including who pays the tax and lost gains from trade, also called deadweight loss. We’ll take a look at the tax wedge and apply what we learn to the example of Social Security taxes.

April 28, 2015

Tax credits that benefit almost nobody

Filed under: Business, Government, Media — Tags: , , , — Nicholas @ 02:00

Last week, Michael Geist pointed out that the tax credits and other inducements offered by state and provincial governments to attract TV and movie business are a bad deal for everyone except the media companies:

The widespread use of film and television production tax subsidies dates back more than two decades as states and provinces used them to lure productions with the promise of new jobs and increased economic activity. The proliferation of subsidies and tax credits created a race to the bottom, where ever-increasing incentives were required to distinguish one province or state from the other.

In recent years, governments have begun to rethink the strategy. States such as Arizona, Michigan, New Mexico, and Iowa suspended or capped their programs. Louisiana found that it lost $170 million in tax revenue in a single year. In Canada, the Quebec government’s taxation review committee recently admitted that its provincial film production tax credit was not profitable and that numerous studies find that there is little economic spinoff activity.

But the most notable Canadian study on the issue has never been publicly released and is rarely discussed. The Ontario government’s Ministry of Finance conducted a detailed review of the issue in 2011, delivering a sharply negative verdict on the benefits associated with spending hundreds of millions of dollars each year in tax credits. It recommended eliminating a 25 per cent tax credit for foreign and non-certified domestic productions that would have saved $155 million per year.

April 12, 2015

Unprintable words about printers

Filed under: Personal, Technology — Tags: — Nicholas @ 05:00

It’s coming up to the deadline for getting our tax returns in to the CRA, so I’d asked my friend Clive to come over this weekend to do my books in preparation for taking all the paperwork in to my accountant. It seemed like a pretty straight-forward thing — all I had to do was to print off all my various invoices and other documents for which I didn’t already have a hard-copy.

But I had somehow forgotten about the Satanic nature of printers.

Elizabeth and I each have a printer attached to our respective computers, so even if one failed to co-operate, we have the other one to fall back on. And this turned out to be a good thing, as the HP Officejet 6310 printer I use with my laptop started having paper feed issues on Saturday. As in, it couldn’t manage to pull even a single sheet of paper out of the stack. Well, damn, but at least there’s Elizabeth’s Canon printer I can use instead.

I disconnected the HP and moved her printer over to my workspace (the kitchen table, actually). But first I had to download the drivers for it. Having downloaded the drivers, I prepared to print the first of the documents I needed … and the damned Canon developed a similar paper feed problem. It just would not feed paper from the paper bin to the print-head.

A couple of hours go by, as I frantically try to fix one or the other of the two busted printers. It’s now after 5, and I’m running out of options and patience. I decide to go down to our local Staples and buy a new printer because that tax return deadline is looming.

In Staples, I vent a bit of my frustration over printers to a staff member, and she agrees that one of the few genuine pleasures in life is hoofing a printer out the window. After we compared notes on distance and impact zones, I asked for her recommendation for a cheap printer that would at least let me print off what I need for Clive to work with today. She warned me against my first choice, as it only came with “starter” ink cartridges, while a slightly older model using the same cartridges comes with full-sized ones instead … and was $30 cheaper, to boot. She made the sale.

I got the printer home, set it up and … discovered that the printer’s display panel didn’t work. And it was now too late to get the unit back to the store for a replacement. So, early Sunday, as soon as the store opens I’ll be on their doorstep with the faulty printer. I hope the next one will at least print something.

April 8, 2015

This is probably why so many people think businesses should pay more tax

Filed under: Business, Economics, Government — Tags: , , — Nicholas @ 04:00

At Forbes, Tim Worstall reports on a staggering misconception among Americans about what corporate profits amount to:

A wonderful little find by Mark Perry. Something that helps to explain quite why so many completely ridiculous economic ideas and public policies manage to gain traction. The problem is that the average person just doesn’t understand the economy at all. No, I don’t mean economics, or the abstruse arguments about whether we should use monetary or fiscal policy. But just the basic raw numbers of what’s actually going on out there. As Perry goes on to point out this, well, let’s not beat about the bush here, let’s call it what it is, this ignorance of the universe they’re inhabiting by the average person out there is what keeps the economic demagogues in business.

Here’s what Perry found:

    When a random sample of American adults were asked the question “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” for the Reason-Rupe poll in May 2013, the average response was 36%! That response was very close to historical results from the polling organization ORC’s polls for a slightly different, but related question: What percent profit on each dollar of sales do you think the average manufacturer makes after taxes? Responses to that question in 9 different polls between 1971 and 1987 ranged from 28% to 37% and averaged 31.6%.

That’s simply a ridiculous belief. Plain howling at the Moon crazy. The capital share of the economy isn’t that high and the capital share is made up of a great deal more than just profits (depreciation, rent, interest and so on as well as profits). There’s just no way that this is anywhere near true. As Perry goes on to point out:

    According to this Yahoo!Finance database for 212 different industries, the average profit margin for the most recent quarter was 7.5% and the median profit margin was 6.5%.

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