# How would you simplify the tax system?



## Robillard

*Post your proposals here!*


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## steve41

I don't care about all the clawbacks, surcharges, healthcare levies, graduated tax brackets, etc. My wish is for a joint tax return. Forget all this income splitting nonsense.... just a simple 2 spouse joint tax return.


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## BRS9

I wish it was simply a set dollar amount for every human in the country, based on age. No deductions, no credits, no cap gains tax, no BS. Just $7-10K per person per year. 

Some of us pay most of it and get little back. 

And some of us pay almost nothing and suck the system dry.


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## steve41

BRS9 said:


> I wish it was simply a set dollar amount for every human in the country, based on age. No deductions, no credits, no cap gains tax, no BS. Just $7-10K per person per year.
> 
> Some of us pay most of it and get little back.
> 
> And some of us pay almost nothing and suck the system dry.


So if I earned $11k, I would get $1000 a year to live on and feed my family, and Richie Rich earning $250K would get $240K to live on. Seems fair to me.


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## Karen

I don't think a set amount per person would be fair, but I'd like to see a flat rate income tax. That would mean someone earning $200,000 would pay 4 times the amount that a person earning $50,000 would - sounds reasonable to me. Of course, it will never happen because every accountant in the country would be on the warpath, and many of them would find themselves unemployed.


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## HaroldCrump

steve41 said:


> I don't care about all the clawbacks, surcharges, healthcare levies, graduated tax brackets, etc. My wish is for a joint tax return. Forget all this income splitting nonsense.... just a simple 2 spouse joint tax return.


I totally second that.
I think our tax system is hugely unfair to single income families.
When people have to resort to stupid schemes like spousal loans, it's the system that's actually stupid.
Thank you for bringing it up, steve41, that would be #1 on my list too.


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## steve41

Karen said:


> I don't think a set amount per person would be fair, but I'd like to see a flat rate income tax. That would mean someone earning $200,000 would pay 4 times the amount that a person earning $50,000 would - sounds reasonable to me. Of course, it will never happen because every accountant in the country would be on the warpath, and many of them would find themselves unemployed.


Sigh. So, with all the computer power that every household has access to, we are somehow unable to perform a simple graduated tax calculation (computer-assisted or manual) in order to determine our tax payable. Resulting in what.... saving a few keystrokes per year in order see that, wait for it.... the rich get richer and the poor get poorer. 

Did I say 'sigh'?


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## BRS9

steve41 said:


> So if I earned $11k, I would get $1000 a year to live on and feed my family, and Richie Rich earning $250K would get $240K to live on. Seems fair to me.



Seems fair to me! Why exploit Richie Rich because he's a big earner? 

If someone works for a living and only earns $11K a year; perhaps he should figure out what's wrong with himself. Money is a symptom. Having none or having tons is merely a symptom of the life we live and the choices we make.


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## steve41

BRS9 said:


> Seems fair to me! Why exploit Richie Rich because he's a big earner?
> 
> If someone works for a living and only earns $11K a year; perhaps he should figure out what's wrong with himself. Money is a symptom. Having none or having tons is merely a symptom of the life we live and the choices we make.


 What do I invest in to take advantage of this eventuality? Private security firms? Razor wire manufacturers? Pit bull breeders? Enquiring minds want to know.


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## andrewf

BRS9 said:


> Seems fair to me! Why exploit Richie Rich because he's a big earner?
> 
> If someone works for a living and only earns $11K a year; perhaps he should figure out what's wrong with himself. Money is a symptom. Having none or having tons is merely a symptom of the life we live and the choices we make.


Will you provide government-issue bullets for these people to commit suicide? You know, since they won't be able to eat, house themselves, etc.

You seem to have the bizarre notion that money is some proxy for moral virtue. By that measure, Bill Gates is a saint, and you are morally bankrupt scum in comparison. A lot of well-to-do people have this opinion, because it strokes their egos. Money had nothing to do with virtue. Plenty of horrible people have lots of money. Even some reasonably good and charitable people have lots of money. They seem to be fairly uncorrelated.


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## Karen

steve41 said:


> Sigh. So, with all the computer power that every household has access to, we are somehow unable to perform a simple graduated tax calculation (computer-assisted or manual) in order to determine our tax payable. Resulting in what.... saving a few keystrokes per year in order see that, wait for it.... the rich get richer and the poor get poorer?


Steve, I don't understand what you're saying here. I'm not being sarcastic nor am I offended by your post - I truly just don't understand your point, and I would like to because I have a lot of respect for your views on things.


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## steve41

Karen said:


> Steve, I don't understand what you're saying here. I'm not being sarcastic nor am I offended by your post - I truly just don't understand your point, and I would like to because I have a lot of respect for your views on things.


Graduated income tax is called a progressive taxation system. The flat tax is called 'regressive'. Does the fact that virtually every country in the world has a progressive (graduated) tax system mean anything to you?


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## lister

1) Joint return.

2) Implement a three tier system with no exemptions, no credits, no rebates, no offshore crap, no nothing, all your income in non-registered accounts including capital gains, dividends, distributions, interest etc. I’m just pulling these numbers out of the air as examples, no point arguing over them, say below $200,000 is taxed at 17%, above $200,000 is taxed at 34% and over $5M is taxed at 45%. Adjusted for inflation. If you screw around you get fined heavily and the really bad offenders spend time in prison, not the low security type prisons either.

3) Combine RRSP and TFSA together and come up a combined contribution limit.

4) Remove income trust rules for REITs and allow energy companies to become income trusts again.

5) I'd like to see something done for cottages from an inheritance perspective (no I'm not inheriting one) and as a secondary primary residence, basically I want the elimination of taxes on them.


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## Karen

As a matter of fact, Steve, there are a number of European countries that have adopted a flat tax system in recent years. Most, if not all of them are former Societ Bloc countries so admittedly they may not be very good examples.

http://www.cato.org/pubs/policy_report/v29n4/cpr29n4-1.html

In any case, you may well be right, as you obviously know a lot more about financial matters than I do. I just didn't understand why you seemed to think my reason for expressing an interest in it was simply to make the filling out of the tax form easier. It's a lot more complex than that. Our current system is so complicated that even many "experts" don't understand it. When my American husband and I were trying to figure out the rules after he moved to Canada, every time we phoned CRA to ask a question, we had great difficulty finding anyone who could answer the question and, when they did, it was almost always the wrong answer. If we doubted the answer and phoned again, we would be told something quite different. This happened many times. This, by the way, happened both at the regular help desk and in the CRA International Tax Office, where they should have known the answers.

My daughter is a self-employed dance teacher. It's a very simple, straightforward small business, but one year she was audited by CRA and the auditor had to call in another auditor because he didn't know whether she had filed previous years' returns correctly or not. (In the end, they decided that it was all done correctly.)

Perhaps a simple flat-rate system isn't the answer, but I believe the system has to be simplified to the point that any reasonably intelligent taxpayer can understand it easily and prepare their own tax return. I have a friend from Hong Kong (a secretary, so she wasn't in a high income bracket) who much preferred Hong Kong's flat tax system to ours. She said it took her about five minutes to fill out her tax return there, and she was aghast at our complicated system.

By the way, I do my own tax returns and thoroughly enjoy doing it, but I didn't do my own years ago when my income was more involved (employee stock options and other stock dealings). Even then, my accountant (a very experienced CA), handled my stock options incorrectly one year and I was reassessed quite a few thousand dollars. Apparently there were hundreds of such cases that year, because most accountants had misinterpreted Canada Revenue's rules about stock options. There is no excuse for that.


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## andrewf

I'm not sure how realistic some of these proposals are when they seem to be implying a reduction in the size of government by say 60%.

Realistically, I favour something like the nordic model of a welfare state with efficient, non-ideological taxation. That means progressive moderate income taxation, moderate consumption taxes (like an HST rate around 17.5-20%), low corporate taxes, and pigouvian taxes like carbon taxes, other pollution taxes, road tolls, etc.

I like the idea of a guaranteed annual income of perhaps $8,000 for adults, and $4,000 - $6,000 for children. All wage income is taxed from the first dollar earned (no basic personal exemption), but the break-even point on income taxes is around $20,000 (you pay no net income tax below that level--not dissimilar to the current state of affairs once you factor in all the credits and the low rate). Get rid of welfare payments, and provide services to help people get trained, make it easier to work.

I'd eliminate up-front subsidies for post-secondary education and replace it with zero-real interest loans accessible by everyone to be repaid as a percentage of income after graduation. Let schools set their tuition rates. Some schools will go up-market and raise their academic standards. Others will go down-market and provide more jobs-training programs.

I'd encourage private provision of many publicly funded services, such as municipal services, health care, maybe even education, so long as service standards are met and it can be done at lower cost than in-house workers.

I'd eliminate subsidies for farmers and supply-management. If we care about food safety standards, then set restrictions on how food that is imported to Canada is grown/raised and processed. I think we might be too strict on some things like milk and eggs, and too lax on some things like canned/frozen vegetables and seafood from China, where god knows what is done to it before it gets here.

I don't think I'd want total government spending to be substantially different than its level now, but I think it could be redirected to better areas.


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## I'm Howard

Propery Taxes are the worst abuse, why should two people living in the same town pay diferant taxes, regardless of Income,. because one prefers to buy beer and Cigarrettes and one prefers to pay a mortgage?

All homeowners should have the tax bill divided equally.


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## the-royal-mail

These kinds of discussions always surprise me. I think the people who suggest things like flat taxes and equal property tax bills are forgetting that everyone is different and every house and personal situation is different. You can't say that all houses should pay the same tax. Why should someone who has a $35K house in a run down neighborhood with poor city attention to their roads pay the same tax as someone who has a large house with more property? Tax rates depend on many factors, including zoning, size of property, consumption of municipal services etc. A single person living in a 700sqft condo or in a large single dwelling both still consume roads, water, sewer, electricity but the condo tower guy has far less interaction with the city in terms of snow clearing for his property, water problems etc. Same thing with the tax form, every situation is different. Remember the tax form has to work for 34 million people. No easy feat.


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## Robillard

I haven't fully thought these through, but I think the following would make the system simpler, and possibly fairer:

Eliminate R&D tax credits and lower the marginal corporate tax rate to offset this. At the same time, make all business capital investment fully depreciable in the year the investment is made instead of having specified depreciation rates for different classes of capital assets. (I'm not sure how feasible this is. Britain had a system of full depreciation in past, and it was heavily abused by leasing companies.) 

Eliminate the tax credits for labour-sponsored investment funds. This would likely kill this industry segment. Given the checkered history of LSIFs, I don't think that they have necessarily been beneficial to investors.

Have a single corporate tax rate for small and large corporations instead of multiple rates.

Change the tax system to a territorial system that only taxes domestic source income. Eliminate foreign tax credits because they won't be necessary. (I can see many reasons why this might not be feasible.)

Make dividends deductible at the corporate level, thus eliminating their disadvantage compared to interest and returns of capital. This would also eliminate dividend tax credits. 

Bring withholding tax rates on dividends and interest in line with the relevant domestic tax rates. Equalise the tax rates on capital gains, interest and dividends. Eliminate capital gains exemptions.


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## slacker

I'm Howard said:


> Propery Taxes are the worst abuse, why should two people living in the same town pay diferant taxes, regardless of Income,. because one prefers to buy beer and Cigarrettes and one prefers to pay a mortgage?
> 
> All homeowners should have the tax bill divided equally.


Speaking of beer and cigs, please legalizing pot and start taxing it.


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## andrewf

I'm Howard said:


> Propery Taxes are the worst abuse, why should two people living in the same town pay diferant taxes, regardless of Income,. because one prefers to buy beer and Cigarrettes and one prefers to pay a mortgage?
> 
> All homeowners should have the tax bill divided equally.


Maybe this is a bad example. Both beer and cigarettes are more highly taxed than property.


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## Larry6417

*Remember the OP?*

The OP's question was straightforward: how would you *simplify* the tax system? I'll assume that we're maintaining revenue neutrality i.e. same amount of tax collected.

If the sole goal is simplification, then the course is clear: flat income tax, increased proportion of tax taken through sales tax (but less through income tax), and an end to targetted (i.e vote-buying) tax breaks like kids' fitness activities. However, simplifying the tax code runs afoul of competing, also worthy goals. For example, as mentioned upthread, cigarettes are heavily taxed to discourage their use. Green/ alternative energies receive huge subsidies and tax breaks to encourage development. The poor are hurt by a flat tax, which is inherently regressive.

The question: how do we balance the need to simplify vs. these other goals? I'd favour a flatter, lower income tax schedule with low/no capital gains tax, higher proportion of tax collected through a higher GST rate (but less income tax collected), and enhanced GST rebates for the poor. This taxation scheme favours saving and investing, discourages over-consumption, and is simpler.


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## nathan79

I have a few ideas... not sure how good they are, or whether they'd work iln reality.

1. No federal or provincial income tax on first 25K earned.

2. Set a flat federal tax at about 27% on all income over 25K. Also set a flat rate for provincial taxes. Tax all types of income equally.

3. Eliminate most, if not all tax deductions.

4. Eliminate embedded taxes, such as sin taxes and fuel taxes, which disproportionately affect lower income people.

5. Do away with all remaining federal and provincial sales taxes, and set HST nationally at about 14%, with half going to the provinces and half to the federal government. 

6. Remove all tax from all used goods, including vehicles. Also exempt restaurant meals, and maintain current exemptions on other food and essentials.


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## steve41

I have brought this up at various times..... I came across my father's old T1 circa 1943. Several pages long. It had 12 (twelve!) separate tax brackets. For those of you who might remember, not only were there no home computers (hell, I don't think there were _any_ computers), there certainly were no calculators. I never heard them complain. Switch ahead 60 plus years when each household has enough computer power to sink a battleship, and we want a flat tax system to make it easier?


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## nathan79

steve41 said:


> I have brought this up at various times..... I came across my father's old T1 circa 1943. Several pages long. It had 12 (twelve!) separate tax brackets. For those of you who might remember, not only were there no home computers (hell, I don't think there were _any_ computers), there certainly were no calculators. I never heard them complain. Switch ahead 60 plus years when each household has enough computer power to sink a battleship, and we want a flat tax system to make it easier?


But how many different types of tax were there back then, and what about tax deductions? 12 tax brackets might seem like a lot, but nowadays we have deductions for almost anything you can name, and so many consumption taxes at different levels.


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## Financial Cents

@Larry6417

I'm with you there:

A flatter, lower income tax schedule with low/no capital gains tax for starters. 

Definitely more rebates for the poor.

The government has to give more carrots to those keen on saving and investing, while helping the lower-class. 

Nothing is impossible here, simply, the government doesn't make any time or effort to focus on it. Sadly.


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## MoneyGal

steve41 said:


> I have brought this up at various times..... I came across my father's old T1 circa 1943. Several pages long. It had 12 (twelve!) separate tax brackets. For those of you who might remember, not only were there no home computers (hell, I don't think there were _any_ computers), there certainly were no calculators. I never heard them complain. Switch ahead 60 plus years when each household has enough computer power to sink a battleship, and we want a flat tax system to make it easier?


But whether people in the past liked or didn't like the tax system from the past isn't that relevant to whether people today like what we've got today. For me, the discussion isn't about "computing power" - it is about the cognitive load imposed by the tax system in general, and I also REALLY dislike targeted tax spending in the income tax system. (I'd like lower income taxes for all instead of multiple tax credits with the Children's Fitness Tax Credit as the worst example for me, although I benefit directly.)


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## steve41

I agree that the personal income tax system has acquired a massive complexity over the years. That 1943 T1, if I'm not mistaken was 4 pages.

I have to keep the tax routine up to date twice a year, but it isn't all that onerous. To throw out the entire scheme and replace it with a single flat tax is just too extreme. Plus, S/W authors such as TurboTax, Naviplan and even myself wouldn't get all that nice recurring revenue each year. What fun would that be?


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## Karen

That's why I said tax preparers wouldn't like a flat tax, Steve. And, come to think of it, neither would the hundreds (if not thousands) of Canada Revenue employees who would become unemployed.


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## steve41

Karen said:


> That's why I said tax preparers wouldn't like a flat tax, Steve. And, come to think of it, neither would the hundreds (if not thousands) of Canada Revenue employees who would become unemployed.


 Yes, however I don't expect that bell to be 'un-rung' any time soon. The progressive tax system, while complex, is, rightly or wrongly, considered a 'fair' tax system.


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## OhGreatGuru

A complete answer would take too long. However, the question was how to make it "simpler", not how to make it fairer. I think the discussion about income splitting falls under the "fairer" heading.

It isn't the graduated tax brackets that make our tax system complicated - its the 6 pages of deductions and non-refundable credits (at least in Ontario). There is a discussion on Financial Web Ring about true effective marginal tax rates that is revealing. The many income-sensitive deductions and surtaxes produce wildly fluctuating marginal rates. 

1. Eliminate sur-taxes and pseudo-surtaxes such as Ontarios' Health Premium. (These conceal the the true tax rate.)

2. Eliminate income-dependent tax credits, and increase the basic personal deduction substantially. (Most of these, particularly on the provincial return, give the illusion of offering small credits for numerous things, but anyone making more then minimum wage discovers they don't qualify.) They also make it terribly complicated to calculate income-splitting, which should be simple.

3. I agree with above comment to eliiminate "targeted" credits that try to direct your spending. Give decent credits for supporting a minor child, and let parents decide how to raise their children.

4. Increase basic Personal Amount to ~$20K, eliminating Age Amount, Pension Amount, and a number of other credits. Why should you get a credit for being old, or because your income happens to be from a pension? Income tax is supposed to be based on income. 

(i know above moves into the area of "fairness:. But it is necessary to raise in the context of my suggestion to eliminate a host of spurious credits.) Why do I suggest $20K? Existing Basic Amount + Age Amount + Pension Amount is $18828;
The CPP maximum + OAS max are about ~18K. Why tax people who have no income above maximum CPP & OAS? A single pensioner qualifies for a Guaranteed Income Supplement (GIS) if their income is less than $15,960. Statisticss Canada says the poverty line is about $18k-20k in major Canadian cities. If the government admits you can't live on that income, why are they taxing you on it?

5. If more income splitting were permitted, the Spousal Amount would probably become redundant.


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## Plugging Along

If one was looking for the main purpose of simplicity of filing your income taxes. I would say, flat rate tax with one basic exemption, and file one return per immediate family. No need for income splitting, or anything. Nothing else. If you have 15 kids that are all dependants, then you probably won't pay any tax if each person has there own deductions and you can file as a family. 

If we want fair, well, then that's partially how we ended up with the system we have today. Everyone's defination of fair is different and defined by your own perspective. Then add in the government trying to manipulate behaviors (spending, saving, stimilating the economy, investing business, better, more people entering the workforce), and tada... here we have our tax system. 

You want simple or fair... pick one.


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## Robillard

Thanks everyone who has responded so far. I don't have much to say about specific proposals, though I see that no one had anything to say about my suggestions for simplifying the corporate tax system. 

This topic has turned heavily into a discussion about fairness in the tax system. Of course, everyone has a different opinion about what is fair. For me, fairness is spreading the tax burden across society as evenly as possible. On the whole, it's my understanding that the current tax system that we have is relatively "fair." The progressivity in the property and income tax systems is generally offset by the regressiveness of the the value-added tax and sales tax systems. Also, CPP and EI premiums are pretty regressive. I'm not clear how corporate taxes trickle down to individual citizen taxpayers though.

Who bears the bigger burden from corporate taxes? Savers/investors? Or consumers?

I don't necessarily think that fairness and simplicity are entirely at odds though. Cutting down on the number of tax credits that target specific constituencies would definitely make the system simpler, and could well make it fairer. 

Nathan79 had an interesting proposal about eliminating excise taxes on tobacco and gasoline. With respect to simplicity, it's hard to find a simpler tax than a flat per-unit tax on the consumption of certain products. Is it fair? That's debatable. Part of the issue here is that consumption of these goods is tied to a wider societal cost (negative externalities). Smokers cost everyone in Canadian society through higher health insurance costs, and by increasing use of the health system. Likewise, people who drive cars degrade roads built using public funds, and give off greenhouse gas emissions. As long as the revenue generated from these excise taxes is proportional to the societal costs associated with their consumption, I think they are relatively fair. This may not fit in with what I said earlier about spreading the tax burden fairly evenly. But at the same time, consumption of tobacco is a personal choice. Gas consumption isn't exactly a personal choice, but how efficiently one chooses to make use of it is.


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## andrewf

In a small, open economy like Canada where investors are free to take their money to other jurisdictions, investors bear essentially none of the corporate tax on new investment. Corporate taxes on new investment are borne by workers through lower wages or fewer jobs as marginal investments are not undertaken, and consumers through higher prices. The investor will happily earn the world rate of return in another jurisdiction. 

This is why, left or right, low corporate taxes are requisite for a strong economy capable of supporting a robust welfare state and standard of living.


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## olivaw

andrewf said:


> In a small, open economy like Canada where investors are free to take their money to other jurisdictions, investors bear essentially none of the corporate tax on new investment. Corporate taxes on new investment are borne by workers through lower wages or fewer jobs as marginal investments are not undertaken, and consumers through higher prices. The investor will happily earn the world rate of return in another jurisdiction.
> 
> This is why, left or right, low corporate taxes are requisite for a strong economy capable of supporting a robust welfare state and standard of living.


Canada's corporate tax rate appears to be in line with other industrialized nations. It may be one reason that Canada is considered to be a good place to invest. 

A little off topic; but there was an interesting discussion of the merits (or lack thereof) of further corporate tax cuts at CBC recently. http://ca.news.yahoo.com/fighting-over-canadas-corporate-income-tax-20110415-113414-009.html


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## andrewf

Until the last few years, corporate taxes in Canada were among the highest in the developed world. The process of cutting them started under Chretien/Martin, and was championed further by Harper. It also required the cooperation of the provinces, including McGuinty in Ontario (and the much-maligned HST was part of that, as PST was effectively a tax on new investment). Ontario;s effective tax rate on new investment will have fallen by 50% in 2012 when the combined rate reached 25%.

I suspect that this change will be pretty important in the years to come, and will be seen as one of the policy successes of the 2000-2010 period, like tackling the deficit, NAFTA, the GST, and putting the CPP on sustainable footing was in the 1990s.


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## andrewf

And I think the argument about cash-hoarding on corporate balance sheets is a bit of a red herring. Ultimately, the is more an effect of deleveraging after the recession and caution on the part of the private sector. Once the economy is in good shape, expect those companies to blow much of that cash in new investments (questionable or not), dividends, share buy-backs, and overpriced acquisitions.


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## GeniusBoy27

This is a fascinating discussion.

I agree with simplification of the tax code to maybe 3 or 4 levels would be a wonderful concept. 

No tax to 25K, 25-75K: 18%, and 75K+ at 35%. 

The numbers would have to work out, but it should help. Eliminate the majority of credits and subsidies. Though I still like the concept of charitable donations, as a whole.

With this, would have to go an expanded CPP program, to promote forced savings. (I simply don't trust people to save sufficiently, along the lines of Singapore's pension program.)

I would increase consumption taxes such as the HST to compensate, and I like the idea of Pigouvian taxes for specific behavioral areas, such as cigarette/gas taxes. Taxes should be preferentially geared toward consumption, leading to higher room for savings.


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## Potato

OhGreatGuru said:


> It isn't the graduated tax brackets that make our tax system complicated - its the 6 pages of deductions and non-refundable credits (at least in Ontario). [...]


OGG hit many of my talking points there (esp. the one on flat vs graduated brackets not being the source of the complication -- I think I had a 3-post series on the blog regarding that issue last year).

Though I would largely prefer the government spend directly to support certain areas (transit, youth sports, education, etc.) rather than offer all these tax credits that clutter up the system, but the reason the credits are there is that they're effective. People in general seem to have a bizarre aversion to taxes, far beyond the value of the tax credit or savings. I think it partly comes back to the general innumeracy and a lack of understanding of how tax credits work.

For example, I know many people who went nuts for the home renovation tax credit last year, but I don't think nearly so many would have gone out and spent on renos if the government had directly subsidized ~<13% of the costs.


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## I'm Howard

I object to some clown taking money from my pocket to give to another clown who is too damn lazy to learn and earn, and the clown in the middle gets an indexed pension and probably a bonus because the clown speaks French.

The Baby Brigade, Teen Mothers pushing carriages and smoking and getting paid to not work, while talking on their cell phone.


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## Square Root

HaroldCrump said:


> I totally second that.
> I think our tax system is hugely unfair to single income families.
> When people have to resort to stupid schemes like spousal loans, it's the system that's actually stupid.
> Thank you for bringing it up, steve41, that would be #1 on my list too.


People with significant pension income effectively have this now through the pension income splitting provision.


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## Square Root

I'm with Steve on this one, why would we want to simplify the easiest part of the system-the calculation? Progressivity is the most important aspect of the current system and a concept that the vast majority of Canadians would certainly agree with.
Not sure how joint returns would simplify anything? Maybe fairer? Surely fairness is a better objective than simplicity anyway? 

People often cloak a desire for less tax with the concept of simplicity. Why should income tax be simple? Nothing else in this world is?


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## andrewf

That said, it makes sense to avoid complication if there is no very compelling reason for it. The public transit tax credit, fitness tax credits, new homebuyer tax credit, etc. etc. These do little to change behaviour. Many of them represent tiny savings. But keeping track, claiming and auditing these credits creates a lot of headaches and expense.


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## Robillard

Square Root, I disagree that fairness is necessarily a better objective than simplicity in the tax system. Those two objectives are not always at odds anyways. 

As a taxpayer, I want a tax system that fulfills the following objectives:
1. The tax system needs to encourage compliance by as many taxpayers as possible. 

2. The tax system should distribute the burden of taxation fairly equitably.

3. The tax system should not be overly burdensome or costly to administer.

A simpler tax system is more likely to meet the first and third objectives. A simpler system should cost less to administer, and make it harder for dishonest taxpayers to avoid paying their fair share. 

That being said, simplification is not a magic bullet that is going to massively improve economic efficiency. There could be some modest gains though. Complexity can be seen as an additional tax in its own right from which the government generates no additional revenue (effectively waste). Suppose it takes an average individual taxpayer five hours to comply with their tax burden. Then we make the system more complex, so that it now takes that same taxpayer ten hours to comply. That lost time is representative of the deadweight loss that arises from complexity. Likewise, if we make the corporate tax system more complex, and businesses have to spend more money on tax advisors, and employ more people in their tax departments, then that business has less capital to make new productive investments. 

So basically, we are all made better off by having a simpler system. That is what makes simplification a worthy goal.


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## Plugging Along

I do think that simplication is a good goal, but I still believe that it is not aligned with fairness. The goal of simplicity is easier to measure, where as fairness is based on perception. When it's based on peoples perceptions, then you start making rules to try and appease everyone, which leads to complexity.

Everyone wants to be treated 'fairly' based on their own paradigm. If you have kids, you want credits to acknowledge that it costs you more than someone without kids, if you don't have kids, you want to stop subsidizing those with kids. If you're poor you want more money, if you're wealthy, you want the government to stop taking your hard earned dollars. If you live in the territories, then it's so much more expensive to live there, so you want a reduction in tax, if you don't live there, you say move! They make this little tax breaks to try and make everyone happy, they are so small, many of them don't make a difference, but at least you feel you've been included.


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## slacker

To answer the OP's question on "simplify", a flat tax would satisfy that goal nicely. But taxing only the rich is also "simple". So presumably, we also want to maintain or improve upon the existing tax load distribution.

Ultimately, the most fair way to tax is to not tax any body at all. That way, I wouldn't have to subsidize other people's kids, and cyclists don't have to subsidize the roads, cars, and wars for oil. That is fair, everybody pay their own way, and we live in anarchy.

But that's absurd, so presumably aside from simplicity, and fairness, we also want a tax system that serves a social justice and reflects our value system. That's where we get in trouble here. We value different things. Some people prefer private schools, some prefer to drive their cars to work. Some want a razor thin social safety net (lazy bums), some want "cradle to grave" coverage.

I guess I'm not providing a lot of additional insight, but I'm just pointing out some of the hidden assumptions in this thread.


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## steve41

So, given the billions (well, maybe millions) of keystrokes that each person imparts to their keyboard/keypad every year; that having to multiply two numbers and add to a third ( "where X is your income falling between numbers Y and Z, multiply the value X-Y times factor F and add it to amount A") is somehow going to lead us to Armageddon

1 subtraction, 1 multiply and 1 add..... and that's doing it manually, without a T1 program. Repeat once for the provincial calc. 

A Flat Tax!..... give your heads a shake. Sure, reduce the other clutter, but boiling those 3 arithmetic steps (or 6) down to a single multiply is like going back to living in a cave.


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## Square Root

I agree that all the little tax credits and deductions are about politics not tax. Some things are complicated- international income, capital gains, the impact of inflation, etc. I'm not sure we can " simplify" these kinds of things and maintain the integrity and fairness of the tax system.


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## warp

STEVE41:

Either you enjoy doinfg taxes....or you get paid doing taxes.
Nothing else can possibly justify your feelings that our tax system is not way overly complicated.

Here's an example.....from the CRA site about how to fill in a return for a
"deceased person"
I dare you to read this link

http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-e.html#P797_94342

Imagine a greiving widow having to muddle through all this bulls*it.
And imagine him?her having to pay someone hundreds of dollars to figure it all out and comply. Its a joke.

The tax system is a convoluted mess, and a national disgrace.....compilcated to the point where regular folk just cannot understand it.

And this, to any level headed Canadian, is obvious proof that its just plain wrong.


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## smihaila

I would be in favor of:

-a flat tax rate system

-no discrimination between 2 income earners and only 1 in the house.

-increase consumption taxes (that was the original purpose the tax as a concept was created for). This would encourage savings.

-decrease and homogenize investment income taxes (no diff between interest, capital gains and divideds - which currently simply force you in taking more risks with stock market and why isn't CRA sharing those risks as well???)

-allow investment losses to offset employment income, not only investment gains. A loss is a loss no matter how you look at it.

-eliminate hidden taxes (health premiums?? - btw why the heck are they called "premiums" - it's not us receiving any awards, it's always for THEM only).

-eliminate this stupid concept of "property tax" or make it affordable!!! Divide it equally between properties and landlords. Also, why would you be obliged to work in order to be able to pay the property taxes?? And in case you can't pay THEY are able to take your house. In other countries such as those from Europe, property taxes are much reasonable. The current system promotes house price inflation (the municipalities intentionally making the appraisal prices increase. But the question is - are they reducing the percentage amount to be paid by each owning citizen? Because ultimately the total sum required is a fixed one, in absolute value).

PLUS, perhaps not directly related but you get my point I hope:

-put the insurance industry under the leash. It's outrageous what's going on now. That industry is the real power here in Canada. We are at their mercy.

-allow for the benefit of the people, alchool to be sold in Ontario in normal grocery stores! Not only through THEIR monopolistic companies. This is communism, can't stand this situation any more.

-build REAL houses in Canada. Real brick and mortar and concrete. Not cheap wooden barracks. I'm not yet sure as to why the current status quo is maintained: brick and mortar trade schools are more expensive to attend? What is the power behind all these decisions? Why not allowing more than one types of house materials to be used? One type to be more pricey and the other one, the wooden s**t sensibly cheaper. Don't try to sell people barracks at the price of cathedrals!


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## steve41

warp said:


> STEVE41:
> 
> Either you enjoy doinfg taxes....or you get paid doing taxes.
> Nothing else can possibly justify your feelings that our tax system is not way overly complicated.
> 
> Here's an example.....from the CRA site about how to fill in a return for a
> "deceased person"
> I dare you to read this link
> 
> http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-e.html#P797_94342
> 
> Imagine a greiving widow having to muddle through all this bulls*it.
> And imagine him?her having to pay someone hundreds of dollars to figure it all out and comply. Its a joke.
> 
> The tax system is a convoluted mess, and a national disgrace.....compilcated to the point where regular folk just cannot understand it.
> 
> And this, to any level headed Canadian, is obvious proof that its just plain wrong.


 I said it needed simplifying, de-cluttering, but not to the extent of a flat tax. The flat tax math is pretty straightforward. How about removing all the clutter, have you enter your gross income, and have the CRA perform the graduated taxation math for free...online? You wouldn't need an accountant nor a T1 program.

The thought of Conrad Black or Galen Weston paying at the same personal tax rate as I do just doesn't sit well with me.


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## HaroldCrump

Square Root said:


> People with significant pension income effectively have this now through the pension income splitting provision.


True, but that's not until after you retire.
Until then, for approx. 40 years (give or take) you are being taxed at a higher rate than a married, working couple.


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## Square Root

HaroldCrump said:


> True, but that's not until after you retire.
> Until then, for approx. 40 years (give or take) you are being taxed at a higher rate than a married, working couple.


Agree.


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## GeniusBoy27

Hmmm, somehow I think Conrad and Galen have probably found a way to pay a lower tax rate than you, Steve. The loopholes exist ... I'm sure their actual realized tax rates have maximized their ability to avoid taxes.


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## warp

Just a thought...

And I have posted this idea on this forum before.

A FLAT TAX can have 2 or even 3 marginal tax rates if you insist on making higher earners pay more;
( let alone the fact that they will pay more by virtue of earning more, even with only ONE Flat rate tax)

What's needed to is eliminate all the deductions , exemptions, credits, calculations, revisions, interpretations, etc etc etc etc etc etc.

The tax forms could be reduced to one simple page.


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## Robillard

Warp, 

I'm pretty sure that by definition, a true flat tax is one with a single, constant marginal tax rate. It is also really a theoretical construct. Most countries that have implemented flat tax systems still retain low income exemptions below a certain cutoff point, so they are not truly flat. Also, they are generally not able to completely eliminate all tax deductions or credits. 

For everyone else including Warp,

I believe that we all agree that the multitude of tax credits definitely makes the tax system more complicated.

One issue that hasn't been discussed extensively is the differential tax treatment of different kinds of income. 

Canada has effectively different tax schedules for at least four types of income. Labour and business income (from sole proprietorships and partnerships) are pretty well known. Each additional dollar of interest income is taxed at the your current marginal tax rate. Meanwhile, the marginal tax rate on dividends varies widely based on your tax bracket, and whether the dividends are eligible or non-eligible. The marginal tax rate on capital gains is effectively half the rate that prevails on interest. 

One of the main reasons that corporate executives seem to pay lower effective average taxes is significant amounts of their income can be generated as dividends and capital gains on investments thanks to stock and option grants.


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## warp

First of all , lets be clear.

Different types of income are indeed different.

If a taxpayer is putting his capital at risk...as in investing in equities....there has to be some incentive, tax-wise, for him/her to do so. Otherwise EVERYONE would just be investing in secure interest bearing instruments.
Therefore capital gains are taxed at half the gain.

As for dividends,,,these are paid out of corporate earnings that have alreday been taxed at the corporate level, so there has to be an "adjustment" of taxes payable at the personal level. ( of course this whole business of "grossing-up" dividends is about as stupid a system as any politician ever dreamed up)

There are many simple ways to eliminate all the complexities.
For example decide on an inclusion rate for the 4 types of income you mention,,,then put 1-2-3 marginal tx rates on the TOTAL TAXABLE INCOME, after aloowing for a few certain deductions you deem fair....like personal deduction, age deduction, disability deduction, and education decuction.
Thats it......all done.


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## OhGreatGuru

There is nothing inherently wrong (or even complicated) with the graduated tax system. IMHO it is "fairer" than a flat tax.

It isn't the graduated tax system that makes our tax returns complicated.

The principle beneficiaries of a flat tax are the well-to-do.

Unless you raise the basic exemption to about $40k the principle victims of a flat tax would be low-income taxpayers. 

If you do protect the low-income taxpayers, who then is going to have make up the reduced revenue from the wealthy? *The middle class!*

A flat tax doesn't simplify anything - it just gives the rich another tax break, which is why it is so popular with US Republicans and Tea Party members.


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## Square Root

I think the "simplification" proposals are getting pretty complicated. I actually think the dividend gross up and credit system works pretty well as it actually reflects the paying of corp tax on the earnings the divs are paid from.


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## Square Root

OhGreatGuru said:


> There is nothing inherently wrong (or even complicated) with the graduated tax system. IMHO it is "fairer" than a flat tax.
> 
> It isn't the graduated tax system that makes our tax returns complicated.
> 
> The principle beneficiaries of a flat tax are the well-to-do.
> 
> Unless you raise the basic exemption to about $40k the principle victims of a flat tax would be low-income taxpayers.
> 
> A flat tax doesn't simplify anything - it just gives the rich another tax break, which is why it is so popular with US Republicans and Tea Party members.


Agree.


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## warp

Square Root said:


> I think the "simplification" proposals are getting pretty complicated. I actually think the dividend gross up and credit system works pretty well as it actually reflects the paying of corp tax on the earnings the divs are paid from.


Except that this "grossed-up" amount, or phamtom income, which you NEVER ACTUALLY RECEIVED , is included in your taxable income figure......which is the figure the govt's , ( federal and provincial) , use for all sorts of "income-tested" payments and clawbacks.

In these cases, when you have to gross up your dividends , your taxable income is also artificially higher than reality.

How is this fair???

And lets be clear....I think many of you would choke if you saw the amounts of taxes that high income persons pay......Its a leftest loonie dream to suggest that the rich don't pay.
When is it finally high enough to represent your fair share?


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## warp

sorry, that should read..."leftist" loonie dream.

And if Loony Layton ever gets a sniff of the Prime Ministers chair....God help us all.

Remember Bob Rae?


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## the-royal-mail

I still think those of you advocating for a simplified flat tax are missing the point. Have you read the tax forms and looked at the deductions? Have you looked at our population stats? There are over 34M of us. That's a lot of different situations.

-some people have medical expense deductions in one or more years of their life
-some people have moving expenses
-caregiver tax credit
-child tax credit
-northern living allowance

To name but a few.

I do believe the reason these exist is politically motivated. But to tell a person who needs these various credits, that they are being taken away for the greater good isn't something I see happening anytime soon. For example, I'm moving next year and spending $1800 on movers and other moving expenses so I can be closer to work. Why should I miss out on my credit? Remember you will have to justify to all these lobbyists and letters to the editor and facebook whiners why you took away _their_ credit. They'll say you are attacking them, they'll probably pull the race card or some type or rhetoric to attract media attention and then this will hit the house of commons. No Prime Minister wants that to happen on his watch. It would be political suicide.


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## MoneyGal

the-royal-mail said:


> For example, I'm moving next year and spending $1800 on movers and other moving expenses so I can be closer to work. Why should I miss out on my credit?


It's a deduction, not a credit. 

I'm actually just demonstrating that I can use the quote feature in the way that you prefer. 

But never NEVER take away my smilies!


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## Square Root

@Warp. The gross up doesn't bother me because my income will always be in the 7 figures regardless. I have been called many things over the years but never a lefty. I can assure you that I know how much tax high income earners pay. Over the last four years my total tax paid averages just about $1million per year. 
I think our tax system ,although not perfect, works pretty well. Certainly better than the US.


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## warp

Square Root said:


> @Warp. The gross up doesn't bother me because my income will always be in the 7 figures regardless. I have been called many things over the years but never a lefty. I can assure you that I know how much tax high income earners pay. Over the last four years my total tax paid averages just about $1million per year.
> I think our tax system ,although not perfect, works pretty well. Certainly better than the US.


Im trying to figure out what the dollar amount of taxes you pay has to do with simplifying the tax system, for the rest of us poor folk out here.

Why anyone would tell others on any board that he pays $ 1 million dollars a year in taxes, ( and is obviously smug about it), is beyond me.

And this is not the first time you have posted this "information"

I pay much ,much, much, much less than you,,,but could have easily posted that I pay $ 2 million a year.....but to do that would be just silly of me,,,dont you think?


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## archanfel

How about a pure consumption based tax system? Wouldn't it be much simpler?


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## MoneyGal

Simpler, but this is the issue with consumption taxes: they are extremely regressive. Someone with more wealth spends proportionately less on the necessities of life than someone with less wealth. 

Basic Wikipedia link: http://en.wikipedia.org/wiki/Regressive_tax


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## andrewf

MG: You can correct for regressivity with cash transfers to low-income individuals a la GST rebate.


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## MoneyGal

Absolutely. That was a drive-by post on my part; just a quick response to the post about consumption taxes. 

I actually, at one time, now 20 years ago, was hired to explore a minimum guaranteed income for a particular organization. I ended up doing a lot of research on the Mincome project. I kind of wish I worked in the area of tax research, but I am not an economist.


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## ghostryder

archanfel said:


> How about a pure consumption based tax system? Wouldn't it be much simpler?



Simplistic "napkin" calculation:

Currently:
Personal income tax revenue ~$110B/yr

GST revenue ~$30B/yr

Total = $140B/yr



Idea??

Raise GST to 17.5% (5% x 3.5)

$30B x 3.5 = $105B/yr


Virtually eliminate personal income tax. Wipe out virtually all credits & deductions except a Basic Personal Exemption of maybe $150K/yr?

Have income tax of ~25% on income over that point.

The 500,000 people with income over $150k/yr currently have ~ $176B in income. After the BPE that leaves ~$100B to tax. $100B x 25% = $25B in tax revenue.

$105 + $25 = $130B


Gettin' close. A bit of tweeking with the BPE level and.....


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## archanfel

MoneyGal said:


> Simpler, but this is the issue with consumption taxes: they are extremely regressive. Someone with more wealth spends proportionately less on the necessities of life than someone with less wealth.
> 
> Basic Wikipedia link: http://en.wikipedia.org/wiki/Regressive_tax


The tax will be levied on all things, not just necessities. For example, while someone with more wealth spends proportionately less on food, he/she likely spends more on luxury goods. Even Warren Buffett (or his descendants) has to spend all his wealth sooner or later. Although wealth accumulation is not taxed, consumption of such wealth is.

I would be against GST rebate since it defeats the purpose of simplifying the tax code. 

Border control would be a major issue though. Money leaving the country should be counted as consumed, thus taxed accordingly.


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## andrewf

Simplifying the tax code is not the only goal in and of itself. If you want an equitable society, a GST rebate is a decent way to do it.

It depends on what you value. If a simple tax form is a worthwhile end in itself, great, but you'll have a hard time convincing me. If simple taxes are an effective means to creating a healthy, happy, equitable society, then I'm all for it. That's an end that seems worthwhile to me.


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## Taxsaver

I'm sure that high level people in the government were asked many times about making a very simple tax system. What do they answer to that?


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## archanfel

andrewf said:


> Simplifying the tax code is not the only goal in and of itself. If you want an equitable society, a GST rebate is a decent way to do it.
> 
> It depends on what you value. If a simple tax form is a worthwhile end in itself, great, but you'll have a hard time convincing me. If simple taxes are an effective means to creating a healthy, happy, equitable society, then I'm all for it. That's an end that seems worthwhile to me.


I define a equitable society as everybody is treated equally. A GST rebate is a dangerously slippery slop because it provides a way to buy votes via preferable treatment. Also, if it's still based on incomes, we would still end up a very complex system since you know politicians would introduce more and more exceptions over time. 

I would rather give say $50,000 to everybody regardless their income with a higher tax rate to make up the difference.



Taxsaver said:


> I'm sure that high level people in the government were asked many times about making a very simple tax system. What do they answer to that?


They say it's a great idea and they will think about it.  Our political system hates simple systems because by definition simple systems allow less preferable treatments. People tends to remember preferable treatments for themselves better than things that benefits everybody. 

See the another thread on how Canadians want a more simplified tax system while also want more tax credits.


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## Taxsaver

I'll email Harper, Layton and of course, Gilles Duceppe on that.


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## OhGreatGuru

the-royal-mail said:


> ...
> 
> -some people have medical expense deductions in one or more years of their life
> ...


Please explain to me why the Tax Credit for medical expenses has a deductible of 3% of Net Income. This makes it an income-dependent credit; and it promotes the "strategy" of having the lower-income spouse claim the credit. 

The whole purpose of the non-refundable tax credit sytem (as opposed to deductions from income) is to ensure that credits have the same benefit regardless of your tax bracket. So why do we subvert this by making this one income dependent?


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## andrewf

I suppose it's supposed to help with 'exceptional' health costs, defined as being more than 3% of income.


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## el oro

Taxes in Singapore:

7% GST
No capital gains tax or dividend tax
No tax on foreign income if kept out of country
0% income tax up to 20k, capped at 20% and that's only for >320k
Corporate tax capped at 17%

*2.2% unemployment*


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## archanfel

$1600 Gold by 2011 said:


> Taxes in Singapore:
> 
> 7% GST
> No capital gains tax or dividend tax
> No tax on foreign income if kept out of country
> 0% income tax up to 20k, capped at 20% and that's only for >320k
> Corporate tax capped at 17%
> 
> *2.2% unemployment*


Yet I still very much prefer Canada.


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## steve41

$1600 Gold by 2011 said:


> Taxes in Singapore:
> No capital gains tax or dividend tax


OK.... when you say no CG or Div tax, do you mean there is no tax reduction in CG/Divs or there is zero tax on divs or cap gains? The question here is, are all investment earnings (growth as interest, cap gains, or divs) completely free of tax? This makes a difference.


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## Robillard

Comparing Canada's economy to Singapore's is not an apples-to-apples comparison. Canada's economy is much more seasonal, with a significant primary industry component. Also, Singapore is even more dependent on international trade than Canada. If Canada were to replicate Singapore's tax system, I seriously doubt that we could replicate the 2.2% unemployment rate (incidentally, that statistic is two years old). 

While there are lessons to be learned from Singapore's tax system, like not taxing worldwide income, there are even greater lessons to be learned from its structural economic policies. Singapore has a very strong free trade treaty network, is very open to foreign investment, and is much more open to immigrants and foreign workers. On the more debatable side, Singapore has weaker labour protections and a much more unequal distribution of income than Canada.


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## el oro

They have no capital gains taxes and no deductions for capital losses. In other words, TFSA with no limit and no restrictions on what you hold.

Their 2.2% unemployment was for last December as well and was at a 3 year low for April at 1.9%.



> With the economy near full employment and demand for workers remaining pretty strong, wage pressures will become a bigger issue in coming quarters.


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## warp

Although I personally can't confirm that this would happen here...

I have read news reports that in EVERY country that has gone to a simpler flat rate tax system......their economies have done better than before, and unemployment has fallen.

You gotta wonder.......


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## andrewf

I'd want to see a more thorough analysis than that, myself. That sounds suspiciously like it was fabricated. You can point at Singapore, but you can also point at Sweden.


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## warp

andrewf said:


> I'd want to see a more thorough analysis than that, myself. That sounds suspiciously like it was fabricated. You can point at Singapore, but you can also point at Sweden.


Andrew:

What do you mean by the Sweden experience?

Im not that familiar with it, other than knowing that Sweden has gone more socialist and further left ...but please elaborate on what you mean, and how it might differ from Sinapore.

Thanks.


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## steve41

I wish I could find my parent's 1943 Canadian Tax return. It was four pages.... a single legal size sheet of paper folded horizontally. The one thing I do remember was that it had 12 separate tax brackets, room for name and address, age etc details, and, I assume some additional room to calculate deductions for spouse, dependants, age.... etc. There were no desk calculators around then, so everything.... multiplication, addition, etc was done on paper. I am going to keep looking for that sucker.


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## ghostryder

warp said:


> Although I personally can't confirm that this would happen here...
> 
> I have read news reports that in EVERY country that has gone to a simpler flat rate tax system......their economies have done better than before, and unemployment has fallen.



Post hoc ergo propter hoc


Did Lithuania's unemployment drop because of flat tax or because 300,000+ people have emigrated?


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## andrewf

warp said:


> Andrew:
> 
> What do you mean by the Sweden experience?
> 
> Im not that familiar with it, other than knowing that Sweden has gone more socialist and further left ...but please elaborate on what you mean, and how it might differ from Sinapore.
> 
> Thanks.


Sweden and Norway enjoy a high standard of living despite high tax rates. The key seems not to be the level of taxation/size of government (as % of GDP) per se. The important thing is whether the taxes being collected are economically efficient, and don't cause large dead-weight losses, and that government spending is effective (good value for money). The important thing is having good government, not necessarily small government. This is why bad/stupid policy is enemy #1, whether on the tax side or the spending side.


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