Fed Issue #30 - Another broken promise: Tax cuts for the middle class

http://www.theglobeandmail.com/opini...ticle33983657/

Another broken promise: Tax cuts for the middle class


When a government breaks an election promise it usually attracts a fair bit of controversy. Witness the hubbub in the aftermath of the Trudeau Liberals abandoning electoral reform. With the federal budget coming soon, it is also worth recalling that the Liberals promised to run deficits of no more than $10-billion for a maximum of three years, but the government’s latest projections peg its annual deficits at almost $30-billion with no timeline for returning to a balanced budget.


While these broken promises have garnered some attention, yet another broken promise has managed to fly under the radar. The Liberals campaigned on the promise to cut taxes for Canada’s middle class. Yet since forming government, they have announced several tax hikes and more may be on the way.


The latest potential tax hike could be higher user fees for a range of federal services (including fish licenses, campsites and passports). That’s according to a CBC report that suggests the federal government is eyeing an increase to these fees. If implemented, this would be the latest in the government’s onslaught of tax increases on Canadians.


Let’s take stock of the tax increases announced to date.

First there was the new top personal-income-tax rate on highly skilled and educated workers – now 33 per cent, up from 29 per cent. This tax hike will discourage economic activity and make it more difficult for Canada to attract and retain knowledge-based workers.

Of course, the government reduced the second-lowest personal-income-tax rate from 22 per cent to 20.5 per cent, but that reduction is being completely wiped out by the higher payroll taxes working Canadians will have to pay for expansion of the Canada Pension Plan – a combined 2 per cent hike on eligible earnings up to the current limit and an additional 8 per cent above, up to a maximum.

Keep in mind that Canadians with incomes below $45,000 will be particularly hard hit, as they will not receive any benefit from the income-tax-rate reduction but they will have to pay higher payroll taxes.



And let’s not forget about the widely-used tax credits that the government is eliminating. This includes income splitting for couples with children, the Children’s Fitness Tax Credit, the Children’s Arts Tax Credit, the Education Tax Credit and the Textbook Tax Credit (other tax credits may be on the chopping block, too, as the government wraps up its review of the tax code). While tax credits create distortions with little economic gain and require higher marginal rates, Canadians who use these credits will see their total tax bill rise from their elimination.
A more subtle tax hike came from the government scaling back the maximum amount Canadians can contribute each year to their Tax-Free Savings Accounts (now $5,500, down from $10,000). This reduction in contribution room is effectively a tax hike for those who are unable to shelter additional investments from taxation.

And then there’s Ottawa’s plan to impose carbon pricing on all the provinces, with the rate for each tonne reaching $50. This tax will directly raise the cost of many consumer goods including gasoline and natural gas, and indirectly for many others due to higher production and transportation costs.

All of this doesn’t even begin to account for the potential for higher taxes to service and repay the substantial run up in federal debt that has taken place already and that is planned for the future.

Taken together, it’s clear that the Trudeau government is breaking yet another campaign promise. So much for cutting taxes on middle-class Canadians.

I know this may not be popular but I actually don't mind some of the changes.

The first question that needs to be asked is who is the middle class . The segment of society thats shrinking, disappearing ( No-one argues this).

The second question is what's happening to them. Is a greater percentage becoming upper middle class/wealthy, or is the greater percentage becoming a "have not". I personally feel far too many are becoming have nots, and this is supported by the fact that so many Canadians are savings less, going into debt more. So many Canadians do not have enough to retire, especially those without Pensions. In short, the greatest chunk of society is paying the way so that smaller blocks live well, working hard so others don't to..........

But just who is the middle class..................If and when you look at the numbers ( and they rarely tell the whole story) it's people that earn around $45,000 or $75,000 duo.....The reality is most people who think of themselves as "middle class" aren't, and often are upper MC, or "Well Off" ( also subjective these days, but thats a different topic)...

By the numbers.
Bumping the highest tax bracket to 33%. I don't think this is all that bad. Your talking about a moderate increase that will affect the top 10% of the population. Those that earn over $200,000, and it only impacts the income that's over 200,000. In effect if someone grosses 225,000, they are paying an additional 4% on $25,000. Here's a fiddle....

Dropping the marginal rate to 20.5% from 22.5% for those that earn $45,000 to $92,000.
Clearly aimed at the upper middle class, mainly the Liberals Vote base in cities...............Not necessarily a bad thing but someone who earns say 75,000 ( double the mean duo) to $90,000 is clearly not Middle class. If its a couple pulling in 150,000-180,000 they are far and away better off than the statistical mean.......
And this is before considering any other benefits, be they Pensions or other.....................

This is also the same group of people who likely receive the most benefit from many of the tax credits our current (and past) Tax code "helps".In essence: Income splitting, many child care credits such as sport/summer camps, etc, etc, etc.

Who is most able to take advantage, legally avoid taxes and spend say $15,000 a year (between sports, camps, etc, etc) on their children.A couple that earns say 140,000 a year, or a couple that earns say 80,000 and who can't save for retirement and are getting pummelled because the well off think life is rough.................


Think of it this way.
Who gets the most benefit from RSPs.
Someone who pays 30% income tax all their life, then pays 20.5% in retirement on the money socked away..
Someone who pays 20.5% income tax all their life, then pays 20.5% in retirement.............
Now couple this by comparing those with and those without Pensions.
Person A) Grosses 75,000-90,000 and has a Pension. Has money every year for an RSP contribution
Person B) Grosses 50,000 and no Pension, and has little to no money for a contribution. Not that it would do them any good whatsoever in the first place, but we can ignore that for this illustration....

Talk about robbing Peter (Person B) to save Paul (person A).......

ditto TFSa
Ifs you think couples that gross less than say 100,000 can find 5,000 a year to put into a TFSA..Well I might question what planet we are living on. Again, these aren't "bad" things, and its arguable these days just how "well off" the "well off" are...But no matter what conclusion is arrived at. They are still far, far better off than the

Middle class.
That big chunk of society that is having it's back broken helping to pay for everything, yet gets almost nothing in return...

***********************

The biggest problem "really" is our tiered tax system, maybe one day we will move to a flat tax rate, or at the least just two, maybe three tiers...And leave the rest to consumption taxes. Those that earn a lot more, spend a lot more.........

Should add.
Completely agree with the overarching tone/theme. Aka broken promises, tax and spend and big deficits.
But who votes for this in the first place, currently and historically. Using a broad brush and painting them all the same.

The well off in cities........

I am of the opinion that this "us" and "them" on tax brackets is nothing more than the lefts divisiveness to justify taking more from all in the end. Canadians don't pay just Federal taxes and with the HST, soon to be added benefits taxes, carbon taxes etc. it is killing the economy and Canada. To look at it different, a person works from January to May before they start to keep any of their money, then the HST and Province and city take over and we are looking at July or August.

As for the RRSP and TFSA .... don't drink the media's kool-aid on their "alternative facts", study after study has shown that people retiring (packages etc.) and saving for their children's education use TFSA's and here is an article. You are assuming alot in some of your statements, let's say Person B has managed to pay off their condo/house, the car is paid for (didn't go doing something stupid like buying/leasing a new one every 3 years) etc, if their spouse was of near or comparable income and used the same philosophy and saved for their kids education, they could easily have money for a TFSA or RRSP.

Let's look at who is using it and just their income brackets.

http://business.financialpost.com/pe...-walks-of-life
In the income category of $20,000 to $24,999, 124,150 Canadians had maxed out their limit, which was about 17 per cent of all account holders at that income level.

On the other end of the spectrum, 97,630 people in the $150,000 to $249,999 category had maxed out their contributions as of 2013, which was close to 32 per cent of people in that income category.


*** NOTE: MORE in the lower income than the highest income group, perhaps those retiring?


The CRA stats show 267,000 Canadians who make less than $20,000 had contributed the maximum and 1.1 million Canadians making less than $60,000 were also contributing the maximum to their TFSA

** Note: that would be 1.3M Canadians with incomes less than $60,000... TFSA's maxes are only for the rich is just more Liebral fiction, the reduction to me looks nothing more than screw those saving.... essentially anti-austerity.

I might counter that's it's you drinking the cool aid Mosquito.

1) income category 20-25k. How many of these people are young, say 20 somethings living at home...........for but one example. Not sure where you live but if someone grosses say 25,000. Maxing a TFSA means having a disposable income that equates to 20% of their total gross. I don't know many people who have real life constraints like bills and what not, who can take 5,000 of their pre tax dollars.........


2) Yes there are "more" people, but did you somehow miss the smaller percentage, the substantially smaller percentage? 17% versus 32%. So of the two groups. While there might be more ( perhaps because there are simply more people reporting incomes of 25k, than 150k) the tale is in the percentages. 32% of people who are well off were able to max, versus only 17% of low income earners........

3) The article does mention, but you missed it somehow? Is that RSPs do nothing for those in the lower brackets. So their one and only option if they have money to sock away is a TFSA. So lets assume the numbers of people in each group are equal ( they aren't, not by a long shot). In the higher group, they might be able to find enough money to
A) pay down the mortgage
B) Contribute to an RSP (and reduce their income level, so they pay less tax)
C) And contribute to a TFSA.

Whereas someone who grosses far less, might only do one and given B does jack didly for them......

Might that explain why "more" max a tfsa, than those in the higher groups but not lets not forget its still a far greater smaller percentage. Only 17% vs 32% ( Who probably also do all they can to reduce their income first)......

Seriously, pause and think about what the numbers are really saying.
32% of that small segment of the population that grosses 150,000 to 250,000 max their TFSAs......and likely a lot more ( RSPs, RESPs, and more they can do).......
17% of that very large percentage of the population ( which would also include students, young people and seniors) who would derive NO BENEFIT from an RSP....
So you tell me, who is benefitting the most....


PS
100,000 people in the 150k-250k bracket or about 32%. So that says theres roughly 300,000 in Canada in that bracket. How many in the Canadian workforce?

At the end of the day.
"Canada’s household saving rate eased to a near five-year low of 3.6 per cent in the fourth quarter of 2014, the third-straight quarterly decline, Statistics Canada said Tuesday.

http://www.theglobeandmail.com/report-on-business/economy/household-saving-rate-nears-five-year-low-as-financial-risks-increase/article23274104/

And this
Close to half of Canadians would have a tough time paying bills if their paycheque came even just one week late, according to the Canadian Payroll Association's 2015 survey.The survey also showed that although more of us say we are trying to save, fewer are able to actually do so.Hard to believe that early in the 1980s, Canadians saved twice as much as Americans — an astonishing 20 per cent of our disposable income in 1982. Nowadays we save less than our southern neighbours.
http://www.cbc.ca/news/business/savings-decline-canada-1.3403923

And this
http://www.theglobeandmail.com/globe...ticle28761394/

And so many others..
Like paying more in taxes than we spend on housing food and clothing

Many others that show many things, the gist of which is.
The combined impact of stagnant wages
AND
High Taxation

Since the 1960s, has and is kneecapping the "average" Canadians ability to live/save.
And the reality is, for most people taking "advantage" of numerous ways to reduce their taxes.......Well first you need "$$".....And the more you have thee more you can do..The "middle class"?

not so much

They dont need all that money.

Just wanted to add, that on the whole I agree with the tone. But it's when we look at who gets "breaks" and who doesn't".
Sure its possible for someone that grosses say 45,000 to max their TFSA. Any financial advisor that barely passed their qualifying exams would counsel such a person to utilize an TFSA..Becuase, there is literally no benefit to doing anything else.

But at the end of they day per se, given everything we know about soaring cost of living, soaring taxation, various trends. Only 30 years ago, the masses were able to save 20% of their disposable income.........Today......Given all know about Pensions and what not..........

About the middle class shrinking and more.

Its not people grossing 100,000 a year that need more help...Say like Ms Wynne subsidizing toy cars for them ($15,000 each).....that need it.
Its the people in those middle areas who are getting bent.

Carbon taxes?
Take 2 people, each use the same amount of fuel each year. And so lets say it cost them both an extra $1,000 per yer.
$1,000 in additional tax is what percentage of $100,000
$1,000 in additional tax is what percentage of $50,000

Who is paying more of their "fair share"? The person that pays an additional 1% and is well off or the person thats solidly middle class and its another 2%

And who is more likely to have 10,000 for a TFSA?

Things aren't far from self adjusting.

Trudeau survived his Washington trip, that is about the most optimistic thing that can be said. Sort of like a 1st quarter hockey game.

Population is no longer "driving" home pricing and real estate prices are even falling in Vancouver. THAT IS A PROBLEM. Speculation is now driving it. THAT IS A PROBLEM.

Canada GDP= Trade, real estate, health care.

Trade no longer looks solid, real estate is teetering on population vs speculation and healthcare is higher in Ontario than anywhere in Canada by a vast amount, companies are leaving Canada and job increases are largely part time.

Canada NATO contribution .98 vs required 2% . That likely won't last.

Yes, the middle class has and will take the brunt of all of the above on top of the current idiotic PM's policies.

Now for the upside....Good thing he's good looking because an ugly PM could never sell this stupid chit to the masses.

Well, would it be fair to suggest Skypilot that for the most part, Canada has been a Liberal country for the past 50 years?

There are so many parallels between the States and Trump, and Canada and where we are heading it's "scary". The "left" or Liberals like to pretend ( in the case of politicians and Unions) or believe ( the electorate) that they are the "champions" of the middle and less fortunate. Yet oddly, despite 50-60 years of predominantly Left/Liberal rule, tax and spend policies, the statistics and trends and show the opposite. That it's the middle class being brought down.............

Another clear as day trend.
For decades, the "peons" have turned to home equity, as their saving grace. And as the years have gone by, its become the only "form" of savings. See above statics. Id really like to know how someone grossing say 50k can manage to pay the bills, pay down debt, and scrape some money together each year, especially when there are studies out there that report the average Canadian, not the high earners or low earners. The average is losing more to taxation, than they spend on housing/food/clothing....50 years ago, about 20 years before the typical Canadian could save 20% of their income....it was the opposite....

More and more people have less saved, but more home equity. You'd think having witnessed the crash is the US............Again, something that gutted the US middle class...The mid west and rust belt....

Im not a "Trump" fan, but history is utterly rife with examples of the working class, eventually rising up against the privileged. Suppose if theres a saving grace we are now civilized and don't behead the privileged anymore, whether it's the Roman Empire, Marie Antoinette, the Bolsheviks and Czars.

At some point, hopefully (or not and things will just have to implode like they are in the US). Or like here in Ontario where the divide between urban Ontario ( the haves) and rural/Northern Ontario (the have nots), where so many job losses have occurred and more...More of the privileged will come to realize that one great big segment of the public is getting bent....Those very people "everyone" seems so concerned about...

And as for our tax code, there is virtually no argument that it favours those with more in the case of credits and what not, and in many cases hits those with the least hardest. Things like Carbon Taxes...

Quote:

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Originally Posted by JBen

Well, would it be fair to suggest Skypilot that for the most part, Canada has been a Liberal country for the past 50 years?

There are so many parallels between the States and Trump, and Canada and where we are heading it's "scary". The "left" or Liberals like to pretend ( in the case of politicians and Unions) or believe ( the electorate) that they are the "champions" of the middle and less fortunate. Yet oddly, despite 50-60 years of predominantly Left/Liberal rule, tax and spend policies, the statistics and trends and show the opposite. That it's the middle class being brought down.............

Another clear as day trend.
For decades, the "peons" have turned to home equity, as their saving grace. And as the years have gone by, its become the only "form" of savings. See above statics. Id really like to know how someone grossing say 50k can manage to pay the bills, pay down debt, and scrape some money together each year, especially when there are studies out there that report the average Canadian, not the high earners or low earners. The average is losing more to taxation, than they spend on housing/food/clothing....50 years ago, about 20 years before the typical Canadian could save 20% of their income....it was the opposite....

More and more people have less saved, but more home equity. You'd think having witnessed the crash is the US............Again, something that gutted the US middle class...The mid west and rust belt....

Im not a "Trump" fan, but history is utterly rife with examples of the working class, eventually rising up against the privileged. Suppose if theres a saving grace we are now civilized and don't behead the privileged anymore, whether it's the Roman Empire, Marie Antoinette, the Bolsheviks and Czars.

At some point, hopefully (or not and things will just have to implode like they are in the US). Or like here in Ontario where the divide between urban Ontario ( the haves) and rural/Northern Ontario (the have nots), where so many job losses have occurred and more...More of the privileged will come to realize that one great big segment of the public is getting bent....Those very people "everyone" seems so concerned about...

And as for our tax code, there is virtually no argument that it favours those with more in the case of credits and what not, and in many cases hits those with the least hardest. Things like Carbon Taxes...

---

True.

In the US, it is loosely somewhat like Mike Harris in Canada in that now there has to be an adjustment after the foolishness of liberal policies for at least the last 8 years.

The forgotten middle class in the US has revolted and said enough to the liberal special interest to the detriment of the mainstream American.

The glaring fact is that service economies gut the middle class whom are the main tax revenue base and pursuing that agenda is economic suicide. Couple that with a imminent housing bubble, economist wondering what is keeping the loonie up, NATO adjustments a real possibility for the first time, US/Canada trade adjustments looming, it looks bad and when looking at the current liberal leadership, it looks potentially catastrophic.

It is the beginning of a perfect storm and anyone that deals in investing KNOWS the cycle/wave and the historical evidence of that in around 3 year cycles. That is bad enough when all else is equal or relatively stable between the two countries.

With polar opposites In the PMO and White House that wave has the potential to be exceptionally worse especially considering the current economies, refugee policies, NATO payments, and NAFTA "what ifs."

Look who is sitting off our Delaware coast as I type this. Is your Arctic next. Got the military to address that?

People need to wake up shake that BS sunny ways attitude and get a dose of reality.

Quote:

---

Originally Posted by JBen

I might counter that's it's you drinking the cool aid Mosquito.

1) income category 20-25k. How many of these people are young, say 20 somethings living at home...........for but one example. Not sure where you live but if someone grosses say 25,000. Maxing a TFSA means having a disposable income that equates to 20% of their total gross. I don't know many people who have real life constraints like bills and what not, who can take 5,000 of their pre tax dollars.........


2) Yes there are "more" people, but did you somehow miss the smaller percentage, the substantially smaller percentage? 17% versus 32%. So of the two groups. While there might be more ( perhaps because there are simply more people reporting incomes of 25k, than 150k) the tale is in the percentages. 32% of people who are well off were able to max, versus only 17% of low income earners........

3) The article does mention, but you missed it somehow? Is that RSPs do nothing for those in the lower brackets. So their one and only option if they have money to sock away is a TFSA. So lets assume the numbers of people in each group are equal ( they aren't, not by a long shot). In the higher group, they might be able to find enough money to
A) pay down the mortgage
B) Contribute to an RSP (and reduce their income level, so they pay less tax)
C) And contribute to a TFSA.

Whereas someone who grosses far less, might only do one and given B does jack didly for them......

Might that explain why "more" max a tfsa, than those in the higher groups but not lets not forget its still a far greater smaller percentage. Only 17% vs 32% ( Who probably also do all they can to reduce their income first)......

Seriously, pause and think about what the numbers are really saying.
32% of that small segment of the population that grosses 150,000 to 250,000 max their TFSAs......and likely a lot more ( RSPs, RESPs, and more they can do).......
17% of that very large percentage of the population ( which would also include students, young people and seniors) who would derive NO BENEFIT from an RSP....
So you tell me, who is benefitting the most....


PS
100,000 people in the 150k-250k bracket or about 32%. So that says theres roughly 300,000 in Canada in that bracket. How many in the Canadian workforce?

At the end of the day.
"Canada’s household saving rate eased to a near five-year low of 3.6 per cent in the fourth quarter of 2014, the third-straight quarterly decline, Statistics Canada said Tuesday.

http://www.theglobeandmail.com/report-on-business/economy/household-saving-rate-nears-five-year-low-as-financial-risks-increase/article23274104/

And this
Close to half of Canadians would have a tough time paying bills if their paycheque came even just one week late, according to the Canadian Payroll Association's 2015 survey.The survey also showed that although more of us say we are trying to save, fewer are able to actually do so.Hard to believe that early in the 1980s, Canadians saved twice as much as Americans — an astonishing 20 per cent of our disposable income in 1982. Nowadays we save less than our southern neighbours.
http://www.cbc.ca/news/business/savings-decline-canada-1.3403923

And this
http://www.theglobeandmail.com/globe...ticle28761394/

And so many others..
Like paying more in taxes than we spend on housing food and clothing

Many others that show many things, the gist of which is.
The combined impact of stagnant wages
AND
High Taxation

Since the 1960s, has and is kneecapping the "average" Canadians ability to live/save.
And the reality is, for most people taking "advantage" of numerous ways to reduce their taxes.......Well first you need "$$".....And the more you have thee more you can do..The "middle class"?

not so much

---

No Kool-aid for me, I prefer stats and studies not from CBC but as for:

1) Young people starting out, living at their parents saving for education, house etc.. people retiring, perhaps in a senior residence or with family, handicapped on disability in hospital, shared accommodations... etc. There are many scenarios were a low income person might have ample funds to save for their future.... which the Libs reduced their ability to save without being gouged.

2) Of course, but 17% of a larger group of people is still more individuals.... your point being?

3) The best returns on investment are A and C, even with the reduced income


The Libs have reduced the ability of Canadians to save in lowering the TFSA limit simply because they want to take more money from all groups and see that money in people's pockets as "lost gov't revenue" ....

How can Canadian's save with the fulltime job losses (especially in AB and ON), rollbacks of tax credits (kids sports/arts, income splitting..) and more taxes on their savings (reduced TFSA and banks only giving < 1% interest), utility rates and local tax increases, carbon taxes on transportation.....?

I have to spend the time sometime to find the report talking about how many changes wage classes each year, those in any group can change by a significant percentage. In AB and ON for example many in the $100,000+ range many may be lower income now and those starting out no longer in lower or even middle but upper now. Just look in Ontario we see the starting is about $35K for the starting, the average high school teacher making almost $60K and the senior HS teachers are getting over $95.... or more. So in one group we see all income levels based on experience.

The Conservatives reduced taxes saving billions for the people but the Libs see it as "lost gov't revenue" and now they are in power we continue to see them taking from all Canadians! ... and spending it on things most Canadian's would call wasted.