TAXES ARE REVOLTING!

The Canadian tax burden is heavy with no relief in sight

In 2005, Canadian governments (federal, provincial & local) took $17,315 from the average Canadian man, woman, or child. Only about half of Canadians are employed, which means that governments today, take nearly $35,000 (!#*!) from us for every worker working.

In 1961 when Statistics Canada first measured this, governments took only $628 per person. In the last 44 years, taxes have increased an average 7.8% per year. Inflation has been 4.5% per year which means that the real tax burden has increased an average of 3.2% per year. Taxes now compose the largest proportion of the average family’s income or according to the Fraser Institute "more of the family budget than shelter, food and clothing combined." The Fraser Institute calculates that taxes took 33.5% of the average families income in 1961, whereas in 2005, taxes now amount to 46.7% of the average family income.

Why are taxes increasing?

Taxes keep rising because governments keep spending more. Governments now spend nearly $16,240 for every man, woman and child. (For the last few years, governments have collected more revenue than they spend because Canadians are becoming increasingly worried about our extremely large government debts and future liabilities.) As long as governments continue to spend a large portion of our economy, we are going to have pay a large portion of our earnings to them. Nothing is free. If governments continue to spend, someone is going to show up at your door asking you to pay.

Can we get someone else to shoulder the burden?

Demagogues keep promising that we can have all our government goodies for free if we can just get someone else to pay for them. Usually the rich or the corporations are offered up as the victims. But the rich are already paying much more than others are paying. According the Fraser Institute’s annual Canadian Tax Simulator, if we rank Canadians by their income levels, the top half of earners are now paying 85% of Canadian taxes. The top 20% of earners pay 53.2% of taxes and the top 10% of earners pay 36.2% of the taxes. The poorest 10% of Canadians pay less than 16% of their income in taxes while the richest 10% pay 58% of their income in taxes.

If you check the Canada Revenue Agency’s Income Tax Statistics out of 23 million returns filed per year, only 4.3 million reported a total income higher than $50,000 per year. Yet these 18.6% of returns accounted for 70.0% of income taxes collected! Of the 3.4% of returns that reported an income greater than $100,000 per year, this accounted for 34.2% of income taxes payable.

How much more can we ask the productive to pay before they start pursuing greener pastures especially when it the high earners who are most able to find better opportunities? Also, what does it mean for the health of politics when the majority can vote for "bread and circuses" that are being financed by fewer and fewer net payers?

As for corporations, these are just voluntary groups of people (workers, owners) who believe that the corporate form of business organization makes them better able to deliver what customers want. Few people seem to realize that income earned by corporations is already double-taxed in Canada. We tax the corporation when it earns income and then again when corporate profits are sent to shareholders. Corporations come to Canada because owners want a return. If we tax them too much, they go elsewhere and Canadians workers and customers will have fewer choices and fewer opportunities.

A thought experiment

Imagine that you and a few friends decide to go to a restaurant. But instead of each ordering your own choices, you decide to use the "government" method to order. Each is asked to pay into the pot depending upon how much income they earn or how valuable their house is. Then we vote for what type of food to buy with the money we have collected.

What should the club do about free loaders who never buy cigarettes, drive fuel-efficient cars or live in run-down houses? What is to stop some friends from hiring expensive accountants to make income appear smaller? How much attention should we pay to minority tastes who insist that a very expensive food is their basic requirement?

For tiny groups of closely related people, this method may work, but what happens when the group grows to reach a hundred, a thousand or 32 million (the population of Canada)?

There must be a better way

Consider the destruction of social good will that comes from asking people to contribute to a central pot. People have an incentive to arrange their lives in such a way as to pay a little as possible, but the same time complaining about other people who act similarly. Some will create artificial businesses, take advantages of loopholes or lobby for special legislation to tilt the burden of taxes onto others. And on the spending side, because services are to be paid from the central pot, you are likely to ask for better services than what you would want if you had to pay for them yourself.

Libertarians want to reduce the role of the "government method" in our lives. Most people want many of the services currently provided by government, but throw up their hands in despair at the destructive political game that taxes and spending have created. The way out is to restore more personal responsibility for the services currently provided by government. If we had to pay directly for these services, we would insist on better value and more appropriate services for what we were wiling to pay.

The Libertarian Alternative

There is no magic. This will require hard work. Too many voters still think that a fairy godmother will give them expensive government services for little cost. Libertarians want to harness the incentives and rewards of the market to direct spending to that which gives the best return. Instead of paying taxes, parents with more money in their pockets could afford to pay directly for education. This would cause a blossoming of alternatives as schools would be have to find out what parents most wanted. If patients got their taxes back and had to pay directly for health care, there would be no immediate miraculous cure-alls. But instead of relying on the (hopefully) saintliness of doctors, financial incentives would align with the hard work of supplying patients with the most appropriate care. Over time, think of what the ingenuity of doctors could come up with IF they were freed from our Canadian health monopoly. Think too of the advantages of asking the Post Office, CBC or ICBC to satisfy willing customers instead of depending on taxpayers or government restrictions of alternatives.

Tax Protest 2006

On this day, when our income taxes are due, you got a taste of the real cost of government. Did you enjoy spending hours trying to figure out what you owe, trying to understand the complications of qualifying for a deduction, wondering if the quality of life lost to qualify for a deduction is worth the tax savings?

Your life, your time, your sweat has been confiscated from you to serve old-fashioned group-think. If you want things to change, start by considering the advantages of libertarianism: choice, liberty and greater self responsibility.

Click here for an earlier article.