The GST in...
The Big Tax Picture
A group of concerned organizations wants to encourage Canadians
to talk about the Goods and Services Tax. It's important, because
when you start talking about the GST, you end up talking about the
whole idea of taxation. And when you start talking about who pays
more and who pays less, you're really talking about the kind of
country you want to live in.
We hope the following conversation between two Canadians will help
get us all talking about the Goods and Services Tax.
Produced by the Pro-Canada Network, 904-251 Laurier Avenue West,
Ottawa Ontario K1P 5J6
What do you think of the GST?
-Well, I'm like most Canadians -- I'm against it.
-I've got a feeling it's really going to cost us.
-And it'll probably cost us even more in a few years. Michael Wilson
seems to think it's a "cash cow" to pay off the deficit.
I think he should cut spending instead.
- I don't. The Tories have
already cut overall government spending every year since 1984. But
have you noticed how Wilson's worst cuts always seem to hit the
people who can afford them least? He's sure not suffering, though.
He's rich. But a lot of people are suffering. Take Newfoundland,
for instance. They have the highest poverty level in the country.
Tory mismanagement has really hurt the fishery -- their biggest
industry. People are losing their jobs. But the Tories have cut
regional development programs, Unemployment Insurance, and federal
grants for health and education.
- I guess the GST won't help them.
- It won't do the rest of us any favours either.
What's the big idea with this tax?
-Brian Mulroney says the GST is part of a bigger plan to "revitalize"
our economy.
-How will the GST do that?
- The GST means big companies won't pay federal sales tax any more.
This should increase their sales and profits.
-But won't it raise a lot less tax money?
- No. Someone else will pay more to make up the difference.
-Who's that?
-You and me. Consumers.
-I don't get it. How is making us poorer going to help our economy?
- The Tories' idea of economics is that if you make sure corporations
and wealthy people have lots of money, they'll invest it and create
jobs for everyone.
-How do we know they'll do that?
-We don't. It's just a theory.
-Some theory If the GST gives companies big tax breaks, what's to
stop them from putting the extra money in the bank, or investing
in other countries?
-Nothing at all. If you ask me, the GST doesn't have much to do
with fixing the economy. It's all just part of the Mulroney tradition
of helping the rich get richer.
Michael Wilson said he was
making the system fairer!
-That's what he said, but under "tax reform," income tax
for a middle-income family went up 10% between 1984 and 1988. For
the "working poor," it went up 44%.
-What about upper income families?
-Their taxes actually went
down 5.9%.
-That's not fair. At least the GST rate is the same for everyone.
- That's the problem. The GST is what's called a "regressive"
tax. This means the less money you have, the bigger the percentage
of your income you pay in tax. The GST will actually hit poor people
harder. Rich people won't pay it on their savings and investments.
-But there's a GST credit for the poor. Won't that balance it
out?
-A quarter of all poor people won't get the credit because they
never fill out a tax form. Also, the credits won't keep up with
inflation. They'll actually shrink by 3% every year.
The National Anti-Poverty Organization says "the credits are
poorly designed and will not be received by many who need them most."
-Well, at least poor people will get a break with the lower
7% rate.
-Actually, they'll be worse off. When Wilson reduced the GST rate
from 9% to 7%, he cut the credits from $2.4 billion to only $1.3
billion.
- I think that's a disgrace.
-So do I. But the only people who could pay more tax support the
GST.
-Who's that?
-Mostly only one bunch of people - Big Business. Groups like the
Business Council on National Issues, who lobbied hard for free trade,
are now saying we must have the GST.
Why does Big Business support the GST?
-I figure if someone supports a tax, it's because they know they
won't be paying it. Under the GST, business won't pay any tax on
exports. So while exporters increase their profits, we'll make up
the difference by paying the GST. The exporters say the GST will
help them compete internationally.
-Sounds like free trade!
-You got it! Now that we have free trade, Canadian business has
to compete head on with American corporations. So Canadian companies
want lower taxes.
-I heard corporate taxes had already been lowered.
-It's true. In the first round of "tax reform," Michael
Wilson lowered the federal corporate tax rate from 36 to 28 percent.
So corporate income taxes are now about the same as in the U.S.
But companies still don't like paying federal sales tax.
-So they won't be paying the GST?
-A few will, but most firms will get their money back. Consumers
will pay the full GST at the store.
-But if companies get big tax savings, won't they pass them
on to us?
-Only if they have to. Remember what Mulroney said about prices
and free trade?
-He said the average family would save $800 a year.
-Companies know what we're used to paying. Free trade and the high
Canadian dollar should have made U.S. imports cheaper in 1989 but
sellers just kept the difference.
-It sounds like a 7% GST will probably boost inflation, then.
-Uh-huh. When New Zealand put on a 10% GST in 1986, inflation went
from 11% to 18% almost overnight!
- I'm starting to get nervous ....
There's got to be a better way.
-If the GST is stacked against most of us, aren't there ways
to make sure everyone pays their fair share?
-Not to hear Wilson or Mulroney tell it. But there are. We could
make income tax more "progressive" so that people who
make more money pay a higher rate. Or put a tax on wealth. Or close
some corporate tax loopholes.
-Whoa! Let's take these ideas one at a time.
Don't high income earners pay
a higher tax rate than the rest of us?
-Not as high as they used to. In the early 1970's anyone earning
over $400,000 paid a tax rate of 57.6% on each additional dollar
they made. Until 1988 we still had ten different tax brackets.
-Is that when Wilson decided to "simplify" the system?
-That was his excuse. He made just three federal brackets with a
top rate of only 29%. That's not much above the middle rate of 26%.
-It's almost like a "flat tax" where everyone pays
the same rate no matter how much they make.
-Right. All that talk about "simplifying" the system was
just a smokescreen. There's nothing complicated about having ten
different cate-gories. People just look at the tables when they
do their taxes anyway.
-Would a more progressive income tax fix the system?
-It'd be a good start, but it wouldn't cover all the ways the rich
avoid taxes. We could also tax what they own - stocks and bonds,
real estate, and other investments. Most European countries have
a wealth tax.
-How does that work?
-It's simple. Every year in countries like West Germany, Norway,
and Denmark people add up everything they own. They subtract their
debts from that and only pay tax on their net wealth above a certain
amount.
-Who would have to pay it here?
-A 1% to 2% net wealth tax would collect billions every year even
if it only applied to the richest 20% of Canadians. And they can
afford it. They own 69% of the country.
Some companies pay zero income tax.
-What? I thought everyone
paid some taxes.
-Not in the corporate world. In 1987 there were 93,405 corporations
in Canada who paid no income tax at all.
-How many?
-93,405. Together they made $27 billion in tax-free profits.
How do they get away with it?
-There are a lot of deductions that only corporations can get. For
example, companies can deduct the interest they pay on money they
borrow to buy other companies.
- Like when Molson's and Carling O'Keefe merged after free trade
went through?
-Right. Mergers mean corporations get bigger without investing in
new production. In fact, mergers usually cost jobs. About 1,400
people were laid off by the Molson's-Carling deal.
-You mean my taxes are helping pay for all those mergers?
-And all those job losses. And there are other loopholes.
- Like what?
-Well, real estate developers use "depreciation allowances"
to avoid a pile of taxes.
-What's a depreciation allowance?
-It's a tax break that lets companies deduct the cost of buying
new machinery or buildings.
-So developers get tax breaks for building skyscrapers that
go up in value?
-Right. It's crazy! Prime real estate is worth more every year.
Yet they can deduct the cost of buildings as though they "wore
out."
-No wonder some people make a mint in real estate!
-Some companies use depreciation allowances to put off paying taxes
for years. These "deferred" taxes should be collected
later. But if the company buys new equipment it gets new tax deductions
every year.
-How long can they put off paying?
-An executive from Consolidated Bathurst once told a reporter: "If
you ask me when we expect to pay these [deferred taxes], I'll tell
you 'never'."
-But these deferred taxes can't be that big.
-Wanna bet? According to Statistics Canada, deferred taxes totalled
$33.9 billion in 1986.
-Why don't we just collect these back taxes?
-We'd have to change the rules over a few years to give companies
time to adjust. But in the meantime, if companies had to pay interest
on their deferred taxes, we could collect a lot more revenue.
The rich do okay, don't they?
-I haven't even mentioned the "business entertainment deduction."
Did you know companies could write off 80% of the cost of fancy
lunches and golf club memberships as part of the cost of "doing
business?"
-What!?! What does that cost us?
-It's hard to say. Revenue Canada doesn't keep score. But some tax
experts figure we could collect an extra billion dollars a year
by dropping this deduction. Australia and Britain already have.
-Revenue Canada doesn't keep score?
-No. It audits less than 2% of corporations each year. It's kind
of stupid, because for every dollar the government spends checking
up on corporations, it collects seventeen in taxes.
- I don't see why there are so many special rules for business
and different ones for the rest of us.
-It doesn't have to be that complicated. In the 1960's, a Royal
Commission suggested that we should tax every source of income the
same. "A buck is a buck is a buck," they said. But powerful
business people got together to make sure the tax system kept working
in their favour.
-Some things never change, eh?
You know that saying, "the rich get
richer..?"
-"And the poor get poorer?"
-Yeah. It sounds like our tax system helps keep it that way
...
-Yup. And with the rest of Michael Wilson's "tax reform,"
the GST makes it even worse.
Most Canadians wouldn't mind paying taxes if the system were fairer.
If corporations and the rich paid their fair share, we wouldn't
need a Goods & Services Tax. There'd also be enough money to
restore some of the Tory spending cuts that really hurt people.
- Like the money they took away from Unemployment Insurance?
-Yes. And daycare. And rail service. And health. And education.
And pensions.
What can one person do?
-Together with a lot of other people, quite a bit. And all sorts
of organizing is already going on.
-Like what?
-Like the Campaign for Fair Taxes. This spring, people protested
all over Canada. On one weekend in April, over 2.2 million people
signed cards opposed to the GST and in favour of fair tax alternatives.
-I heard about that. That's more people than support Mulroney's
Tories! What's next?
-There's stuff planned everywhere: rallies, demonstrations, lobbying,
letter-writing, you name it! When the Senate finishes its public
hearings on the GST, everybody will be talking about tax alternatives.
By then, plans for a major protest sponsored by the Campaign for
Fair Taxes should be in full swing.
-But can we really beat this tax?
-There's only one way to find out. But I figure if people can tear
down the Berlin Wall, they can stop an unfair tax. I'm not giving
up.
- Neither am I. Count me in!
Produced by the Pro-Canada Network, 904-251 Laurier Avenue West,
Ottawa Ontario K1P 5J6
Published in the Connexions Digest #52, August 1990
(CX4003)
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