kingston & the islands' NDP Blog

Saturday, January 14, 2006

Tax cuts for the wealthy, promises Harper

The Conservatives released their platform yesterday, and at $75B it's the most expensive platform put out by any party but the Greens. And what's that money going to be spent on? An amazing $45B is going to tax cuts over the next five years. And who will benefit from this tax relief? Well, here's one of Harper's proposed tax cuts:
  • "Eliminate the capital gains tax for individuals on the sale of assets when the proceeds are reinvested within six months."
The Conservatives are spinning this as a way to provide tax relief for people selling their family businesses. But the capital gains tax also applies to, and is much more commonly used for, stock market profits. Under Harper's plan, investors who have the funds and know-how to put their savings in the stock market wouldn't have to pay taxes on the profits from the stock market until they took the money out. It would be like giving stock investors access to an unlimited-size RRSP where their money could accumulate interest-free, that they could cash in any time without penalty. Not only that, but capital gains are taxed at a lower rate than other income. So when investors did cash in their retirement portfolios, they'd pay less tax than folks with a traditional RRSP. Who would benefit from this tax cut? It's a no-brainer. Upper-income Canadians are disproportionately likely to invest in the stock market and to see substantial capital gains. That's who'd get what amounts to an unlimited, cash-out-any-time RRSP. If you'd rather see your money go to health care or child care than to preferential retirement programs for the investor class -- don't vote Conservative. Update (Jan. 15) -- An anonymous commenter pointed out that the analogy to RRSPs isn't perfect. Specifically, you make RRSP contributions with pre-tax dollars, but any stock market investments you make outside your RRSP are made with post-tax dollars. This proposed tax cut is still a great deal for investors, though. Even though your initial "contributions" to your stock-market nest egg aren't tax-deductible, the majority of the money in a typical mature retirement portfolio has come from compounding gains over the years. That's what makes this proposed capital gains cut let stocks act like an RRSP -- just as the money in your RRSP can compound interest without a tax bite being taken out of the interest every year, your investments in the stock market could, with this tax cut, grow without your paying taxes on the growth every time you reinvest it.

12 Comments:

Anonymous Anonymous said...

"It would be like giving stock investors access to an unlimited-size RRSP where their money could accumulate interest-free, that they could cash in any time without penalty."

There are two inaccuracies there:
1) Interest and dividend income generated by a non-registered asset would still be taxable, unlike interest and dividend income generated within a RRSP.
2) Like a registered asset, arm's length dispositions of a non-registered asset would not trigger a taxable event so long as the proceeds remain within the portfolio. Also similar is the fact that taxes only arise when proceeds are taken out of the portfolio for consumption purposes. So it is not true that one can "cash in at any time without penalty". Exchanging one investment for another does not constitute "cashing in". Cash is not an investment (not a smart one, at any rate).

2:08 AM

 
Anonymous Anonymous said...

Actually, I neglected to mention a third, very significant inaccuracy: RRSP contributions are tax deductible. The investments that could be rolled-over under the Tory proposal would be investments made with after-tax dollars. It is misleading to call attention to the lower tax rate on capital gains relative to RRSP withdrawals without acknowledging that the RRSP investor got a tax break at the time of initial investment that the other person did not.

2:18 AM

 
Blogger Natalka said...

Hi, Anonymous,

Thanks for taking the time to comment, and for considering my post so thoroughly.

1) You're right that dividend income from stocks would still be taxable. However, very few stocks pay meaningful dividends these days, and the vast majority of investments in the stock market are made in the hope that the investor's stocks will appreciate. Increase in stock price is the source of most of the money made on the stock market, and it's exactly this money that won't be taxable.

2) When I say you could "cash in at any time without penalty," I don't mean that you wouldn't have to pay taxes when you finally sold a part of your stock portfolio for good. I mean that you could choose to do this at any time, for any reason, without incurring withholding tax on the withdrawal. I'm not an accountant, but my understanding is that if you cash in an RRSP without good reason (eg. HBP, LLP), you pay withholding tax of up to 35%. You won't have to pay withholding tax if you choose to liquidate a stock market investment; as you point out, though, you will have to pay capital gains tax on the stock's appreciation, but this is at a lower rate.

3) That's a good point, and I will modify the post to mention that. This proposed tax cut is still a great deal for investors, though. Even though your initial "contributions" to your stock-market nest egg aren't tax-deductible, the majority of the money in a typical mature retirement portfolio has come from compounding gains over the years. That's what makes this proposed capital gains cut let stocks act like an RRSP -- just as the money in your RRSP can compound interest without a tax bite being taken out of the interest every year, your investments in the stock market can now grow without your paying taxes on the growth every time you reinvest that growth. It's true that the initial "contribution" is after-tax, and that's an important difference. But the contributions are quite small compared to the final value of a retirement investment.

6:13 PM

 
Blogger max said...

This comment has been removed by a blog administrator.

8:45 PM

 
Blogger max said...

Of course we should not vote. No one who wants change should vote in this election. It is better for everyone to get together and form another political party. One that is really dedicated to changing the system. Just catalogue the complaints of peole and a political platform will follow.

All the parties in this election are misdirecting the Canadian people.


They are all rest are power elites that have allied themselves with corporate power. The government serves the multinational corporations and the multinationals serve themselves.

If there is any doubt about this just check out which political party is now promising to change the sytem. None of them are. In fact they carry on with distracting issues only promising to manipulate the existing system. That is because they all want to take a share for themselves. They don't want to change. The weird and frightening thing is how they carry on as if the Corporate World did not even exist!
Check out even that none of the parties promises to investigate the Liberals corruption. By investigate, I mean a legal seizure of all bank records and individual financial records by the police. This would be done for any common criminals such as drug dealers. If they did that we would recover all the money and many politicanas would be in the slammer. But no party wants to promise this because they are all dirty and they don't want the same standard of honesty applied to themselves. They think of themselves as an untouchable ruling class and they all can hardly wait to get their own turn at the bank.
..
The corporations own the law, and the politicans and the media. Of their ownership I could and probably will cite case after case, most inmpotantly is how the Justices gave the corporations ownership of life itself, how the coporations exploit the third world and how whistleblowers are persecuted and discouraged by the justice system.
But the media is the critical point, they own all the newspapers and TV and Radio. Freedom of speech is rather meaningless when all the reporters work for corporate power. An individual citizen might get a letter to the editor published on page 7 once a year. The last recourse of possible freedom is here on the internet.

Ownership of media means "socialization" which means that people have learned to think against themselves. The solutions to our society's prolems are obvious but everyone has been trained to psychologically defend the very people and processes that repress them.
So this is the social environment of the modern first world. A population under the control of lies, deception, dishonesty, repression, expolitation and manipulation.
The people are given the impression in the media that they have a free and unrepresssed life, but the experience of all individuals in the system is the complete opposite of this.

Everything in the public consciousness is misdirected.

Free yourselves people!!! Tell the established parties that you don't want them! Build a new party free that will make the corporations work for Canadians instead of ruling us!!!

8:50 PM

 
Blogger Natalka said...

Hi Max,

The NDP do promise to change the system. Check out this plank in our platform.

If you want a party that's not allied with corporate power, the NDP is a good choice.

-Natalka

12:06 AM

 
Anonymous Anonymous said...

True, the withholding tax may be considered a penalty, but it should noted that this is largely just an enforcement measure related to concerns about people facing huge bills come tax season were some tax not deducted earlier, not unlike having employers deduct taxes from paycheques instead of having individuals face a huge once-a-year tax bill. If, for example, you had no income in a year but you withdrew $8000 from a RRSP, whatever holding tax applied to the withdrawal would be fully refunded.

"compound interest" is a dubious example because literal compound interest is fully tax exempt within an RRSP but fully taxable as ordinary income outside an RRSP. However, you acknowledge this in part (1) of your response.

Anyway, it may be worth noting here that the general Liberal philosophy is not that different from the Conservative one, in that Canadian GDP growth has been quite strong over the last decade, but personal disposible incomes are close to flat. The primary reason for that is because the growth has gone to the owners of capital instead of the suppliers of labour.

I think the best solution is for more people who just work for a living to buy stocks, bonds, rental properties, etc. This would also reduce union-related strife by aligning the interests of labour and capital.

2:44 AM

 
Blogger max said...

natalka: i read it, same old bS. It is all misdirection ,they have you deluded. Do they promise to SEIZE the bank records of the corrupt bank officials and politicians? NO? Do they propose a series of legislation to control corporate power and make them work for people? No. Do they promise to remove the legal power of corporations and reverse the decisions that have given them power? No. I know chapter and verse what needs to be done.
They are misleading you ,they want their turn at the trough. Do they promise to bring back REAL freedom of speech and remove corporate power from the media.? No. You have all been so misdirected you don't even understand how they are controlling you. What you don't learn, what isn't reported in thenews could fill a library. Your situations are very hopeless.
It's not just the politicians that are dangerous to me, it's all of you that support them. Uou ar ealllike deadly insane zombies stubling around. The question is not where to go to vote, but where to go to hide while all of you destroy civilization.

7:31 AM

 
Blogger Natalka said...

Hi, Anonymous,

Thanks for following up. I agree that it would be great if everyone could afford to invest in stocks, bonds, real estate, etc.

Unfortunately, even though it's easier than ever to do so, there are still a lot of barriers. Most people don't have sufficient savings to be able to absorb the risk inherent in stock and real estate investments. And most working families don't have the time to learn enough about stock investing to be effective, or the capital to hire someone who does.

These are some of the reasons that despite brokerless services like e*trade, the majority of non-RRSP investing in the stock market remains the province of the well-to-do. And thus, the Conservatives' cut on the capital gains tax is basically a huge gift to the well-to-do.

1:53 PM

 
Blogger Natalka said...

Hi Max,

I definitely don't agree that the NDP just wants "their turn at the trough". Think about this for a second. The NDP has never formed a federal government. If you were a politician who was just in it to get power, why would you join the NDP? You wouldn't -- you'd join the Liberals or the Conservatives.

People who vote, volunteer, and stand for election for the NDP are in it because of their principles. We're doing this because we believe it's the best way to build a better Canada.

2:01 PM

 
Blogger max said...

natalka:
yeah yeah flowery words. Where is their promise to SEIZE the bank's records of all those suspected of corruption or introduce legistaltion to do so? Where is their exact propaosal of how stiff the imprisonment will be for any found guilty.
Where is an ANY , EVEN ONE proposal to curb the power of the corporations. I don't mean tax them either, i mean take away their unearned political power such as their copyright of life patents and every other bloody thing. Force them HOW to use their wealth, force them to open their accountingg books and make sure every dollar they take from Canadians remains in CANADA. Legistlate that they cannot spend more money on lawyers than any one in opposition to them...that is fundamental change.
Take every god flipping law and lawbook that their corporate lawyers and bought off judges have written and throw them out!!
same old empty words and no real platform.
why?
becaue they don't really want to change the system.
At the very least force Chrysler to apy the money of judgement suits that have already been awarded to Canadians. Make themm pay one million for every year they don't pay off the claimants who have already been awarded judjements. That is just one examle. Our laws have no teeth. If ther eis no EXACT platform then NDP are just yadda yadda high flowery cowards.

3:46 PM

 
Blogger max said...

Oh crud, i saw NDP on TV last night. They are totally hopeless. They are anit-war against Bush.
Hopping on the hippy anti-war bandwagon.
What stupidity!
We need warrior-types to take on the corporations.
Listen Up People!!!
Dictators are evil.
Bush got rid of a dictator.
Horray! Horray!
Corporations are totalitarian dictatorhsips.
We got to get rid of them with the same spirit.
We need political warriors to change the system. We ned tough guys who want to fight and get rid of dictators at home and abroad. There is no difference.
We don't need marshmellows , afraid to get their hands dirty, leftist, pie in the sky hippies.
No wonder NDP platform has not one realistic pank in their platform to fight corporations. They cannot even recognize the enemies of mankind.

3:59 PM

 

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