I like Tim Hudak. He's young, direct, and like Hillier, he doesn't apologize for being a conservative.
But not all his policy positions sit 'right' with me. Hudak is a retail politics guy, and it troubles me.
If you've read my prior blog posts, you'll know my goal is to get behind the spin so voters look at the candidates from a fresh angle outside the narrow view of campaign spin doctors.
Here are my thoughts on a couple of Hudak's policies:
1 Year Payroll Tax Holiday on New Hires
As a business owner, I took advantage of the federal liberal program for new hires back in the 90s. Simply put, you didn't have to pay the employer portion of EI taxes on new hires for the first year. It wasn't a huge savings (Between $1000-$2000 per employee depending on the salary level) but it helped reduce the tax burden. But the program failed in that it didn't directly result in increased employment.
Think about it, why would someone hire a person at $35,000 per year, just to save $1,500? If you need a new employee, you need a new employee and no program from the government is going to change that.
By the time you took corporate taxes into account, the amount you actually saved was only about $1000. Hardly enough to cause increased employment.
Unscrupulous employers would simply lay off employees in October so they could take advantage of the program in the new year.
The New Hires policy may be appealing in a sound-bite, but look behind the headline and a truth emerges: most small business in Ontario won't benefit at all.
Here's why. Hudak can only reduce the provincial portion of taxes. He can't change EI Premiums and he can't change CPP Premiums (which are the biggest burdens) because they are under Federal jurisdiction. The only thing he can change is the Employer Health Tax and the Provincial Tax on Net Income. Any small business with less than $400,000 in gross payroll expenses are exampt from the EHT to begin with, so that rules out about 40% of all small business in Ontario. The Provincial Tax on Net Income is the only place where he could make a change but the amount of Ontario tax is actually income tax withdrawn from the employee, not the employer, so I'm not exactly sure how his program will work, unless the savings comes when companies file their tax returns.
Regardless of how the program works and to what extent, whatever savings a corporation makes as a result of this tax break will undoubtedly be taxed by both federal and provincial jurisdictions. So, what one hand giveth, the other taketh away.
The Unavoidable Truth about Job Creation: The only job a government can directly create is a government job. Private sector job creation often occurs in spite of government policy, not because of it (unless you are Bombardier).
Income Splitting for Families with Young Children
Why should families with young children get to split their income while everyone else doesn't? It's time we were all treated equally and without prejudice. That's what democracy is all about. I want a candidate who believes in equality and fairness.
Newborn Savings Account: $1,000 for each child
I don't typically buy into policy that attempts to bribe us with our own money. This kind of policy is more at home in the Liberal or NDP platforms. If it becomes a reality, let's hope he won't tax it like our federal government has done with the universal child care benefit. I'd rather just have a tax cut instead.
Conclusion:
Despite Hudak's assertion during the Markham debate that we cannot move the province forward by picking winners and losers when it comes to economic and taxation policy, that's exactly what these proposals do.
The new hires program is simply corporate welfare with a positive name. I believe it would also be ineffective because the net benefit (after paying corporate taxes on the amount saved) would be too little for any significant impact. Only lower taxes and reduced regulation across the board can stimulate growth because companies would have more money to direct in the way they see fit instead of having to keep up with higher taxes just to give it to other businesses who are receiving breaks on new hires.
Income Splitting for Families with Young Children is an unfair policy that penalizes everyone else. Everyone in this province should benefit from income splitting.
The Newborn Savings Account seems out of place in the Hudak campaign and is indicative of the kind of policy that increases government intrusion into our lives. Give us all a tax break instead, and let parents decide what's best to do with the savings.
The more I look at this campaign, the more I question just what kind of conservatism Tim Hudak believes in.
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14 comments:
Maybe too Progressive. Every tax incentive and tax credit expands the complexity of the tax system which increases the employment in the "tax collection industry". Let's get back to a one page form and a simple flat tax. Cut out all the special inerests.
I agree. A true fiscal conservative (and there's not many left around this country) would give people and business the freedom to operate with little intervention and hinderance. Hudak has so many 'temporary' policy proposals to 'manage' the economy, he comes across as someone who will not be able to keep his hands off the nanny-state levers of economic intervention. He might want to consider that the best tool to 'manage' the economy, might in fact be no tool at all.
I agree that income splitting is a good idea as an option for everyone. There is an overriding goal of tax policy, to tax people based on their ability to pay. Having children reduces your ability to pay tax so it is fair there are tax breaks for having children, but these should be related to the raising of the child, such as birth bonus, maternity benefits, universal child tax credit to age 18. The income splitting option recognizes another tax principle which is horizontal equity. If 3 households each earn $60,000 total, they should pay equal tax and with income splitting they would. However right now the household earning $30,000 and $30,000 pays least, the one earning $40,000 and $20,000 pays more and the one earning $60,000 and zero pays most - the last paying 45% more than the first. Now that's just not fair. Many households think of each adult as equal partners and to look at one as lesser for earning less is not fair. If the income is shared and has to spread over several people, if they in effect share the same lifestyle and make do with the same overall income, then tax them realistically for what they are doing. They share income.
We had a national conference on this issue raising some of the other merits of the plan.
http://sharingincome.tripod.com
Beverley Smith, Calgary
Good analysis Kirk, as always.
I agree with each of your points except the income splitting issue, and Bev had a better comment than I could have provided.
Your comment "It's time we were all treated equally and without prejudice" makes it sound like this has already been happening and should be stopped, rather than an idea that has not yet been adopted.
In fact, your stance is an effective disincentive to forming households or families at all. It's like you're saying, "If you're foolish enough to take on dependents, then it's you're loss".
The reality is that families are the most efficient way of producing and raising more taxpaying, productive citizens, so it is in a nation's best interest to encourage them.
And no, this is not subsidizing. Reducing the amount that government confiscates, is not subsidy.
Bev,
Indeed you get to the heart of the issue: "There is an overriding goal of tax policy, to tax people based on their ability to pay."
I think that's where the unfairness arises. In my opinion, your ability to pay should have no bearing on your tax rate. Everyone should pay the same rate(%) of tax. It is the most equitable method.
A flat tax (such as one being proposed by Christine Elliott) eliminates the need to income split. The point of income splitting is to lower the percentage of tax that you pay. If everybody pays the same rate of tax regardless of income there is no need to split.
A flat tax is better for all families.
Scott,
You're interpretation is correct. My point is exactly that: "this has already been happening and should be stopped"
Currently, married couples with single income suffer from what's called 'the marriage penalty'.
Bev explains it correctly. 3 different households earning $60K could conceivably all have different tax liabilities. The third example she cites being the most greivous.
It is this penalty that makes it more difficult for single income families to remain single income families. Our high taxes and high cost of living almost demand both parents work for a living in order to afford a family.
However, I was trying to highlight that Hudak is not addressing the marriage penalty, but rather targeting tax cuts to his select group of voters (hence the retail politics) and that these voters would be receiving special tax benefits that should be spread to all citizens.
So I ask the question again, why should families with young children be entitled to different treatment under tax law than say, a family with slightly older children, or an elderly couple living on pension income who have raised many children already?
Anon,
your statement that Chrisine Elliott's flat tax would eliminate the need for income splitting is not correct. If she were proposing a true flat tax, where the tax rate began on the first dollar earned, then you would be correct. However, all of the politicians I've heard recently proposing a flat tax system have essentially been proposing to replace the multiple brackets with a single rate, but a rate that takes effect after a specified fixed amount of tax free income. So, for example, if you set a flat tax rate of 10% on all income above $20K, and no tax on income below $20K, families with one zero-income spouse would still pay more than another family with the same total income but 2 spouses working.
We should not be targetting tax rates to specific groups of people. And maybe this way politicians wouldn't try to bribe specific demographics as much, since doing so with specifically targetted spending programs would be very obvious to the taxpayers/voters.
Sorry Kirk, I still don't get it.
An unfair "marriage penalty" implies that 2 individuals who each make an income and pay tax, would somehow pay more tax if they were married. As far as I can see, there is no such penalty to be stopped.
Hi Scott,
Forgive me if I wasn't clear. The marriage penalty works as follows:
Single Income household. The earner makes $80,000 per year. Pays 35% income tax
Double income household where two earners earn $40,000 each. Total tax rate = 27%
That's the penalty. A single income family pays more in tax than a double income family. In other words, the tax system as it exists works against families that choose to raise children with a stay at home parent.
You were clear, but I don't agree. The artificial construct of the "household income" is a straw man. If I make $80,000, I pay 35% regardless what my wife makes. If she makes $0, then it is just my income that incurs tax. If she makes $40,000, I still pay 35% on my 80k, and she pays 27% on her 40k.
It's not a penalty.
The only way to see this as a penalty is to compare apples and oranges by setting up the non-realistic household model.
Regardless what the 2 incomes are, being permitted to average them via income splitting would offer a potential reduction in net tax.
I understand you don't like that idea because it is preferential to married couples, but you also seem to dislike the "marriage penalty" premise, which seems like the opposite.
You keep moving your frame of reference.
I'd go with scrapping income tax completely!
:D
Scott, the object was not to compare one member making $80K and the other making $40K. The point was that 'households' earning the same income are taxed differently.
The whole thrust of my argument was that there is no justification for allowing income splitting for one group of citizens and not another.
It's like what the federal conservatives did last year. They allowed income splitting for seniors. Why not all of us? Are seniors special?
Again, the whole point of democracy is that 'all persons are equal'.
We keep creating 'groups' by targeting tax incentives at this or that.
It's wrong. And it goes against everything conservatives supposedly stand for.
anon,
please explain to me how a flat tax would still discriminate against a single income family.
The other issue on a flat tax is it does not allow my husband to transfer partial income to me, so as a stay at home mom I still have no economical value in society. I cannot get credit, but a home or even a bank account without income...I am forced to live in the 60's.
A flat tax is better than income splitting. Dave you are incorrect that flat tax does not achieve the same effect. The spousal amount in Elliott's flat tax would also be raised to the same amount as the Basic Personal Amount. A double income home would recieve no tax advantage.
Again - the point of income splitting is to lower the percentage of tax a family would pay by splitting the income between households. With Elliott's spousal amount the same as the basic personal amount the same thing is acheived in a way that is truly fair.
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