Wednesday, September 20, 2017

The Canadian government attacks the values of its own citizens

I wrote this to an Ottawa area MP when I learned of an upcoming "consultation" phone call.

I am writing to you as a financial advisor who lived in Orleans for a number of years when I first built my business and who has many clients living in Orleans to this day.  I urge and implore you to push the government to stop all action towards implementing the published proposed tax increases as they could be the most damaging tax increases in our lifetime so far.

When I learned of the proposed changes, my jaw dropped and I felt very angry too.  As a financial advisor for the last 24 years I have gained a very good knowledge of many parts of the Canadian income tax system, particularly individual income tax, as I am a registered eFiler and prepare about 130 returns per year for my clients. Over the years I have done over 2,000 tax returns. In addition, a crucial part of financial advice is understanding how income tax reduces the value of investments made by clients, thus reducing the wealth of Canada forever, and helping clients understand and plan to keep their tax burden to a legal minimum through proper planning.

I think it is crucial for you to clearly understand what it means when a person earns income. It means he has created something of value that another person is willing to exchange his own values for. Money is simply the medium of exchange – the underlying value represent a piece of each person’s life, their energy, their intellect, their physical effort, their personal property, their values. In a country that truly protects the rights of individuals, productive ability is celebrated, not punished. Individuals with prodigious ability to create value must be free to do so and the value they create should not be attacked by their own government. If a man can build a business and create value of $200,000 more than the cost inputs, then this is only possible because the people he trades with agreed that he had created this value – that is to say they willingly traded their own values in exchange and only because they thought they were better off for having traded.  If a man can produce excess value of $2 million then he has created much more benefit to his fellow members of society than the man who created $200,000 of value. Should the man who creates greater value be punished for it? Should his productive ability be stifled? Should his ability to allocate capital that is used to create even more value be impaired? Is it moral for him to have a greater portion of his production stripped from him by force the harder he works? This is exactly the regressive tax system we have today.

For many years I taught a financial planning seminar series for adults through the Ottawa Catholic School Board and in the class focused on income tax I listed thirteen different examples of situations where the tax system claws back income, over and above the basic income tax, leading to sometimes severe punishment for earning more income. I used an example drawn from my real life experience doing a client tax return, where a single parent earning $30,000 faced a 70% effective tax and clawback rate. This is not the only example, the system is riddled with complicated buttons and levers pulled by a series of governments over time.  I’m sad to say this has only become worse since the last Federal election and the punishment for daring to produce more value for fellow citizens has risen.

Consider the possible things a business can do with its earnings. Remember that dollar are simply place-holders for actual economic values such as tools, equipment, buildings, vehicles, clothing and all the other goods and services produced by people to improve their lives. First, it can hold them in a bank account and in this case the cash then is available for the bank to lend to others who may need capital to pursue their own goals in life. Second, the business may spend it on maintaining operations or invest in growing its productive capacity and in this case it also produces value. It may pay salaries or dividends to owners of the business, enabling them to pursue their personal values and improve their lives. The business may hold retained earnings and invest in other businesses, either small private businesses or larger, more liquid and secure businesses; again in both cases serving to maintain and increase the production of human values. All the actions a business may take with its earnings are positive, unless the business is not run well enough to be competitive and profitable and thus closes.

This is economics 101, but it is not well understood by many people, including Canadian elected officials of the last century. When production is taxed, the whole chain of wealth creation in society is slowed down, retarded, held back. Don’t forget, wealth is simply the values chosen by people, values such as homes, cars, communications, schools, hospitals, scientific discoveries, etc. Forcibly taking greater amounts away from those who are better at producing values - no matter what is done with it, no matter how well intentioned the takers may say they are, no matter their justifications - can only impair human progress. Taking ever-higher percentages from people as their productive abilities increase is an even greater harm to the producers and to society. Below is a table from my class slides, showing that a dollar doubled ten times is worth $1,024 but when taxed at 46% is only worth $75. In one case, society has $1,024 of homes, schools, hospitals, etc. and in the other it has only $75 of these. Which society has the greater health of citizens, greater education, greater communications, safer houses and cars, more ability to care for the small fraction of truly incapable individuals?

Note that when I referred to helping clients pay a minimum of tax, “minimum” does not by any means mean low or nil, as many of my clients pay far more than a fair share of tax already. The fact is that the people who are the most productive already pay taxes at a rate far greater than their fair share. As the table below shows, just 10% of our population pays 41% of taxes, four times their fair share. Even worse, the most productive 1% of our people are already forced to pay, despite spending vast amounts on tax and legal and financial advice, 24 times their per capita share of taxes. Twenty four times! Each of them carries on their backs twenty four fellow citizens, weighing down their ability to produce values, to improve civilization, to advance human knowledge, to improve the lives of those they trade with, to innovate, to hire people to help them in their productive efforts. Just imagine the progress that would be unleashed if the greatest producers among us were truly freed to use all their abilities to their fullest!

Actually, you don’t need to imagine it. Until the recognition of individual rights along with proper governments to protect them in the late 1700’s, the natural state of humanity through all history was poverty. Suddenly, an explosion of knowledge and production raised the quality of human life by more in 200 years than in the thousands of years prior.  Countries that adopted the principles of freedom have uniformly flourished beyond the imagination of 18th century Kings. Canada was one of these.  Even today, wherever and to the degree the right to life, liberty and property are cherished in law and in the culture, progress and flourishing occur. To the degree a country violates these three great rights by the force of central controls, regulations and taxation, human life suffers – witness Venezuela in recent years. 

Alas, Canadians have forgotten the philosophical roots of the enlightenment and are unaware of the causes of the industrial revolution and the great advances they see around them. They are moving away from expanding freedom and towards, and even accelerating towards, collectivism, socialism, statism and fascism, which are all essentially the same. The current proposals to raise taxes on private corporations represent a significant slide towards Venezuela and misery and suffering. Notice how there has been NO discussion of the possibility that some people are being taxed too much and their burden should be lowered to create a more level playing field. The only discussion by the Government is to increase taxes on some people to a level paid by some other people - people the government thinks it can persuade to vote for them to continue punishing high producers. The tall flowers are being cut down again. The logical progression of this is to cut a level lower and lower until all are equal in their suffering and the Marxist ideal is achieved, a la Venezuela, where you cannot find a dog, cat or bird in the city because the people have killed them all for food – even zoo animals.

The consequences of implementing this tax proposal will not be unintended, but fully intended. The government has been told, warned, notified of the pending damage to society. The assumptions behind the proposal are severely flawed in both moral and economic terms, so to seek ideas in a “consultation” on how to minimize unintended consequences is to entirely and deliberately miss the point. The proposal represents a willful and wanton destruction of real, tangible and deeply moral values like homes, food, education and health so cherished by so many Canadians. Instead of attacking our most productive people, isn’t it time Canada started to encourage them to ever greater heights and encouraged all others to emulate their success and help them in building an even wealthier society? Our entrepreneurs, business people and high producers should be our greatest role models, not the object of scorn, derision, insults and attacks via the force of taxation. While there is so, so much more than could be said on this, I will close with a quote from one of the great thinkers in the field of human freedom and progress.

You cannot bring about prosperity by discouraging thrift.  You cannot help the wage earner by pulling down the wage payer.  You cannot help the poor by destroying the rich. - Abraham Lincoln

I look forward to your thoughtful response to my letter.

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