Monday, August 6, 2018

Abolish the Income Tax

Among nations of hunters, there is hardly any property. People usually have nothing to gain from injuring others, and there is little need for any formal administration of justice. But where property exists, things are otherwise. There are potential gains from theft. The avarice and ambition of the rich, or the desire for ease and enjoyment among the poor, can lead to private property being invaded. ...  It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security.

Adam Smith: The Nature and Causes of the Wealth of Nations

In Canada the rich have done well in recent years. The total wealth of the top 20% of the population exceeds $8 trillion, or more than $1.3 million per person, versus an average net worth of about $7,000 for the remaining 80% the population.

Why then should the 80% pay Federal tax on income in excess of a starvation wages of just over $11 thousand, to provide security for the 20%, with an average of 185 times as much wealth as they themselves possess?

Not only are ordinary working Canadians taxed on ridiculously small amounts of income, but they are subject to multiple other imposts from provincial income and sales taxes, the Federal GST, UI payments, and multiple hidden taxes and duties such as the gas tax, and taxes passed on to them in the price of goods and services that they purchase, including import duties, business licenses many other government imposed charges.

It is time to redress the balance between the rich beneficiaries of police and military protection from both domestic and foreign thieves and predators, and the poor who mostly respect the rights of the wealthy while themselves subsisting on, and possessing, very little. 

To start with, then, let's abolish the income tax, source of half the Federal Government's revenue. True rich people pay most of it, but by deferral of capital gains tax, tax shelters, offshoring of revenue to the Bahamas, Panama, or other tax havens, the rich usually pay rather trivial amounts of income tax relative to their total income.

To compensate for the lost revenue, the first thing the Federal Government can do is cut spending, including spending on programs to help poor people who, having been freed of the income tax, won't now be quite so poor. But assuming that pissing away about half the wealth of the country on mindless bureaucracy and the destruction of national resources such as the Atlantic cod fishery,  and the Pacific Salmon fishery is what governments in Canada are irrevocably committed to doing, then an alternative to the income tax as a source of revenue will be required. 

The best solution would be to jack up the GST from the current 5% to around 20%, which is less by a substantial margin than the sales tax, or VAT, levied in countries such as Sweden, Denmark, Hungary and Croatia where the rate is 25% or more.

True, the GST is a burden on poor people. But it can be refunded in full to the 80% based on their tax returns. The GST would then serve as a consumption tax on rich people. The rich would be able to avoid the GST by spending less, but in so doing they would contribute to the development of the economy by investing their saved income in productive ways that will, in general, be beneficial to all. 

In addition, if a shortfall of revenue remains, the gap should be filled by a yearly capital tax of one  percent on all  wealth in excess of, say, $10 million. Such a tax, which would affect only the O.01%, would bring in not much less than $80 billion, which would be more than enough to cover any gap that might otherwise exist in the Federal Budget. 

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