Tuesday, November 15, 2005

Forgive a Political Interlude...

Paul Martin has just put forward a mini-budget, including significant tax cuts primarily for "low and middle-income earners". The main thrust of the legislation a $500 increase in the basic personal amount—the amount of income that all Canadians can earn without paying federal income tax and a reduction of the lowest personal income tax rate to 15 per cent from 16 per cent.

So what is so nefarious about this? It marks the further exploitation of the weakness of our democratic system- namely, that it allows citizens to vote the use of other people's money to their own ends. So, if this passes, there will be still fewer people who actually pay tax in Canada, and hence an even larger constituency whose only monetary interest in politics is to see that they get more government largess.

So how do I reconcile this with my strong belief in progressive taxation? Firstly, the government should convert all tax exemptions into tax credits- so instead of a $8,000 exemption, you'd be looking more at a $1,200 tax credit. This would expose even those who pay no tax to the marginal rate of taxation- since their credit would be clawed back at the basic tax rate. Secondly, the basic exemption/credit ought to be substantially reduced, so that a greater number of Canadians contribute something, even if it is minimal, to the upkeep of government. Such measures would leave in place the higher marginal tax rates for high-income earners.


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