I learn from the CBC that the Canadian Mortgage and Housing Corporation has imposed a quota of $350 million per month per individual bank (or other lender) on the amount of mortgage-backed securities it will guarantee. Presumably the CMHC did this because the Federal government wanted to put a cap of $85 billion on the total amount of new mortgage-backed securities the CMHC (and thus, indirectly, the government and the taxpayer) would guarantee in 2013.
This raises two questions:
1. Was the Federal government right to want to impose a total annual cap of $85 billion?
2. Was the CMHC right to impose a monthly quota of $350 million on individual banks as a way of implementing the total cap of $85 billion?
I want to set aside the first question and focus on the second question.
My last post contained a diagram suggesting that no tax is both popular and efficient. On twitter, Matt Cowgill suggested the diagram was wrong. Taxes on resource rents are both popular and efficient. Michael Kushnir suggested carbon taxes as another possibility. If Cowgill and Kushnir are right, then the set of efficient taxes interesects the set of popular taxes:
Matt Krzepkowski and Jack Mintz have recently produced a working paper titled "No More Second-Class Taxpayers: How Income Splitting Can Bring Fairness to Canada's Single-Income Families." The paper argues that higher income single-earner married couples are "disadvantaged by the current system." It proposes to put an end to that by allowing income splitting, so a one earner couple with income of $200,000 a year would pay about the same taxes as a two-earner couple where each person earned $100,000 per year.
The Krzepkowski and Mintz paper is the latest salvo in a long war over the best tax treatment of the family. Alexandre Laurin and Rhys Kesselman produced an analysis of income splitting for the CD Howe Institute in 2011, and back in 2000, Carole Vincent and I wrote a paper on Taxing Canadian Families for IRPP (downloadable here: Vincent_Woolley).
While cleaning out the the bottom drawer of my filing cabinet I came across a number of other, older studies of the taxation of families in Canada. As most are in the public domain, but difficult or impossible to obtain elsewhere, I thought I'd post them here. What is remarkable about them is the degree to which they presage the current policy debates - most of the ideas in the Krzepkowski and Mintz paper were brought forward and discussed in the 1960s and 70s. Understanding why they were rejected then may help clarify the current policy debate.
One reason why people pay their taxes is that they’re afraid of being caught, and fined, if they cheat.
In the simplest possible model of tax evasion, people only comply with the tax code if the benefits of evasion – the savings in taxes paid - are less than the costs – the probability of getting caught times the penalty if caught.
The major problem with this simple model (and more sophisticated variants of it) is that it doesn’t fit the facts. Far fewer people evade taxes than one might expect, given that the probability of audit is fairly low (not that IRS, CRA or any other revenue agency will reveal the actual number), and the penalties for small-scale avoidance are not all that high.
Why doesn’t the simple model work? One hypothesis is that people pay taxes because they believe others are paying taxes: they contribute because it’s fair. Another hypothesis is that people are really lousy at estimating the probability getting audited.
The Mowat Centre has issued a new report on Ontario’s fiscal balance within the Federation called "Filling the Gap: Measuring Ontario's Balance within the Federation." The report finds that: “based on the latest available figures, Ontarians transfer approximately $11B on net to the rest of Canada. This transfer is equivalent to 1.9% of the province’s GDP. This can be referred to as the gap between what Ontarians contribute to the federal government and what is returned to the province in the form of transfers and spending. This gap exists despite the fact that Ontario’s fiscal capacity is below the Canadian average.” This report is the latest installment in an effort by Ontario to redress the fiscal balance. That the size of the fiscal gap is almost identical to the current size of Ontario’s deficit is a convenient juxtaposition.
In my morning newspaper, I came across a hardware store flyer advertising a great new innovation – toilet with pump! Essentially, along with your regular toilet, an additional water storage tank and pump is installed that allows you to store recycled water used from your sink, tub, or shower and then use it when you flush.
Last summer, while walking the streets of Kingston, I encountered a wandering horde of business economists, and joined them for drinks. We got onto behavioural economics and financial decision-making, and one of the business economics folks started talking about the charitable donations deadline.
It would be a good idea, he argued, to move the charitable donations deadline from Dec 31st to the last day of February, to coincide with the RRSP (Registered Retirement Savings Plan) deadline. Many people prepare their income taxes before the RRSP deadline, in order to work out how much to contribute to their RRSP. If, after making RRSP contributions, a person still has a large tax bill, she could then increase her charitable donations, and reduce her taxes owing that way.
Bob Murphy is arguing with Steve Landsburg over whether the debt/GDP ratio should be (slowly, eventually) reduced. So I have to join in. Plus, (with my Carleton colleague Vivek Dehejia) I actually published a paper once on this very topic (unfortunately not available online) (link here thanks to Keshav Srinivasan).
(Just to forestall some comments, this is an argument about paying down the debt over the long run, and not about paying down debt in the middle of a recession).
Given that the Finance Minister is presenting the Federal Fiscal Update today in Fredericton, it is instructive to review some fiscal comparisons right out of the release of the 2012 Federal Fiscal Reference Tables (which in turn used the OECD Economic Outlook May 2012 numbers for the international comparison). Figure 1 plots the ratio of total general government receipts to GDP for the period 1991 to 2011 for the G-7 while Figure 2 plots expenditures as a share of GDP.
Quietly, without (much) fanfare, Stephen Harper's Conservative government has been gradually promoting a new model for income support programs: the Working Income Tax Benefit, or WITB.
On the face of it, WITB looks very similar to the Liberal government's signature program, Canada Child Tax Benefit (CCTB). Both WITB and CCTB provide cash support to low income households (in the case of CCTB, through the National Child Benefit Supplement). Taken together with other federal and provincial programs, they provide a poor working family with thousands of dollars a year in income support.
The newly-elected Parti québécois government wants to (among other things) eliminate the 'health tax' introduced in the 2010 budget and make up the shortfall by introducing two new tax brackets at the top end of the income distribution:
The current top Quebec rate is 24%, and it applies to taxable incomes above $78,000. The top federal rate of 29% kicks in at around $130,000, so the (net of the 16.5% Quebec abatement) federal + provincial top rates will be
If you assume that there are no behavioural responses to the new tax rates - that is, if you perform a static analysis - new revenues work out to around $835m. But if you incorporate the sort of behavioural responses based on available data - 'dynamic scoring' - you find that revenues will more likely to be half that, and probably less.
I'm going to work through the math below the fold.
Well, here are some depressing statistics from Banca D’Italia’s recent release on Italy’s economy.
Unfortunately, taxes have a negative image. For example, in the US, almost every Republican member of Congress has signed a pledge that they will never vote for a policy that increases tax rates.
In Canada, property taxes are typically based on "market value assessment". The assessment is arrived at by
Charles Sonnibank, D.D. by deed dated October 1635, bequeathed a reserve rent, out of land at Broome in the Parish of Hopesay, of 13 pounds, 6 shillings, 8 pence to be paid quarterly at the Rectory to Ten Poor Widows of Ludlow, the Rector to retain 6 shillings 8 pence for his care in receiving it.
Education for the poor, and support for the elderly, have been publicly provided for centuries. Historically churches raised much of the funding for these activities; today governments do.