Yet another word on entitlements….

In my last blog post on entitlements, I had highlighted that there is no way that government can legislate its citizens to accept personal responsibility.  With the enrichment of entitlements, it also creates dependency as people (especially those who are unable to earn much above minimum wage) cannot afford to go off entitlements.

However, I’m reminded of a subject that was very near and dear to me when I was on Town Council, that being taxation, and government feeling entitled to these tax revenues.  While on Council, I only voted for one of the four budgets presented, as it was the only zero increase budget, coincidentally presented in an election year.

My contention was if we needed to raise taxes to support the services taxpayers wanted, then it was necessary to do so.  However, my suggestion was that we first exhaust every option we had as Council to save costs elsewhere.  I had even identified areas where I felt the community could save substantial funds, including putting caps on travel budgets for Mayor and Council, and making substantial changes to our money pit of a community hall.  I was unable to get support for either of these initiatives.

What I felt most frustrating about this were comments like, “Well, services cost more every year, so people need to get used to tax increases every year”, or “If people can afford to build big houses in the nice part of town, then they can pay more taxes”.  Even within the microcosm of a small community’s municipal government, we clearly saw two things.

  1. A belief that the municipal government was entitled to whatever revenues they needed for their spending
  2. A disrespect for the people who worked hard to better themselves and their families, as they now had an “obligation” to pick up more of the municipal bill as they had done well

With our current federal government I believe we are seeing the macrocosm of this.  We have a federal government that does not appear to have much restraint on spending, and we have also seen some horrible acts of entitlement out of the Liberals.  However, before I get into discussion of this, I’d like to share my feelings on taxation.

When government spends tax money, they are spending people’s lives.

As human beings, the only thing we have a finite amount of on this planet is time.  If we all lived forever, we could retire whenever we had earned enough money, be it after 50 years, or 200.  We would have all the time available for us to pursue whatever passions we wished in life.  We could read all books we wanted to, travel to every part of the world we wished, spend as much time with our family as we like.

Unfortunately, life is not this way.  We have only a finite time on this planet, and must use our time as productively as possible.  We go to work daily to keep a roof over our heads, feed our families, and to save for our futures.  We exchange the most priceless commodity we own, time, for money.

And no one, no government, no organization should ever feel entitled to this.  And no one, no government, and no organization should ever spend these funds without understanding that they are spending the lives of their taxpayers.

So how much tax are we REALLY paying?

So this being said, let’s look at how much government feels entitled to take for every one of us on a regular basis.  And since I’m in Manitoba, I’ll use here as an example.  Please also understand I am going to have use generalities – every individual will have a different tax situation and the purpose of this discussion is to illustrate just how much we are taxed.

For this illustration, I am going to use the example of a single person earning $100,000 per year.

So let’s start with the money companies earn, as corporate taxation is an integral part of the economy.  The general combined tax rate on small business is 25%.

Salary to be Paid: $100,000
Pretax Income needed at 25%
corporate tax rate to pay this salary: $133,333
Plus: Employer CPP $2,544
Plus: Employer EI $1,337
Total Pretax income employer must have to pay $100,000 Salary $137,214
Effective Tax Rate: 27.1%

 

So before a single dollar even hits the palm of the employee’s hand, the government has already scraped off 27.1% of the economic output of the company paying the employee.  One could argue the CPP and EI are not taxes; I argue differently.  These return zero value back to the employer, and would be considered taxes if these social entitlements were included in the general tax rate, and not as separate programs.

Please also note for simplicity’s sake, I have also not included other taxes the company pays, like payroll tax, PST, duties, and property tax, plus hidden taxes on items such as fuel.

So now our individual received his $100,000 – how much is taxed off this to determine our after-tax income?

Pretax individual income: $100,000
Combined Provinical and Federal Taxes -$29,500
After Tax Income $70,500
Less: Employee EI -$955
True Post Tax Income $69,545
Effective Tax Rate: 30.5%

 

So after receiving his funds from his employer, these funds are reduced by an additional 30.5%.  However, the tax express doesn’t stop here.

Let’s assume the taxpayer saves 10% of their post-tax income annually (7% of gross, which is above the current national average savings rate).  How is the remaining 90% of their post-tax income spent?

Disposable annual income: $62,590
GST on 50% of amount -$3,130
PST on 50% of amount -$5,007
Property taxes, via rent or direct payment -$3,000
Hidden taxes on fuel* -$480
Hidden taxes on alcohol** -$200
Final Post Tax disposable income: $50,774
Add Back Savings: $6,954
Final Post Tax Income: $57,728
*Assumptions: Individual drives 20,000 km/year, at 10L/100km, or uses 2,000
litres/year.  $0.24/L excise tax between fed/prov governments
** Assumption, person spends $500/year on alcohol (one 6-pack or bottle of
wine per week), tax is 40% of sales price

The above makes the assumptions that only 50% of the individual’s income is spent on taxable items.  The only main items people will purchase tax free are food, and shelter.  Fuel will have GST and PST.  Meals out, services, and items (and even home insurance) will all have GST, and often PST.

So what is the net result?

Starting corporate income: $137,214
Final After-tax income to the individual: $57,728
Total taxes: $79,486
As a percentage of the original funds earned: 57.9%

So in short, of every dollar earned by a corporate entity in Manitoba, 58% of this ends up in the government’s pocket, and 42% ends up in the employee’s pocket.  And of every dollar the employee earns, at least 42% of it ends up in the government’s pocket.

Certainly there are tax breaks for families, but they also have substantial expenses that go along with having children.

So back to entitlement, and where YOUR money goes:

As Canadians, I think we all believe in the common good.  We understand a need for health care, roads, and schools.  However, when we move away from these core values is where the discussion becomes more interesting.  Let’s look at some ways in which the Liberals have spent our tax dollars since being elected.

  • $200,000 in moving expenses for two Trudeau advisors to move from Toronto to Ottawa
  • $122,000 in meals for the oversized Canadian delegation at the climate summit in Paris
  • $6,600 for a private photographer to follow around a cabinet minister at the summit
  • $1,000,000 total bill for Canadian delegation to the summit
  • $8,000 in limo rides and private lounge fees for the Health Minister in Ottawa
  • $5,000 on 56 coat hooks in a federal building
  • $416,000 to renovate a 2-year old office building
  • $835,000 to renovate Minister Amarjeet Sohi’s office
  • $1.1M to build a new office for Minister Patty Hajdu. When her deputy minister was questioned about the expense, she responded: “The minister has a right to have a nice office close to her dept.” (bold italics mine)
  • $4.3 billion (yes, Billion with a B) spend outside Canada for everything from humanitarian aid to climate change
  • A 20% increase in public spending
  • A 3% reduction to Health Transfers to the Provinces
  • The only operating deficit recorded outside of the crash year 2009, and the bleak years of 1976-1986 (curious who the PM was for many of these years)

In fact, economists at TD Bank are forecasting that projected Liberal spending over the next five years could add $150 billion (yes, Billion with a “B”) to the Canadian debt.  Even if this debt is serviced at a bargain 3%, this adds $450 million (yes million) in just debt servicing charges – an additional $450,000,000 annually that is not available to Canadians for funding of essential programs and services.

If interest rates spike, this level of debt could bankrupt our country.

The best comparison I can think of is that the government can no longer afford its lifestyle, so it has ordered an additional credit card.   Then the only solution becomes raising taxes, or reducing its spending.  It’s shown a willingness to do the former, and an inability to do the latter.

Unfortunately, much of this spending also seems designed to improve the public perception of Justin Trudeau as a great humanitarian, though all of us are footing the bill for it.

In an excellent piece on the Huffington Post, Keith Beardsley highlighted how this funding could have been used within Canada to deal with our own humanitarian issues.  Heck, how many of our own First Nations do not have adequate housing or clean water?   Unfortunately, this does not get worldwide headlines, nor give our photogenic Prime Minister the photo-ops that seem to fuel this government.

So next time you go to the polls ask yourself:

  • Which party takes a responsible approach to spending?
  • Which party wants to focus on public image versus true spending impact?
  • Which party has demonstrated a respect for taxpaying companies and individuals in Canada, and which have not?

One just has to look at what has happened in Manitoba to see the long term effects of financial mismanagement.  We’ll just say the NDP also felt entitled to spend taxpayer’s money how it wished, including on long term leases, union contracts with no layoff clauses, and unwise hydro projects. Manitoba is a Province that has an incredibly huge hole to dig itself out of, and should serve as a cautionary tale for the federal Liberals.

To conclude, the question I have when I look at all of the above is “Why are people not angry about this?”  We would not tolerate this sort of taxation/spendthrift behaviour in a spouse, or family member, or employee; why do we tolerate this in our government?  That is a subject for another day.  Let’s just hope (including for the sake of future generations) public pressure and media coverage will have some effect on the entitled spending our current government has.

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