Budget 2018

Income tax policy, rules, problems, strategy and software. Property and consumption taxes too.
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kcowan
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Re: Budget 2018

Post by kcowan »

I think the government should focus on reducing spending rather than increasing taxes in their budget. Yes they should close obvious tax loopholes quickly. But otherwise let them keep their hands out of our pockets.
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Re: Budget 2018

Post by Mordko »

kcowan wrote: 15 Feb 2018 15:46 I think the government should focus on reducing spending rather than increasing taxes in their budget. Yes they should close obvious tax loopholes quickly. But otherwise let them keep their hands out of our pockets.
Amen to that.
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Re: Budget 2018

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kcowan wrote: 15 Feb 2018 15:46 I think the government should focus on reducing spending rather than increasing taxes in their budget. Yes they should close obvious tax loopholes quickly. But otherwise let them keep their hands out of our pockets.
You've got my vote. Well stated.
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Re: Budget 2018

Post by AltaRed »

Peculiar_Investor wrote: 15 Feb 2018 18:28
kcowan wrote: 15 Feb 2018 15:46 I think the government should focus on reducing spending rather than increasing taxes in their budget. Yes they should close obvious tax loopholes quickly. But otherwise let them keep their hands out of our pockets.
You've got my vote. Well stated.
Naturally yes. We all know Ottawa is in free spending mode, running large deficits in a strong economy no less. Millions here, and hundreds of millions there, and a few billion over there for good measure. Drunken sailors that have never known personal responsibility.

But my original point was that certain areas appear to be ripe for plucking and we shouldn't be surprised if, for example, a change in capital gains inclusion rate, suddenly appears. Sometimes it is the quiet one that surprises.
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Re: Budget 2018

Post by brucecohen »

Mordko wrote: 15 Feb 2018 14:47 Don't believe there is a law which would prevent Buffet, Gates and Soros from transferring their estates to the government.
Yes, they could do that. Instead Buffett and Gates are giving their wealth to charity through the internationally respected Bill and Melinda Gates Foundation while Soros is funding a wide array of political and educational organizations. But they're a small number of a small number. The US estate tax hits less than 0.2% of estates yet last year was estimated to bring in $269 billion over 10 years. That's more than enough to fund the U.S. Food and Drug Administration, the Centers for Disease Control and Prevention, and the Environmental Protection Agency combined. Note that Republicans tried to fully repeal the estate tax in their recent legislation, but couldn't cover that much of a revenue loss.
Also, I am yet to see any evidence that governments allocate other peoples' money more efficiently than privately owned businesses allocate their own money.
Who builds and maintains the roads and bridges that private businesses rely on? Who educates their workers? Who provides the demographic, economic and meteorological data on which they base business decisions? Who provides the emergency services that respond when something goes wrong? Who sets standards aimed at reducing the risk that something will go wrong? Who funds the bulk of pure research that, among other things, has led to the internet, GPS, infant formula, bar codes, the microchip, touch screens, wind energy, and several vaccines? Who maintains the system that protects the intellectual property of private business? Who negotiates agreements that enable business in one country to efficiently trade with those in many others? Who develops and administers the laws under which businesses operate and settle disputes?
Finally, there is little chance that billionaires' children will be on the Olympics roaster of tomorrow. Neither Buffet, Gates, Soros, Zuckerberg nor Bezos inherited their money. See the trend?
Exactly. None of them were trust fund babies like, say, Paris Hilton who has done oh so much to benefit the economy. What do you suppose are the odds that the Trump kids or Jared Kushner will benefit the economy as much as those two middle-class kids who attended public universities and, thanks to funding from the National Science Foundation (a govt agency), were able to start an obscure company called Google?
Sure. Also let's consider the proceeds from the sale of their investments. Why should one be taxed and not the other?
Because housing is a necessity and virtually everyone has it while a minority -- actually a pretty small minority -- of households have market investments. A home is the largest asset most elderly people have. Taxing the final sale would leave less money with which to pay for assisted living and thus create pressure for even more govt subsidies. So, either way govt would pay but a tax-free terminal home sale is much easier and ultimately cheaper to administer.
As for relocation - there is no actual requirement to move to and own a home in Toronto.
If your employer tells you to move, you move. Especially if you're in public service. While there is no requirement to own a home, that is the North American norm, especially for those with children.

The reality is that taxing all income and gains would make for a much better system, but it's a non-starter politically.
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Re: Budget 2018

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@Bruce:
Who builds and maintains the roads and bridges that private businesses rely on? Who educates their workers?...
1. Government right now but ought to be done by private business - for the most part.

2. Government already spends about half of our GDP, which is waaay too high, certainly shouldn't go any higher and happens to be the least efficient way of spending.
The US estate tax hits less than 0.2% of estates yet last year was estimated to bring in $269 billion over 10 years.
In Canada for it to bring meaningful amounts of money it would have to be set at a much lower level and capture much larger percentage of estates (including farms, etc...).
The reality is that taxing all income and gains would make for a much better system, but it's a non-starter politically.
So we agree after all. And in the ideal world the extra revenue from capital gains on housing would be used to cut taxes on business so that we can compete with the US. Again, purely hypothetical; not happening.
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Re: Budget 2018

Post by ig17 »

I thought we already have a form of estate tax. It's called "deemed disposition on death". Aside from PR, all property is already taxed. To impose another level of estate tax on top of that would be pure theft.
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Re: Budget 2018

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tdiddy wrote: 14 Feb 2018 14:32 With all the uncertainty regarding NAFTA, US tax changes etc seems like it would be pretty bold/stupid to introduce higher cap gains taxes at this point?
If Maxime Bernier was elected to head the Conservative Party at the federal level, his plan was to abolish Capital Gains tax altogether as it implicitly impairs economic growth. So perhaps lowering Cap Gains on "new assets/property acquired" after a set date is within the realm of possibility. Er, well, maybe not with a Liberal government. :roll:
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Re: Budget 2018

Post by brucecohen »

Mordko wrote: 15 Feb 2018 19:53
Bruce: Who builds and maintains the roads and bridges that private businesses rely on? Who educates their workers?..

1. Government right now but ought to be done by private business - for the most part.
As critics of Trump's new infrastructure plan have pointed out, business will only fund infrastructure than can be monetized. Many private equity and pension funds would be willing to build a toll road in a major city, but none would build or maintain the street in front of your house or the rural road to your cottage.

When I was young large and small companies commonly trained workers and expected to retain them for years. Companies are no longer interested in that.
2. Government already spends about half of our GDP, which is waaay too high
govt spending as % of GDP: 20.4% in 2016.
Bruce: The US estate tax hits less than 0.2% of estates yet last year was estimated to bring in $269 billion over 10 years.

In Canada for it to bring meaningful amounts of money it would have to be set at a much lower level and capture much larger percentage of estates including farms, etc...
Not necessarily. StatCan says the top 20% of households own about half the country's wealth. Oxfam reckoned that the two richest Canadians -- David Thomson and Galen Weston Sr -- own more than the 11 million people who comprise the bottom 30% of the population.

Farms vary widely in size and value across Canada and the industry is consolidating as farmers age. StatCan says the national average is 820 acres at $2,696 each = just over $2.2 million. Together, a farming couple gets a $2 million lifetime capital gains exemption.
So we agree after all. And in the ideal world the extra revenue from capital gains on housing would be used to cut taxes on business so that we can compete with the US.
We don't compete with the US on taxes. The federal-state tax bite in adjacent New England, northern Midwest and Pacific coast is about the same as in Canada. We compete with the red states where taxes are rock bottom and so are public services while wages are low. Would you really want to live in a place like Oklahoma where schools have been cut back to four days a week and state troopers are capped on how far they can drive each day? Canada can compete only on quality and, more recently, a far more accommodating policy than the US on both short-term and permanent immigration. BTW, you can't directly compare corporate tax without adjusting for the cost of employee health insurance. That's relatively low for companies operating in Canada but a fairly big line item in the States. This says that on average health insurance consumes 7.6% of corporate operating budget in the US.
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Re: Budget 2018

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ig17 wrote: 15 Feb 2018 20:11 I thought we already have a form of estate tax. It's called "deemed disposition on death". Aside from PR, all property is already taxed. To impose another level of estate tax on top of that would be pure theft.
Deemed disposition only hits unrealized capital gains.

As I noted above, there was no capital gains tax -- deemed or otherwise -- when Canada had an estate tax and CG tax was introduced at the end of 1971 when the estate tax was repealed. If govt were to reinstate an estate tax -- and I doubt that would happen -- it would likely be integrated with the deemed disposition.

FWIW, according to A Fiscal History of Canada, the highest yield from federal and provincial estate taxes was in 1971, the last year of the estate tax. The haul amounted to $278 million but that was less than 1% of total revenues. The book says the move from estate tax to deemed disposition was popular and tax wonks expressed no regret over the following decade.
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Re: Budget 2018

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Also in 1971 there was a form of income averaging for tax purposes,investment income was taxed as received rather than on an annual accrual basis and I have no doubt there were other parts of the tax code ,now gone,that favored the taxpayer of the time.What is behind the "kick me"mentality that seems to prevail on this forum? We have a medicare system that is falling apart and our infrastructure badly needs up grading .It is NOT because of lack of funding,in too many cases its due to overspending on administration rather than on what is needed and swelling government coffers is not going to fix that since all too often it is government itself that is the source of the problem!
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Re: Budget 2018

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brucecohen wrote: 15 Feb 2018 18:55
Also, I am yet to see any evidence that governments allocate other peoples' money more efficiently than privately owned businesses allocate their own money.
Who builds and maintains the roads and bridges that private businesses rely on? Who educates their workers? Who provides the demographic, economic and meteorological data on which they base business decisions? Who provides the emergency services that respond when something goes wrong?
I think that, here, you may be confusing funding with actually carrying out the work. Granted, in many of these areas, there are externalities and free rider problems. But that just leads to internalizing these externalities via an inclusive funding system, which is generally some form of government. The work itself is usually carried out much more efficiently by the private sector. The main obstacle to this that I can see is the corruption of government officials by private interests and also the irresistible impulse of politicians to pork-barrel, funding projects that will attract crucial votes rather than to increase the common good.

Even on the funding side, however, it is not clear that formal government is always needed. In many semi-rural areas, homeowners get together and jointly fund road maintenance, snow removal, and so on.

As to provision of information, I understand that there are private meteorologists who compete with government meteorologists, and who presumably do a better job, since they are still in business.

The range of services provided by the private sector, when there is a need, can be surprising. For example, Ronald Coase famously documented the provisdion of lighthouses by the private sector in Victorian England.
Who sets standards...
It all depends. Many standards are set by private sector forums, such as the IEEE. It is in the interest of the private sector to establish standards. When the government leaves gaps (governments are notoriously slow at developing standards), the private sector often steps in with interim ones.[/quote]
Who funds the bulk of pure research that, among other things, has led to the internet, GPS, infant formula, bar codes, the microchip, touch screens, wind energy, and several vaccines?
But we have seen the private sector fund AND develop many key inventions in these fields. Just look at what Bell Labs, or Xerox's Menlo Park laboratories, produced.

Going back in time, electrical systems, steam engines, internal combustion engines, airplanes, central heating, the desk-top computer (including Apple) and a host of other inventions were all the product of the private sector.

Bell Labs produced such fundamental discoveries as the existence of dark matter in our universe.

Meanwhile, researchers at privately funded universities have long been the backbone of fundamental research. Some were funded by government, some were not -- they thought it was part of their job.
Who maintains the system that protects the intellectual property of private business?
Some of us believe that the system is badly broken, defining such rights much too broadly, and for durations that are much too long. I would say that this system is a good illustration of my point above that governments get corrupted by special interests, and produce results against the public interest.
Who negotiates agreements that enable business in one country to efficiently trade with those in many others? Who develops and administers the laws under which businesses operate and settle disputes?
There is a robust system of International Commercial Arbitration, which in my understanding has become the principal method of settling such disputes. Enterprises really want to avoid government mechanisms, including the WTO, if at all possible.

I think that, by and large, government is a necessary evil. It has to fund (or tax) when there are significant external effects or a free rider problem. Even then it should strictly limit its role in actually delivering these goods and services, contracting out wherever there is an opportunity.

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Re: Budget 2018

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ig17 wrote: 15 Feb 2018 20:11 I thought we already have a form of estate tax. It's called "deemed disposition on death". Aside from PR, all property is already taxed. To impose another level of estate tax on top of that would be pure theft.
Can you steal from a dead person? I don't think so -- the dead person is in repose, beyond caring. (Likewise, you cannot libel a dead person.)
An estate tax is really a tax on the inheritors, who are receiving an unearned windfall. Upthread, a tax was suggested on lottery winnings, which attracted no complaints and is also an unearned windfall. The US taxes lottery and gambling winnings. What's different about a massive inheritance?
ISTM that estate taxes -- set at a level above seven figures to allow for the transfer of family farms, homes, small businesses and a comforting bequest -- reasonably taxes windfalls that are undeserved but nice to get.
A revenue-neutral inheritance tax should be welcomed -- tax funds raised through it can be used to pay for a cut in income taxes.
(I have intentionally ignored the issue of inequality, the reduction of which is also a worthy goal that benefits the wealthy as well as in the poor, albeit in terms of social stability, not dollars.)
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Re: Budget 2018

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izzy wrote: 15 Feb 2018 23:28 What is behind the "kick me"mentality that seems to prevail on this forum? We have a medicare system that is falling apart and our infrastructure badly needs up grading .It is NOT because of lack of funding,in too many cases its due to overspending on administration rather than on what is needed and swelling government coffers is not going to fix that since all too often it is government itself that is the source of the problem!
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Re: Budget 2018

Post by izzy »

fireseeker wrote: 16 Feb 2018 01:11
ig17 wrote: 15 Feb 2018 20:11 I thought we already have a form of estate tax. It's called "deemed disposition on death". Aside from PR, all property is already taxed. To impose another level of estate tax on top of that would be pure theft.
Can you steal from a dead person? I don't think so -- the dead person is in repose, beyond caring. (Likewise, you cannot libel a dead person.)
An estate tax is really a tax on the inheritors, who are receiving an unearned windfall. Upthread, a tax was suggested on lottery winnings, which attracted no complaints and is also an unearned windfall. The US taxes lottery and gambling winnings. What's different about a massive inheritance?
ISTM that estate taxes -- set at a level above seven figures to allow for the transfer of family farms, homes, small businesses and a comforting bequest -- reasonably taxes windfalls that are undeserved but nice to get.
A revenue-neutral inheritance tax should be welcomed -- tax funds raised through it can be used to pay for a cut in income taxes.
(I have intentionally ignored the issue of inequality, the reduction of which is also a worthy goal that benefits the wealthy as well as in the poor, albeit in terms of social stability, not dollars.)
Why wait for death then?Surely the greatest unfairness is that some of us live longer than others :roll:
We could confiscate (tax away) all retirement savings at an agreed upon age e.g. 75 and adjust this age downward as the needs of the government increase-after all it is entirely possible to end up paying a much lower total tax over your lifetime on the same total earnings due to longevity-the ultimate unfairness! (Re)read "Animal Farm" and "Soylent Green" for further ideas on making everyone equal! :shock:
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Re: Budget 2018

Post by longinvest »

fireseeker wrote: 16 Feb 2018 01:11 Can you steal from a dead person? I don't think so -- the dead person is in repose, beyond caring. (Likewise, you cannot libel a dead person.)
An estate tax is really a tax on the inheritors, who are receiving an unearned windfall.
But, smart people will just give away their wealth a few weeks/months/years before they die. As a consequence, a death tax will be a tax on premature death, penalizing widows and small children, while letting the old and ultra-rich escape the tax.

Eventually, it will become clear that taxing death without taxing gifts doesn't work. So, there will be gift taxes too.

Why not simplify the whole thing and confiscate all wealth today and let the government take care of it all leading to "equality for all"?

Hasn't this been tried, before? USSR maybe? Didn't this result into some people being more equal than others? Do we really want to go there yet again?

My opinion is that the Carter Royal Commission had it right: "A buck is a buck is a buck." As it recommended, the government could fully tax capital gains, but index the Adjusted Cost Basis (ACB) of investments to the CPI. This ACB adjustment could be done on a yearly basis, on one's tax return. Current rules about deemed disposition at death seem fair to me (including transfer to surviving spouse provisions).
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Re: Budget 2018

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longinvest wrote: 16 Feb 2018 09:50 Eventually, it will become clear that taxing death without taxing gifts doesn't work. So, there will be gift taxes too.
I currently live in Ireland. Ireland has both inheritance and gift taxes, collectively called CAT or Capital Acquisition Tax.
After certain caps, if I want to give my child $100, he will get 67c and the Irish government will get 33c.

In the UK there is Inheritance tax only. However, any amounts gifted in the 7 years before death are taxed on a sliding scale, from zero for anything over 7 years up to the full inheritance tax amount for gifts just before death.
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Re: Budget 2018

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I believe in the theory that income should only be taxed once, which means that lottery wins are not taxed because the winning ticket was purchased with AT income, and similarly capital assets were purchased with AT income. Along the same lines, capital appreciation is taxed eventually, either when one sells the asset or when the last-to-die exits the planet. It would be double taxation to tax lottery winnings, monetary/capital gifts, and anything below the ACB of inheritances.

The primary asset we don't yet tax is capital appreciation on a principle residence. I believe a portion of outsized gains should be taxed upon final sale of one's final residence. In the USA, the PR exemption applies as long as one buys their next PR within a certain period of time. After that, taxes are payable. That said, we are likely to never see a tax on PR and for most areas of the country, that works pretty good.
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Re: Budget 2018

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We could argue that the PR exemption unfairly favours the people who can afford houses. While this has always been the case, it has become more acute owing to the escalation in PR costs.

Eventually these voters will become a major voting block.
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Re: Budget 2018

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AltaRed wrote: 16 Feb 2018 12:00 I believe in the theory that income should only be taxed once, which means that lottery wins are not taxed because the winning ticket was purchased with AT income,
I agree. Not only is the ticket purchased with AT income but government run lotteries already take their cut on ticket sales.
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Re: Budget 2018

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kcowan wrote: 16 Feb 2018 12:45 We could argue that the PR exemption unfairly favours the people who can afford houses. While this has always been the case, it has become more acute owing to the escalation in PR costs.

Eventually these voters will become a major voting block.
Gotta do something about those 'pigs at a trough' that live in GTA and GVR and have owned houses through the run up. They don't deserve all that free capital appreciation. :lol: :P
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Re: Budget 2018

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AltaRed wrote: 16 Feb 2018 12:00 I believe in the theory that income should only be taxed once, which means that lottery wins are not taxed because the winning ticket was purchased with AT income, and similarly capital assets were purchased with AT income. Along the same lines, capital appreciation is taxed eventually, either when one sells the asset or when the last-to-die exits the planet.
So wait, if I buy an asset with after tax dollars for x, then sell it to someone for x+1 dollars, which they of course paid for with after tax dollars, then it seems to me that the 1 dollar is taxed twice (capital appreciation for me, income tax for the person who bought from me). Seems like double taxation to me :lol:
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Re: Budget 2018

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Not to you it isn't, nor is it for the buyer of your asset. The fact the government is taxing each of you once is no different than for anything else.
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Re: Budget 2018

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AltaRed wrote: 16 Feb 2018 13:14 Not to you it isn't, nor is it for the buyer of your asset. The fact the government is taxing each of you once is no different than for anything else.
Oh I know you can apply it to anything. Just trying to be funny.
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Re: Budget 2018

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kcowan wrote: 16 Feb 2018 12:45 We could argue that the PR exemption unfairly favours the people who can afford houses. While this has always been the case, it has become more acute owing to the escalation in PR costs.

Eventually these voters will become a major voting block.
Exactly. With more renters in major Canadian cities one of the parties will have to champion this idea at some point. Imho the ingrained obsession with home ownership in Canada is unhealthy for our economy, and PR exemption encourages it.

Lots of good discussion re: inheritance tax. While I won't be donning the tax me more shirt seen above any time soon, I see NDP suggesting two higher income tax brackets, I can see Trudeau outflanking NDP on this regard leading up to election. I would rather see an inheritance tax than a> 100% capital gains tax (bad for capital investment environment) b> ridiculous, noncompetitive personal income tax brackets.

I will likely be hammered by the forthcoming passive investment changes in this budget like a lot of other small business/professionals in Canada. My view is that this goes after the bottom half of '1%ers' but is a negligible affect on ultra rich. I would like to see some concrete changes that actually make ultra rich take as much a hit as I will on passive income changes. I think a cap on PR exemption or extra estate/inheritance tax is the simplest way to do this. And with Trudeau and Morneau's huge fortunes it would be good politics as Steve Bannon told Butts.

I can sympathize with a lot of socialists theories, and certainly have a lot of empathy for the poor in our society. But I do not have a lot of empathy for our middle class. They are drowning themselves in debt for lifestyles/vacations/trucks/homes they cannot afford and none of our politicians wants to call them out on it. A lot of people calling for better social services, Scandinavian level social programs etc yet do not realize that they are paying overall tax rates that are significantly lower than other socialists countries. In Ont the average tax rate on a teacher couple making 80K each is around 25%. Successful hard working people in the ~150-400K/year range are pulling too much weight in our tax system (ie like OAS mentioned above, these individuals likely won't get it, a regressive tax on the rich) and if pushed too hard they will leave, or underachieve.

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