Subject: The NDP Plan: Taxes

From: [email-masked] (MARY OLIN)
Date: 12 Mar 1993 20:03 PST

A TAX SYSTEM THAT CREATES JOBS AND SUPPORTS PUBLIC INVESTMENT

     For the past decade, federal tax policies have been guided by the
"trickle-down" theory of economics.  The capital gains exemption, the
GST, lower tax rates on the rich, and cuts in corporate taxes are all
guided by the belief that if the rich and the big corporations get
breaks, they'll create jobs for the rest of us. 
     Obviously, this policy has failed. 
     The average Canadian family is now paying $3,600 more in tax than
they were eight years ago in real dollars, but is receiving fewer
services and benefits than before.  The standard of living of many
Canadian families has dropped since 1980, mainly because of higher
taxes.  Meanwhile the wealthy have gained new tax breaks with no
demonstrable benefit to the economy. 
     The Goods and Services Tax is an unfair tax burden which has hurt
working Canadians and businesses.  It has also contributed to an
unprecedented drop in retail sales and killed thousands of jobs.  It
helped push us into this long recession and is holding back the
recovery. 
     Canadians deserve a fair tax system which will: Raise revenue for
necessary government investments and services without overtaxing
Canadians; Help establish a fairer distribution of income and wealth;
Provide proper incentives to stimulate the economy. 
     Unlike the Conservatives and the Liberals, we don't think that the
last two objectives are incompatible.  A fairer tax system will improve
our economic growth. 
     Our plan will build a fairer tax system through the following
measures:

-->We will scrap the GST
     The GST is a regressive and economically harmful tax.  New
Democrats are commmitted to eliminating it.  Here is how we will do it. 
     In the first year we will eliminate the GST on a basket of products
targeted to produce new jobs quickly.  These products will include new
homes, books, children's clothing, and furniture.  This measure will
reduce federal receipts from the GST by over $2 billion over a full
year. 
     This measure alone will generate 40,000 new jobs by lowering prices
and putting more spending money in the hands of Canadians.  New home
construction will get an important added boost. 
     In the second year, we will reduce the GST rate to 5 percent, which
will put another $4 billion in the hands of Canadian consumers.  In the
third year, we will reduce the rate to 4 percent.  In the fourth year we
will reduce the rate to 3 percent.  And in the fifth year, we will
eliminate the tax altogether. 
     Eliminating the GST will help create some 200,000 new jobs, and
will give the average family a tax break of almost $2,000.  Business
will be relieved of millions of hours of unpaid administrative work for
the government by being liberated from the GST. 
     When the GST was introduced, the prices of fuel, tobacco, and
alcohol were unchanged on average because excise taxes were adjusted. 
As the GST is eliminated, we will increase excise taxes on these
products so that their prices to the consumer remain the same. 

-->We will introduce progressive tax reform and reallocate government
   spending to replace the GST and help pay for our new programs. 
     We will do this by:
     Eliminating inequitable and wasteful tax breaks.  The cost of
wasteful and inequitable tax breaks has spiralled under the
Conservatives.  The present tax system allows businesses to deduct the
cost of meals, entertainment, and even escort services.  These
deductions alone cost the federal government $1 billion a year in lost
revenue.  We will eliminate these deductions. 
     Over half the $1 billion in revenue lost each year through the
$100,000 capital gains exemption goes to the one percent of Canadians
with incomes over $100,000 a year.  We will retain this deduction for
primary residences, small business and farmers, but otherwise eliminate
it. 
     The tax system also allows only 75 percent of capital gains to be
included in taxable income.  This is supposed to compensate for the
effects of inflation, but instead it distorts investment by encouraging
short-term speculative investments and unfairly penalizing longer-term
investments.  We will eliminate this reduced rate and instead allow
investors a deduction to compensate for the effects of inflation. 
     Tax laws still allow corporations to deduct the cost of borrowing
money to finance mergers and acquisitiions.  Tax-payers are therefore
subsidizing the export of jobs and investment, often finanaced from our
own savings through Canadian chartered banks.  That doesn't make sense. 
We will restrict this deduction and eliminate it as it applies to
foreign investments by Canadian firms. 

     A minimum corporate tax.  Over 90,000 companies with profits of
over $27 billion avoid paying taxes each year.  Two thirds of these
profits are legitimately untaxed because of prior-year losses, the
non-taxation of intercorporate dividends, and due to taxation of
dividends at the sibsidiary level.  That leaves about $9 billion in
corporate profits that avoid tax because of tax preferences.  A
corporate minimum tax at 14 percent--half the statutory rate--would
raise about $1 billion each year. 
     Under our plan, we will publish a detailed proposal regarding this
tax in the first year and implement it in the second year of the next
Parliament.  Full potential revenue will therefore not be realized until
the third year. 

     More progressive income taxes.  The wealthiest taxpayers in our
country are not paying their fair share.  We will bring in two more
income tax brackets to make sure they do. 
     Currently there are three tax brackets.  Canadians pay 17 percent
on net personal taxable earnings up to $29,590.  They pay 26 percent on
additional net personal taxable earnings between $29,590 and $59,180
(double the lower bracket).  And they pay 29 percent on additional net
personal taxable earnings in excess of $59,180. 
     Under our plan, extending the same formula to upper incomes, we
will add a 35 percent tax bracket to net personal taxable earnings in
excess of $88,770 ($29,590 more than the previous bracket), and a 40
percent tax bracket to net personal taxable earnings in excess of
$118,360 ($29,590 more than the previous bracket). 
     This new 35 percent tax bracket will affect taxpayers earning
average gross annual incomes of approximately $100,000.  The new 40
percent tax bracket will affect taxpayers earning average gross incomes
of approximately $135,000. 
     The Conservatives' income surtax reduction from 5 percent to 3
percent disproportionately benefited high income taxpayers.  We will
reverse this measure. 

     A wealth tax.  Canada is one of the few countries in the world
without some form of wealth tax: among OECD countries, only Canada and
Australia don't have some form of wealth tax.  For the first time in
many decades, the disparity in wealth between the richest and poorest
Canadians has increased during the 1980s, after many years of increasing
equity.  A wealth tax is an important part of a tax system based on
ability to pay. 
     An annual wealth tax would affect the top 10 percent of Canada's
income earners.  With exemptions for owner-occupied homes, farms and
small businesses a wealth tax will raise some $1.5 billion. 

     Taxing private trusts.  New tax legislation now before the House of
Commons would give the wealthy owners of private family trusts another
tax break worth hundreds of millions each year.  We will eliminate this
loophole and then integrate the taxation of private trusts with an
annual net wealth tax. 

     Our plan also includes reallocating funds from lower priority
programs to higher priority ones, including:
     Reallocating to general revenues 3 percent of the current military
budget in real terms each year.  This meets the United Nations guideline
for reducing spending on defence, and reflects the fact that our future
security is much more closely tied to the strength of our economy than
to the size of our military. 
     Reducing the military budget will cause some dislocation and job
loss in the Department of National Defence and in defence industries. 
Defence spending is the government's least efficient instrument to
promote employment and regional development.  Conversion makes better
economic sense.  The same dollars reinvested in communities affected by
defence cuts through the National Investment Fund, the National
Infrastructure Program, the National Child Care Programand the other
measures outlined in our plan, will better develop regional economies,
and more than replace employment lost to defence cuts. 
     Reallocating to general revenues the funds now dispensed under the
Defence Industries Productivity Program.  This $200 million annual
expense no longer meets our needs. 
     Eliminating the GST tax credit when we have finished scrapping the
tax.  The federal government disburses some $2 billion a year through
this tax credit, which will not be required when we have completed the
elimination of the GST.