Category Archives: taxes

…on the Entrepreneurial State

With the next Canadian federal election less than a year away – and undesirables like Wayne Gretzky soon to be purged from the voter lists – I’ve been getting a lot more fundraising emails lately. As of mid-December I’d received nineteen in eighteen days. It was like a Christmas advent calendar, but in my email inbox! (Like a beleaguered Silician storekeeper, I paid my “protection money” and now they’re leaving me alone. :) )

Politicians are often derided for their short-term thinking, which is probably a fair criticism. If you ballpark an election cycle at roughly four years, newly-elected officials might take a year to learn the ropes, a couple years trying to be effective, and then a year trying to get re-elected. Judging by how successful those old Soviet and Chinese Five-Year Plans typically were, that might not be quite enough time…

The kind of decade-scale industrial policy used so effectively over the past half-century by Japan and South Korea (and Singapore… and Taiwan… and to an extent in Norway) typically occurred when these countries were dominated by one political party. This political stability may have allowed government and industry to set effective long-term plans without fear that a few years on, a new Prime Minister would reverse course on everything.

Of course, one-party dominance is no guarantee of long-term economic success – as evidenced by Mexico, parts of both the American South and South America, and … Alberta. As recent history shows, our neighbours would rather stay a Saudi prince’s whim away from economic catastrophe, than raise sales and income taxes to build up a treasury to buffer themselves from the ravages of the resource cycle. It’s as if they’d read Aesop’s Fable about the ant and the grasshopper, and concluded the grasshopper was the role model!

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The millionaire tax, American- and French style

(originally written Apr 19, 2012.  Part of my Great Upload of 2013.)

The American “millionaire tax” plan

At the moment, Obama is facing stiff resistance from his proposal to tax all income above $1,000,000 per year at a rate of 30%.  This, despite the support of one-time world’s-richest-man Warren Buffett, who wondered in a NY Times editorial last year why he, a billionaire, paid a lower tax rate than his secretary.

(Answer: most of Buffett’s income comes in the form of capital gains taxed at 15%, which is lower than income tax rates paid by all but the lowest-paid labourers.  A similar situation exists in Canada — capital gains are taxed at half the rate of actual work.)

The French “millionaire tax” plan

As has become the regrettable pattern, Obama’s proposal sounds nice on the surface, but pales in comparison to others being bandied about.  A French economist suggested his country raise the top rate from 40% to 60%; and, not to be outdone, Francois Hollande, the leader of France’s Socialist Party, proposed 75%.  :)  And get this — with the election imminent, Hollande is topping the polls!!

Of such things, the new leader of Canada’s NDP, Thomas Mulcair, can only dream.  ;)

France being France, it wouldn’t be unprecedented for Hollande to win the election and runoff.  In 1988, the year after Reagan gave his famous “tear down this wall” speech in Berlin, and with Glasnost and Perestroika in full effect in the Soviet Union, France re-elected a Socialist as President.  Yessir, the French rabble takes marching orders from nobody.  :)

In May 1968, student protests there went viral and culminated in a general strike by two-thirds of the working population, causing President de Gaulle to flee the country, fearing revolution.  (Not an unreasonable fear; in the prior two centuries, the country had gone through four revolutions and two empires, and was on its fifth republic.  They even found the time to restore the monarchy once!)

In the snap election a few weeks later, in a display of that characteristic French je ne sais quoi, voters gave de Gaulle a landslide majority, having decided that he was actually better than the alternative, after all.  (When they say a week is a long time in politics, kids, this is exactly what they mean!)

Millionaire surtaxes in general…

In broad terms, surtaxes on the very highest incomes tend to be difficult to implement, because the 0.001% who live in “Richistan” tend to move between countries in a game of tax whack-a-mole.  Aiming at the top 0.1% or even 1% is probably more productive, as they’d be more likely to look for tax loopholes, than move to the Cayman Islands.  And that at least creates jobs for accountants and lawyers.  Plus, there’s more of them.  ;)

This makes me wonder if, for all the global advantages English brings us internationally, it becomes a disadvantage, here: Canadians can move to most parts of the US without suffering much culture shock.  Britain and Australia would be bigger cultural leap, but most of us would still have “home-language advantage”.

For the uberrich Swede, Norwegian, German or French person to emigrate to a lower-tax zone though, they’d have to leave their social circles, adapt to a new culture, and manage day-to-day in a different language.  And if they wanted to stay close to home, their selection would mostly be limited to countries they’ve historically invaded, or countries which have invaded them.  (It’s awesome, the kinds of elaborate theories you can come up with, when you don’t bother to back them up with data!  But in this case the Wall Street Journal provides some cover for the idea that even if the well-off say they’ll leave, they usually don’t.  Reminds me of a certain someone at work, actually…  ;)  )

On this side of the pond, no one really raises a fuss about our cousins’ invasions (1775, 1812) or the fact that we burnt their White House in revenge (1814).  So for well-off Canadians, border-hopping mainly means cheaper home, gas, dairy, phone, TV and internet costs.  ;)  That, and having to put up with heathens who don’t know that some words aren’t meant to be pronounced “abowt”.  ;)

Dinner with the Overclass (II) (“Great Upload of 2013”)

(written April 10, 2012 – part of my Great Upload of 2013)

So I got special, spousal dispensation to go to a mutual fund dinner the other night.  As a thank-you for generating a lot of fees for the company, attendees got dinner (including drinks — pity that I don’t), a pen, paper pad, mints, and chocolate wrapped up to look like a silver bar.  (Milk chocolate; they didn’t spring for the good stuff.  Even financial houses have their limits, I suppose.)  I guess it’s kind of like how some credit cards offer a cash-back option, which kicks back a fraction of the interest their victims clients pay them!

I met my account representative for the first time, as well; and discovered to my great pleasure that I’m taller than him.  (There’s a complex in there somewhere, I’m sure of it. :) )  The funny thing is, I think he was assigned to me because the company thought I was Jewish — the tip-off being when they sent me a New Year’s greeting last September, in time for Rosh Hashanah.  I wonder whether, given the economic strength of the Chinese ethnic minority in south-east Asia, financial advisor types over there send Lunar New Year cards to clientele with Chinese-sounding last names?

Goooooold

Summer came early to many parts of the US this spring; in March, record high temperatures outpaced lows by a 35:1 margin, and a couple states even broke their month-of-April temperature records!  It also came early to the precious metals markets, starting with a suspiciously-instantaneous $50 drop in gold on Feb 29.  (What self-interested seller would unload so much product so suddenly as to crater the prices they can get for it?)  Up ’til then, copper’s curiously-coveted cousins had followed their usual pattern of floating upwards until roughly summertime blockbuster-movie season, leaving me sitting giddily (and smiling Cheshire-ly) in the catbird seat.  Two months on, it feels more like a litter-box.  :)

A couple weeks back, things got so aberrationally low that I even sold the company stock that I bought last year, netting a vanishingly small profit of about $120 after fees.  (Timbits for everybody!  Whee!)  The money was reallocated to a gold-related mutual fund, which promptly moved… floor-ward.  (Timbits offer postponed.)  As pleasing as it is to get stuff on discount, there’s always a twang of regret when you see a lower clearance price, later!  Of course, there’s nothing much to do but wait for the “sale” to end, and regular prices to return.  Such is the nature of the “long game”.  :)

(Note: “buying and waiting for the sale to end” is an astonishingly poorly-advised strategy when it comes to individual companies, but works fairly well on an index-of-companies basis.  While individual companies are prone to bankruptcy, stock indexes tend to bounce back: they tend to include not just weakened companies going out of business, but the stronger ones driving the weak ones into extinction!)

How to miscalculate debts owing…

During the evening, one of the gold-pushing, silver-tongued speakers made a cringe-worthy comment to the effect that the US has a $12 trillion economy, but had outstanding obligations of $100 trillion.  This meme has been making the rounds, and the reader/listener is generally supposed to conclude either that the US dollar is doomed (so they should stampede into gold as a store of value), or that the welfare state is doomed (and so we have to cut taxes on the rich.  Wait, what?).

Here, the magician’s trick is to compare the size of this year’s economy, with the cumulative cost of every expense reaching decades into the future.  It would be as if we told Leo, “our household annual income is X; the cost to raise you for the next 18 years is way bigger, so here’s a copy of Oliver Twist, keep in touch”.  Similar chicanery is used in “tax freedom day” calculations, which overlook the fact that the yin of taxes paid is matched by the yang of public services.

Of course, I shouldn’t be overly critical of the low-taxation philosophy pushed by right-wing American think-tanks and their Canadian franchisees (e.g. the Fraser Institute).  If a recent book is to be believed, one of the reasons Canada even exists today is that when the Americans tried to manifest their destiny in the War of 1812, American hawks refused to raise taxes enough to pay for a proper army, making it possible for a combination of British soldiers, Canadian militiamen, First Nations warriors, and Laura Secord, to repel them.  :)

A toast to low taxes … in America, that is!

So, this coming barbeque season, on the bicentennial our southern cousins’ northern invasion, feel free to raise an occasional glass to toast the role that low taxes — another country’s low taxes — played, in the history of how Canada came to be the nation it is today!  :)