SIGNS OF THE TIMES

By Barry Stagg

July 1994

$50,000 TAX BREAK

While we were honouring our war veterans during the D-Day celebrations several commentators, including myself, brought up a point that society had never been so focused in the past fifty years since the end of World War II. This is a very ordinary garden variety point that gets made from time to time. The basic foundation is that society is unable to focus and be efficient unless there is a great crisis at hand. The most convenient of choice over the centuries has been war.

There is no doubt that Canada's economy and society in general were extremely focused toward the war effort during World War II. The industrial base that we now rely upon for our somewhat dubious affluence is based upon the structures and industries which got their start during World War II. The whole concept of Ontario as a strong industrial province grew out of war production and eventually leap-frogged over the 1950's into the auto-pact boom of the 60's.

We do ourselves a great disservice by accepting that only war and the possibility of large numbers of people getting killed is the only format for focusing people's efforts upon efficiency and hard work in general. We know that in order for an economy to be successful and productive it must get a good day's work out of everybody. For a society to be productive it must also be able to provide a good day's work for virtually everybody. That is the real dilemma which we now face in Canada. Society has twisted itself into such a pretzel of economic and social structure that it seems as if there is no where to move when it comes to creating economic opportunity.

The experts who advise government and provide us with a lot of our own ideas feel that if government spending is not kept under control then the debt load which the government spending attaches to our society will force the whole country into bankruptcy. At the same time they indicate that the only way that our society can get out of its present funk is for spending in general to pick up. The only thing that the experts and the ordinary people agree upon is that government spending must be lowered. Spending in general must be increased but it must not come from government.

I do not recommend war as a solution to our problems. However I do have a recommendation to make. This recommendation came to me when I was sitting down over lunch a few days ago with four of my friends. Of the five at the table, two were lawyers practicing as sole practitioners, one was a self employed master woodworker, another was a self employed scientist, and the other was a sales manager for one of Canada's largest construction companies. All five agreed that the economy must be given a kick start in some way. We had all experienced the depression of the past five years where companies went out of business and cash flow dwindled down to a mere trickle. We all agreed that getting cash flowing through the system and getting people spending and exchanging money among themselves was the only effective way to get the economy working at capacity and to get people off the unemployment rolls.

My proposal was that the federal government pass a law which would increase the personal income tax exemption for every Canadian citizen from $6,000.00 to $50,000.00. This would effectively mean that the first $50,000.00 of income for every citizen would be tax free. Normal rates of taxation which now start at $6,000.00 would only start once a person passed $50,000.00 in gross annual income. The federal law would also state that if this new law reduced federal revenue the government would be obliged to reduce its own spending for salaries and other payments by the precise percentage of decrease of revenue over the revenue in the preceding year. That was the point where my friends took issue with me. They felt that the revenue flow from income tax was so vital that government would not be able to make its basic expenses for things such as pensions, essential security services and civil service salaries. My response to that was two-fold. One was that the government could legitimately look to decreasing civil service salaries as a first resort since civil servants would be beneficiaries of the $50,000.00 tax exemption like all other workers and would be in a position to take cuts in pay as a result. They would only be suffering in relation to privately employed citizens. Surely it would not be too high a price to pay to have civil servants' wages decrease in comparison to private workers for at least once in this last quarter of the 20th century.

My other argument was that the increase in spending in society that would result from the extra cash in the hands of citizens would result in vastly increased income from the G.S.T. and the provincial sales taxes. This would increase federal revenue possibly to the point where much of the income tax revenue loss would be overcome.

The increase in sales would be a boon to the provinces. Obviously the provinces would need it because the $50,000.00 federal tax exemption would also cause the provincial income tax to be eliminated for that range of income since the provincial income tax is tied to the federal tax on a percentage basis. The federal government would have to simply bulldoze over provincial complaints when it come the time to force the tax exemption law through Parliament.

We all agreed at the end of lunch that this proposal was probably an ultimate piece of whimsy. Nevertheless I persisted in thinking this idea through and it appears to me that this would be the most profound way for Members of Parliament to exert their democratic influence over Canada. The tax exemption law has one purpose only and that is to place more cash in the hands of ordinary people. All of the complicated and obscure laws of economics and fiscal policy would without doubt compute this idea as being madness. However, in my estimation, the ordinary citizens of this country would embrace this idea like no other idea put forward by government in my memory. The central attraction of this idea is that it takes money away from government and gives it to ordinary citizens to spend using their own common sense and their own ideas on how to spend money wisely. There is so much pent up spending demand in society now that once the $50,000.00 exemption freed people to spend they would do so and spend upon many items that they have forgone over the past years. Many of us can look around and see people who are driving old cars, cooking on old stoves, wearing thread bare clothing and generally getting by on what they have until they can afford something new. This is the everyday price that we pay for economic depression. Once money is once again placed in the hands of people, they will firstly pay off their debts, and secondly they will spend and buy new things that they need to live a reasonable life.

This might be the only way which government can finally gain some acceptance for the G.S.T. With the G.S.T. being the only revenue device that the federal government brings to bear upon the ordinary citizen, people might come to accept it as legitimate when they consider that government is doing all that it can to place money in the hands of the private sector to do with as each citizen deems necessary.

I dare you to put this idea to your local Member of Parliament. Let's all do it.


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