Thank Goodness for Stupid Tax Policies

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Patrick Basham, Jason Clemens, and Joel emes

First, the bad news: Yes, pay equity is a hoax. Yes, it’s nothing more than socialism by stealth. Now, the good news - other, equally idiotic policies are about to limit the collateral damage suffered by the rest of us.

Ironically, the $3.6 billion pay equity settlement with federal public servants, though ludicrous on its merits, provides taxpayers with an opportunity to cheer some of our most stupid tax policies since these policies will substantially reduce the ransom paid to the public servants.

Unfortunately, a full listing of ridiculous federal tax policies would constitute a War and Peace-size tome. In the interest of brevity, therefore, we’ve selected four of the most stupid.

Stupid Policy #1: Canada continues to maintain a highly progressive tax system, wherein individuals pay substantially more taxes as they earn more. For example, those earning more than $50,000 (the top 12 percent of tax filers) pay 57 percent of all taxes paid in Canada. This means that it is explicit government policy that success is punished.

High marginal taxes reduce work incentives, punish entrepreneurship and innovation, and reduce economic growth. However, we can take comfort that high marginal taxes will also significantly reduce the amount of money the public servants actually receive.

In 1997, the average public servant’s income was $42,000. Add to this amount the average estimated pay out of $30,000, and each current public servant will be taxed at the highest marginal tax rate. Depending on the particular province of residence, these taxpayers will face tax rates of between 45.2 percent (Alberta) and 52.9 percent (Newfoundland). So, for instance, an average employee in Newfoundland will only receive $14,130 of the average payment of $30,000 - the rest will be returned to the government’s coffers.

Stupid Policy #2: The 5 percent surtax on high-incomes. The Mulroney government introduced this surtax to help eliminate the deficit. Thankfully, as the current Liberal government hasn’t realized that a surplus means the deficit has been eliminated, the surtax remains in place. Otherwise, this particularly damaging and egregious tax wouldn’t be present to reduce the net amount plundered by the public servants.

Stupid Policy #3: The cap on RRSP and pension contributions. Through this restriction, the federal government limits everyone’s ability to save for their own retirement. Canadians are specifically permitted to save up to 18 percent of their income tax-free in RRSPs and pensions, up to a limit of $13,500 per year. Effectively, this means that once individual income reaches $75,000, the amount of savings eligible for tax-free status is proportionately reduced.

Fortunately, these rules will now impede civil servants from sheltering a substantial portion of their windfall from taxes.

Stupid Policy #4: Our high tax regime has dramatically reduced the value of the Canadian dollar. Normally, we’d explain how the currency’s depreciation has hurt Canadian living standards. However, in this isolated case we take solace from the fact that the lowly loonie limits the civil servants’ vacation destination plans. No doubt many were planning on travelling tocelebrate their unions’ successful milking of the Canadian public. At least the "value" of the Canadian dollar will limit them to spending our money in our own country where it will be subject to further taxes such as the GST.

Hold your breath, though, because if history teaches us anything, it’s that the federal government may make a bad situation even worse. Perhaps they’ll allow the payments to be received tax-free, as the taxpayer-financed lottery winnings they really are.

At the end of the day, we all want effective and efficient public policy. But that requires not only the scrapping of absurdities such as pay equity; more importantly, it requires the elimination of the illogical tax policies that limit Canadians’ achievement and enjoyment of economic prosperity.

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Last Modified: Wednesday June 9, 1999.