“Do you think that when Canadians went to the polls a year ago, they would have agreed to spend $1.8 billion a year to give a tax break to the wealthiest 35 per cent of the population?”
– Senator Larry Smith
In the Senate yesterday, Senator Larry Smith made compelling arguments which showed why the Liberal’s Bill C-2, An Act to Amend the Income Tax Act is a sham. While the Liberals claim that the changes are necessary to help the middle class, it does nothing of the sort. In fact, as Senator Smith said, “If Bill C-2 passes, the real winners will be those making $150,000 to $200,000 a year.”
Below are a few of the highlights from Senator Smith’s speech. You can read the speech in its entirety further down this page.
HIGHLIGHTS:
-
The Bill does not help the people it is supposed to.
It takes a small portion from the wealthy and gives it back to the wealthiest 35 per cent of the population. If Bill C-2 passes, the real winners will be those making $150,000 to $200,00 a year. -
Lowering the TFSA annual maximum hurts those with incomes below $45,000.
According to the Canada Revenue Agency’s 2014 data, there are over 15.1 million Tax Free Savings Accounts. Almost half of these accounts, 7.3 million, are held by citizens with an income below $45,000. -
Lowering the TFSA annual maximum hurts seniors.
There are 2.1 million seniors with an income under $45,000 who are holders of these accounts. Another 4.4 million Canadians under the age of 65, with an income less than $45,000, have TFSAs, and would probably want to have that $10,000 limit back. Why? A financial counsellor would tell you that investing in a TFSA is better than investing in a Registered Retirement Savings Program. With an RRSP, you put money in and delay the time when you will pay tax on it. With a TFSA, it’s a tax-free savings account, so anybody who earns any amount of income would want to have more ability to put into this type of an account. -
Canadians with incomes below $45,000 gain nothing.
Let’s be clear: All Canadians with incomes below $45,000 get nothing, no benefit. I’m not sure how much sense that makes.
-
Canadians with incomes between $45,000 – $90,000 will see a tax reduction of between $5 – $13 a week.
It’s difficult to see how this will spur economic growth and help the middle class. -
65 per cent of Canadians will see no benefit at all from Bill C-2.
Fifty per cent of Canadians earn less than $32,000; 50 per cent earn more. This is why the Parliamentary Budget Officer reported that 65 per cent of Canadians will see no benefit from Bill C-2.
-
This same 65 per cent will have to help pay back $8.9 billion.
Bill C-2 will add $8.9 billion to the national debt over the next six years. Although 65 per cent of Canadians get no benefit from the changes this Bill will make, they will be required to help pay back the debt it incurs.
THE SENATE
Thursday, October 6, 2016
Income Tax Act
Bill to Amend—Second Reading
CLICK HERE TO READ SENATOR SMITH’S SPEECH ON THE SENATE WEBSITE
Hon. Larry W. Smith: Honourable senators, before I give my presentation, I would like to thank Senator Day as the sponsor of the bill. He outlined the intent that he was proceeding with as a senator and the fact that we’re supposed to scrutinize, analyze and make modifications if appropriate, and I just wanted to say thank you for that because the intent that I have today as the critic is to look at this as an analytical assessment of what Bill C-2 gives.
Each of you will receive or has received in your emails two pieces of paper. One is the breakdown of what Canadians will receive as tax credits from Bill C-2, and the other is the impact on the TFSAs.
Honourable senators, I began studying Bill C-2, an Act to amend the Income Tax Act, when it was introduced in the House of Commons on December 9, 2015, following the general election of October 19, 2015.
The bill delivers on the election promise the Prime Minister made last fall and the pledge in the latest federal budget, which called on wealthier Canadians to contribute more to strengthen the middle class.
For clarity, I will read it in English:
I will be asking wealthy Canadians to pay a little more in order to give more to growing a healthier middle class in Canada.
I think that’s the right thing to do.
However, when I read this bill, I started to have second thoughts as to whether Bill C-2 would achieve this. I fail to understand how the middle class will be made healthier by giving someone earning $180,000 a tax cut of $820. I can’t see how a tax measure designed to shuffle less than $1,000 from someone making $200,000-plus a year to someone making $180,000 a year can grow anything but more red tape and bureaucracy with little to no real benefit to growing the economy.
When you get these papers, you’re going to see the breakdown by category. There are five categories of tax in this country.
I cannot see the benefit of the bill in its present structure.
The Parliamentary Budget Officer calculates Bill C-2 will create a shortfall of $8.9 billion over the next four years. This is not a revenue-neutral situation. This is a situation where there will be a deficit of $1.8 to $1.9 billion per year for four years.
If Bill C-2 passes, the real winners will be those making $150,000 to $200,000 a year, like MPs and senators, and not the Canadians one would think need the most help.
As you know, I have some business experience and, as a businessman, I try to simplify things.
What I’m saying in French is the same in English. I’m a businessman, and I look at things in a simple way: What is the best thing for Canadians? That’s why I never say I’m a politician.
Since the government is looking to strengthen Canada’s middle class, two things need to happen.
First, we must assist hard-working Canadians who aspire to move into the middle class. Second, we must assist hard-working Canadians to move through the cycles of the middle class and progress in their careers. We discussed with the Minister of Finance that the middle class was categorized as $45,000 to $90,000 dollars. When I asked the Minister of Finance in the Finance Committee, is this the middle class, unfortunately he couldn’t give us an answer because he wasn’t necessarily sure at the time.
Honourable senators, this is not rocket science. Does this legislation help build the middle class? Does it meet its intended goal?
Unfortunately, Bill C-2 as written does not fulfill the intended goal. Honourable senators, it is our role to analyze legislation to be sure it benefits Canadians. Most citizens don’t bother with the details of legislation. They trust parliamentarians to get it right. Partisan politics caused Bill C-2 to pass through the House of Commons with a vote of 167 to 122. As senators, we have a duty to review the legislation openly, independently and honestly.
There are three major components of Bill C-2 that I believe fail to meet the test.
First, the bill does not take money from the wealthiest to give to the middle class. It takes a small portion from the wealthy and gives it back to the wealthiest 35 per cent of the population. It is not revenue neutral. If you’re earning $200,000 plus, and you go up to the new bracket of 33 per cent, as a Quebecer, you will be paying 53.4 per cent. It varies depending on the province. There is provincial tax also. This is a major hit for those earning the top level.
Second, reducing the TFSA contribution from $10,000 to $5,500 makes no sense. The data I supplied today was from 2013. According to the Canada Revenue Agency’s 2014 data, there are over 15.1 million Tax Free Savings Accounts. Almost half of these accounts, 7.3 million, are held by citizens with an income below $45,000. There are 2.1 million seniors with an income under $45,000 who are holders of these accounts. Another 4.4 million Canadians under the age of 65, with an income less than $45,000, have TFSAs, and would probably want to have that $10,000 limit back. Why? A financial counsellor would tell you that investing in a TFSA is better than investing in a Registered Retirement Savings Program. With an RRSP, you put money in and delay the time when you will pay tax on it. With a TFSA, it’s a tax-free savings account, so anybody who earns any amount of income would want to have more ability to put into this type of an account. By taking that money back, what have we done?
Third, adjusting split incomes and trusts to the highest individual percentage doesn’t make economic sense given the state of our economy. According to the IMF, the latest targets of growth are down to 1.2 per cent this year and 1.7 per cent next year. This is a tough situation. With the resource sector in the doldrums, MPs and senators need to do everything we can to give risk-takers and innovators a break. Tightening up access to cash is a step in the wrong direction.
Let’s have a closer look at what the government is proposing in terms of changes to the lower income tax brackets, and why the proposal in Bill C-2 just doesn’t make any sense.
There are five income groups. For taxpayers making up to $45,000, the rule is 15 per cent tax. Those making $45,000 to $90,000, the new rule is 20.5 per cent. It used to be 22 per cent. Income of $90,000 to $140,000, is 26 per cent, and $140,000 is 29 per cent and over $200,000 is 33 per cent.
The Minister of Finance wants us to believe that those middle income Canadians in the second tax bracket, $45,000 to $90,563, are about to receive a 7 per cent tax cut. That is wrong. When you take the bracket from 22 to 20.5 per cent, the change in bracket is 7 per cent, but it’s not the amount of money you receive. So the people in that tax bracket are making between $45,000 and $60,000. This group, who are barely holding on to the middle income status, will only net a 2.6 per cent reduction, which is $261.44. The best any Canadian taxpayer can expect from Bill C-2 is, at that level of $89,000, a 4.2 per cent reduction, or $696.
Groups from $89,000 back to $44,000, the entry point, will see a declining benefit. The group between $90,000 and $200,000 will have the greatest dollar figure tax reductions, while those above $200,000 will see a declining benefit up to $220,000, of which they will receive nothing.
So what does this all mean? Bill C-2 aims to give Canadians trying their hardest to get in and stay in the middle class, those earning around $60,000, an annual tax break of $260 a year. You’re going to build the middle class with that?
Let’s be realistic. I live with my wife, and I’m an older person. We spend $150 a week on groceries. A family of three or four is going to spend $260. That’s one week’s worth of grocery money. How is that going to build our economy?
Again, because we have a progressive tax system, only those above the second tax bracket get the full benefit of the reduction, as I referenced in my introduction. The government wants to give $820 to someone earning $180,000 a year from someone making over $200,000 a year.
Does that make sense?
Let’s be clear: All Canadians with incomes below $45,000 get nothing, no benefit. I’m not sure how much sense that makes.
The median income in our country is $32,000. “Median” means middle. You have 50 per cent of the population above and 50 per cent below. That’s for individuals. The average couple’s income is somewhere between $50,000 and $55,000, just to put this in perspective.
Who can blame Canadians for being confused? Although many of us like to identify ourselves as middle class, even those of us in the chamber, the reality is the median income in Canada is only $32,000, according to Statistics Canada 2013.
Fifty per cent of Canadians earn less than $32,000; 50 per cent earn more. This is why the Parliamentary Budget Officer reported that 65 per cent of Canadians will see no benefit from Bill C-2.
Bill C-2 will not be revenue-neutral. I hope you understand what I’m saying. Sixty-five per cent of people will not get any benefit, but we’re going to be paying back $1.9 billion a year. So you are getting hit twice. Do you understand that? You are getting hit twice.
The poor 65 per cent will bear, equally, the burden of giving money back to the people who earn more than them. Not only 65 per cent of people don’t get their money, but they also have got to pay it back because we’re creating a deficit.
When you go to the bank and the bank gives you $10,000, what happens? You have payment terms. If you are lucky enough to have a credit line of $10,000, you have a minimum payment you have to make per month. You have to pay it back.
One hundred per cent of Canadians will carry it because, don’t forget, the people over $200,000 who gave their money away, they have to pay it back too. One hundred per cent of Canadians will have to pay back $1.8 billion a year.
Honourable senators, the devil is in the details and in having the capacity to take the time to understand them. The government says the tax measure they outline in Bill C-2 will put more money in the pockets of Canadians “. . . to save, invest, and grow the economy.”
Yet, Bill C-2 reduces the savings and investment vehicle, the TFSA, and the biggest beneficiaries resulting from the change in the second tax bracket, as outlined in Bill C-2, will be income earners between $90,000 and $200,000 — a tax measure that will not benefit 65 per cent of the population and will pressure the highest earners while costing all Canadians $8.9 billion over four years.
This begs the question: Who is going to pay for all these unnecessary changes?
The government wants those Canadians who have worked hard their entire careers and are now lucky enough to earn in excess of $200,000 a year to pay a new 33 per cent levy. Honestly, that would not necessarily be bad if it were revenue-neutral because you wouldn’t be creating the debt. But not only are you paying more money, but then you have to pay back the $1.8 billion. You see what I’m saying? It is not revenue-neutral.
Again, on the face of it, it makes sense: Rob Peter to pay Paul. I get it, because it’s simple. The problem is Bill C-2 does not achieve its objective.
Honourable senators, I encourage you to read Bill C-2. This is why I sent this to each of you — and you will receive it as of now because I asked it to be sent out exactly when I started to speak — so that you can understand the implications of this bill.
Sixty-five per cent of the population get zip, and 1.4 per cent of the population earn over $200,000. It is going to cost us $8.9 billion over four years.
This can work if it’s done properly. The PBO has done some studies for us. I’m not going to say “me” because that makes me sound like I’m doing a lot of stuff. It is a lot of people helping. I asked for solutions to make this revenue-neutral so that this would be an effective step, because the argument the government will give back is, “With the child care benefit, you’re going to get $6,000 to $7,000. When you add this $600, you’re going to get another $6,000 to $7,000-plus. You will have $7,600.” Come on, guys. This is $1.8 billion a year.
We have to be realistic and make sure that we do things that make sense.
As my last thought, let me ask you a question: Do you think that when Canadians went to the polls a year ago, they would have agreed to spend $1.8 billion a year to give a tax break to the wealthiest 35 per cent of the population?
It’s something to think about. There’s opportunity to make this better. We need to make this better, and not just this side of the fence. It has got to be everybody. We talk about independence, we talk about independent thought, but this is the time where we have to do something that makes sense.
I have always believed in my life that you cannot spend more than you earn. You can do deficit financing, but you don’t do stupid deficit financing. This is not the right thing to do.
Don’t forget, on our child care program, which I agreed to, it is more than what the past government did. This will add another $4 billion onto the deficit that the prior government created. It took us five years to get out of the deficit.
Also, where are our priorities and focus going to be? This has to be fixed because this is an irritant. This isn’t a benefit. Thank you.