Caveat emptor. Similar to environmental issues, I have an equally superficial level of knowledge about tax policy. However, I have made it a bit of an issue to try and understand the intersection of tax policy and economic stimulus. So, given that everyone is talking tax these days, here are a few bite sized considerations for you.
There is a huge difference between tax ‘rates’ and taxes ‘paid’. This is the same for both individuals and corporations. For example, doctors do not get a $200,000 ‘salary’ (at least most of them do not). They are corporations and pay far less tax than an individual making that income. When Bernie Lord cut small business tax rates a few years ago, doctors and other ‘small business’ professionals did a hoo hah. On the corporate side, New Brunswick generates among the least amount of corporate income tax of any province/state in the U.S. and Canada. I have shown the data on this in other older blogs. So, tinkering with the rates will not necessarily adjust the amounts paid (up or down).
Despite all the bloviating on the subject, the folks paying the most amount of tax in New Brunswick are those with a family income of $80k to maybe $120k. It seems all the tax ‘reform’ (consider Volpe’s) were targeted at the lower end and this was easy pickin’s because they could cut the tax rate and not really impact the taxes paid by much. I mentioned this before but the exquisite irony of it compels me to mention it again. The same week that Volpe was announcing that everyone earning less than $15k would pay no income tax in New Brunswick! his boss was announcing another round of call centre jobs at only slightly about $15k/year. Fascinating stuff. On the high end, as I have said, people set up corporations and take out dividends and other tax minimizing strategies. So, the real taxes paid are in that middle class and if the government, for example, cut the tax rate on those folks by 5 or 10 points, it would drop revenues possibly in the hundred million or maybe even 200 million or more – I haven’t taken the time to crunch the numbers. So, for those of you in that 80-120 range (family income) don’t expect major cuts unless your taxes go up elsewhere.
In the latest budget, the government is forecasting $1.27 billion in personal income tax (total collected) or about 19% of its total budget need. The Ontario provincial government has a lower personal income tax rate – but generates 35% more per capita personal income tax. Why? More people in that sweet spot – too rich to qualify for low rates and too poor to become professional corporations. New Brunswick generates more money from Equalization that personal and corporate income tax combined. The reality is that we need a whole lot more people (private sector) making family income in the $80-$120k range if we want to see personal income tax paid increased.
We also need to generate more corporate income tax. Generating 2.7% of NB’s total revenue off corporate income tax is way too low. I just don’t know the way to do this. It is obvious that the bulk of corporate income tax is being paid in other jurisdictions (as I have said before McCain Foods pays more in corporate income tax to somebody than every corporation in New Brunswick combined pays into the New Brunswick treasury). Who gets it? Who knows? My simplistic solution has been to say we need more economic development – more activity, more profits, more taxes paid but in reality it is far more complex than that.
Remember all that ‘growth’ that Bernie and now Shawn Graham crow about? Remember McKenna talking about the substantially different economy now versus when he was in office?
Equalization increase $549 million (1999/2000 budget until the 2008/2009 budget)
Personal income tax increase $411 million (1999/2000 budget until the 2008/2009 budget)
Corporate income tax increase $26 million (1999/2000 budget until the 2008/2009 budget)
Equalization as a percentage of the budget 1999/2000 = 23.8% 2008/2009 = 23.7%
Personal income tax as a percentage of the budget 1999/2000 = 19.6% 2008/2009 = 19%
Corporate income tax as a percentage of the budget 1999/2000 = 3.6% 2008/2009 = 2.7%
Corporate income tax paid is declining as a percentage of the budget.
Total increase in government spending = +53.2%
Population increase = 0%
Just throwing it out for conversation.