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Author Topic: The case for an inheritance tax
Michelle
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posted 15 August 2006 04:11 AM      Profile for Michelle   Author's Homepage     Send New Private Message      Edit/Delete Post
quote:
Did you hear the joke about inheritance taxes? No, not the one about death and taxes being the only sure things (now the government has figured out a way to put them together). No, not even the one about governments not being content with taxing you while you're alive (now they want to tax the corpse as well). Actually, the cruel joke I'm interested in talking about is the recent failed attempt to reward wealthy Republican donors by rolling back estate taxes in the United States.

While the debate continues south of the border, it's worth noting that Canada (along with Australia and New Zealand) is one of the few industrialized countries without an inheritance tax. We used to have one, but it was quietly repealed in the 1980s by Brian Mulroney.

The last time that anyone suggested that it be reinstated occurred when Jack Layton and the NDP included the following phrase in their 2004 election campaign platform: “Implementing a U.S.-style inheritance tax on inheritances of more than $1 million, exempting in-family transfers of small businesses and family farms.” Really, that was it; there was no attempt to expand on the proposal and no background information was given to party candidates who may have wished to defend it.


Scott Piatkowski


From: I've got a fever, and the only prescription is more cowbell. | Registered: May 2001  |  IP: Logged
josh
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posted 15 August 2006 08:59 AM      Profile for josh     Send New Private Message      Edit/Delete Post
Well done, Scott!

quote:

But, outside of the CCPA's website, the idea was universally attacked (including the widespread telling of the lame jokes quoted above) by the media, by other parties and even by one of Layton's own MPs (Peter Stoffer). The supposedly left wing CBC chimed in, saying that the NDP was “in effect penalizing babyboomers.” Instead of stating the case for the tax, Layton quickly abandoned it, admitting that it wouldn't be part of the party's negotiating position in a minority Parliament. And, when it came time to draft the party's platform for 2006, an inheritance tax was nowhere to be found.

The idea should be brought forward again, but this time with the party being fully prepared to fend off criticism (noting that it would apply only to the wealthiest 2.5 per cent of Canadian families would help). While the party should be open to modifying the proposal (such as adding an exemption for a principal residence), the idea has considerable merit and should not be jettisoned at the first sign of opposition.



From: the twilight zone between the U.S. and Canada | Registered: Aug 2002  |  IP: Logged
Stephen Gordon
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posted 15 August 2006 09:04 AM      Profile for Stephen Gordon        Edit/Delete Post
I agree - it's a very sensible policy, but it was terribly presented. As I said at the time, the way the NDP sold it, the inheritance tax proposal sounded almost like this by the time it reached the voters:

quote:

Did you work hard all your life?
Buy a house?
Start a new business?

We hate you!

We're going to take it away because we can!

Hahahaha!


You need the appropriate numbers at hand to counter that kind of spin, and the NDP didn't succeed in making them as well-known as they should have been.


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Proaxiom
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posted 15 August 2006 09:19 AM      Profile for Proaxiom     Send New Private Message      Edit/Delete Post
Do countries that have this have problems with people avoiding the tax?

Say, by transfering assets into their childrens' names before they die, to reduce the actual inheritance?

It's not clear to me that there is a fair way to prevent that from happening.


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jester
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posted 15 August 2006 09:23 AM      Profile for jester        Edit/Delete Post
How can presenting a proposal for an inheritance tax during an election help the NDP.

No matter how it is presented,the other parties will concentrate on bracket creep and how voting in favour of the NDP will introduce a tax that will allow government to incrementally increase the tax rate while simultaniously reducing the exemption.

The only path to building wealth for the average person is their principal residence.It is bandied about in political circles that any party that publically considers a tax on the disposal of principal residences will dwell forever in the political wilderness.

The NDP proposal is a modest tax with generous exemptions but no voter will perceive it in a positive light.

Jack and his advisors likely reconsidered the effectiveness of this strategy and rightly decided that this is a tax proposal for a party in power to effect.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
greenie
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posted 15 August 2006 10:19 AM      Profile for greenie     Send New Private Message      Edit/Delete Post
quote:
Originally posted by Proaxiom:
Do countries that have this have problems with people avoiding the tax?

Say, by transfering assets into their childrens' names before they die, to reduce the actual inheritance?

It's not clear to me that there is a fair way to prevent that from happening.


That's what a gift tax is for. You can't have an inheritance tax without a gift tax and I strongly believe that Canada needs both. Canadians are significantly undertaxed.


From: GTA | Registered: Feb 2006  |  IP: Logged
Stephen Gordon
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posted 15 August 2006 10:51 AM      Profile for Stephen Gordon        Edit/Delete Post
quote:
Originally posted by greenie:
Canadians are significantly undertaxed.

Heh. Statements like that sort of the problem, aren't they?. I agree that we would do well to expand social spending, which requires increased taxes. And we can do this without harming the economy (that's the tricky bit).

But it's not the sort of thing you say aloud if you want to get elected...


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jrootham
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posted 15 August 2006 11:12 AM      Profile for jrootham     Send New Private Message      Edit/Delete Post
The two sound bites I like on this subject are:

1) Taxes are the price we pay for civilization.

2) Have you ever bought something cheap and found it was a waste of money because it didn't work? Why should government be any different? cf Walkerton.


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jeff house
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posted 15 August 2006 11:17 AM      Profile for jeff house     Send New Private Message      Edit/Delete Post
Good article!

I generally thought Jack Layton did a fine job during the last election campaign, but I felt he backed away too quickly from an inheritance tax.

No one can seriously object to the idea that everyone should advance through merit, not inherited privilege.

I don't think it would be too hard to sell to the public, either, especially as part of a general "Tax Fairness Plan".

If it were to be set at 2 million dollars rining-with-inflation, I doubt if most Canadians would believe it was directed at them.

But the real problem is the mass media, and their owners. They'll call it a death tax, and fudge its
application, because in fact it WOULD apply to them.

As with so many other things, differences in power mean our social policies are skewed and unprincipled.


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slimpikins
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posted 15 August 2006 11:39 AM      Profile for slimpikins     Send New Private Message      Edit/Delete Post
I love that phrase, the death tax. They try and spin it so that it looks like you are being taxed for dying, when really what it is for is to make people accumulate their own wealth, rather than inheriting it. This would cause (and does today cause) there to be a form of aristocracy in this supposedly democratic society. Instead of princesses, we have Belinda Stronach.

It is a lot easier to 'rise on your own merit' when you have a billion dollar head start.


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otter
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posted 15 August 2006 11:51 AM      Profile for otter        Edit/Delete Post
quote:
Instead of stating the case for the tax, Layton quickly abandoned it, admitting that it wouldn't be part of the party's negotiating position in a minority Parliament. And, when it came time to draft the party's platform for 2006, an inheritance tax was nowhere to be found.

And there you have it folks. The NDP are just another party, with little significant difference between them and the others. They float a proposal in the media to see which way the wind is blowing, and when it comes back with a hint of stink attached to it they quickly abandon the concept and backpedal regardless of the issue's relevance or importance.

This is the blight that all reprsentative systems bring with them. A pox on all their houses imo.

When


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Proaxiom
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posted 15 August 2006 02:41 PM      Profile for Proaxiom     Send New Private Message      Edit/Delete Post
quote:
Originally posted by greenie:

That's what a gift tax is for. You can't have an inheritance tax without a gift tax and I strongly believe that Canada needs both. Canadians are significantly undertaxed.


What if I sell my house, and cottage, and boat, and stable of race horses to my son for $1?


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Lard Tunderin' Jeezus
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posted 15 August 2006 02:45 PM      Profile for Lard Tunderin' Jeezus   Author's Homepage     Send New Private Message      Edit/Delete Post
Then you've established their value should the government need them. Think of how affordably we'd be able to settle native land claims.
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jeff house
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posted 15 August 2006 02:49 PM      Profile for jeff house     Send New Private Message      Edit/Delete Post
quote:
What if I sell my house, and cottage, and boat, and stable of race horses to my son for $1?

They've thought of that. Generally, the tax system imputes "fair market value" to transactions such as this.

If they think you are lying about the fair market value, they will appoint an independent evaluator to do it.

Probably, there's some wiggle room. People can probably get away with lowballing the fair market value. But if they go too low, they're asking for trouble.


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otter
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posted 15 August 2006 03:15 PM      Profile for otter        Edit/Delete Post
Wasn't the Bronfman's that, a few years back, transferred a bunch of the family fortune to the u.s. of a. to avoid the inheritance tax?

I am surprised that, when the faimly fortune is counted in the tens of millions, hundreds of millions and even billions, that there is not some sort of compromise available. Something in the nature of trust funds or other investment instruments that will provide the family members with a comfortable lifestyle, while also putting the rest of the fortune back in the hands of the taxpayer/consumers that provided them with the wealth in the first place?


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jester
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posted 15 August 2006 03:18 PM      Profile for jester        Edit/Delete Post
quote:
I don't think it would be too hard to sell to the public, either, especially as part of a general "Tax Fairness Plan".


The problem with selling to the public is that they only read the headlines,not the fine print.

Which brings us to:

quote:
But the real problem is the mass media, and their owners. They'll call it a death tax, and fudge its
application, because in fact it WOULD apply to them.


Death tax...then linked to how the Liberals eliminated the Capital Gains Tax exemptions....then linked to how government(Liberals) allowed the Irvings,Bronfmans,Eatons etc to move their trusts offshore tax free and now the NDP expect Joe Public to pay inheritance tax.

The individual member of the public votes for tax policies they will personally benefit from,not be penalised by.

No one will care about tax fairness,they will only see their own personal circumstances.They will only see the thin edge of the wedge and their own inheritance evaporating.


Arguably,the NDP's inheritance tax proposal is a very fair tax but it will be a very hard sell even for a party in power and is suicidal for inclusion in an election platform.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
jester
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posted 15 August 2006 03:32 PM      Profile for jester        Edit/Delete Post
quote:
Originally posted by Proaxiom:

What if I sell my house, and cottage, and boat, and stable of race horses to my son for $1?


You can dispose of assets that are acquired with after tax income how you wish while you are alive.

Your house,if it is personally owned and your principal residence is tax exempt.

Your cottage is not.Capital gains tax will be assessed at 33% of 50% of the net gain(profit).It will be assessed at fair market value whether it is sold or gifted.

Personal assets acquired with after tax income can be gifted but it depends on whether they have been used to earn income or been depreciated.


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Summer
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posted 15 August 2006 04:19 PM      Profile for Summer     Send New Private Message      Edit/Delete Post
FWIW here is what happens taxwise when someone dies:

certain properties (most commonly property other than a primary residence and investments) are subject to capital gains tax when they are sold or even given away. The person who sells/gifts the property will pay tax on the difference between its fair market value and its acquisition price.

The same thing happens with inheritances. So if your mother dies and leaves you her cottage, her estate will pay any capital gains tax that would have been incurred had the cottage been sold.

So in a way, we already have inheritance tax in Canada.

Perhaps someone can explain how an additional inheritance tax would work? Does the beneficiary pay tax on the value of the money/property received? Or does the estate pay tax on the total value of the estate? Or is it something else entirely?

Regardless, I'm against the tax for the following reasons:

1. If the estate has to pay the tax, this amounts to double taxation. The deceased already paid income tax and capital gains tax etc. on everything. I don't believe there is any justification for double taxation. Not even for the richest 2.5%. If Layton or any one else wants more money from the rich, raise income taxes.

2. If the recipient has to pay the tax, they may not be able to afford it. Ie. in situations where they received a cottage and no money, the tax would be prohibitive and the recipient would likely have to sell the property. (this is similar to when Americans win cars on gameshows and can't afford the tax - another tax we don't have in Canada).


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Proaxiom
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posted 15 August 2006 07:46 PM      Profile for Proaxiom     Send New Private Message      Edit/Delete Post
quote:
So in a way, we already have inheritance tax in Canada.

This is interesting. Now, the wikipedia entry on inheritance tax says that jurisdictions with both inheritance and capital gains taxes (eg. UK) make an exemption in capital gains tax for death.

In this case, it's not double taxation.


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Martha (but not Stewart)
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posted 17 August 2006 07:11 AM      Profile for Martha (but not Stewart)     Send New Private Message      Edit/Delete Post
quote:
Originally posted by Summer:
If the recipient has to pay the tax, they may not be able to afford it. Ie. in situations where they received a cottage and no money, the tax would be prohibitive and the recipient would likely have to sell the property.

So what? If someone inherits a $250K Cottage, and has to sell it in order to pay, say, a $50K inheritance tax, s/he still ends up $200K ahead of where s/he was before. Hey, I wouldn't mind an extra $200K.


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slimpikins
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posted 17 August 2006 09:58 AM      Profile for slimpikins     Send New Private Message      Edit/Delete Post
Once more....

The purpose of the inheritance tax has always been to both raise money for much needed social programs AND to ensure that people succeed on their own merits, rather than on 'family' money.

Sure, if you are a billionaire or even a millionaire you can easily afford to give your kids a lot of advantages, post secondary education, business contacts, stuff like that. Then, in a just world, they would go forth and seek their own fortune, rather than drink, do drugs, fornicate, party, and generally stir up shit waiting for mommy and/or daddy to kick the bucket so they can inherit a boatload of cash.

The double taxation argument is laughable. I mean, we already are taxed numerous times on the same money, like income tax, EI premiums, CPP, and stuff like that calculated on the same dollars, and then we pay GST and PST (most places) when we spend it.

And if you inherit property rather than cash, so be it. Sell the family manor, take what you have left, and go forth to seek your own fortune. Just don't come crying to me in this supposedly democratic society that we live in and whine because you have to sell daddy's mansion and go out and earn the money to buy your own damn house on the hill. My heart bleeds for you..........


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josh
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posted 17 August 2006 11:11 AM      Profile for josh     Send New Private Message      Edit/Delete Post
quote:

The purpose of the inheritance tax has always been to both raise money for much needed social programs AND to ensure that people succeed on their own merits, rather than on 'family' money.


Actually, the main reason, at least as originally envisioned, was to break up large concentrations of wealth in the hands of the view by preventing it from being passed down generation to generation. That was always more of a concern than encouraging people to "succeed on their own merits."


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slimpikins
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posted 17 August 2006 12:06 PM      Profile for slimpikins     Send New Private Message      Edit/Delete Post
Certainly. That also had the desireable side effect of eliminating the 'Capitalist Aristocracy' that large clumps of family money being passed down caused.
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Proaxiom
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posted 17 August 2006 01:23 PM      Profile for Proaxiom     Send New Private Message      Edit/Delete Post
slimpikins, you don't understand what double taxation is. Setting multiple payroll taxes isn't what the term means. It's more like if a government decided to tax a company for paying its employees (as a percentage of payroll) at the same time it taxed employees for receiving income. This is widely considered a very bad thing to have in a tax policy.
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Lard Tunderin' Jeezus
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posted 17 August 2006 01:45 PM      Profile for Lard Tunderin' Jeezus   Author's Homepage     Send New Private Message      Edit/Delete Post
To make a more pertinent point here: I thought that the NDP's mistake in their announced policy in 2004 was to base the taxation on the estate, rather than on the individual inheritor. Quite a few people could imagine their family estate (with a house and cottage, or a farm) breaking the million dollar threshold; far far fewer would imagine recieving a million dollar inheritance all to themselves.

And even those that could probably know that they couldn't expect much sympathy for having to pay a tax on the amount over that million.


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slimpikins
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posted 17 August 2006 03:30 PM      Profile for slimpikins     Send New Private Message      Edit/Delete Post
I happen to understand just fine what double taxation is. I also understand that those who 'widely consider it to be undesireable' are those who will have to pay the tax. These are generally the same people who follow an economic model whereby any sort of government interference in the economy such as minimum wage, health and safety legislation, labour standards, etc. is inherently bad.

It's pretty easy to follow. Those who are awaiting the multimillions of the family estate to pass into their hands are calling it bad, and some people buy into the spin. Call it double taxation, a death tax, the government basically stealing from a hard working multimillionaire who paid all the taxes (those that his accountant couldn't get him out of, anyhow), whatever you want. The fact is that those who either have the money coming to them or see themselves leaving it to their kids are against it, obviously.

When this issue was last debated in the US, the Democrats who were in favour of the inheritance tax made some concessions in their platform. First they said they would exempt the family farm. Not good enough. Then they said they would exempt the first million. Not good enough to win Republican support. Then they said they would exempt the first 100 million. Still couldn't get any Republican support. Starting to see the point here? For most people against the inheritance tax, it is not about protecting the family farm, grandma's house, or anything like that. It is all about being able to pass enormous amounts of wealth on to the kids, creating a dynasty-like situation, and basically setting up an aristocracy in a democracy where we are all supposed to be as equal as possible.

So you can call it double taxation, or whatever you want. I am in favour of as much of an inheritance tax as we can possibly put into place. 90% wouldn't bother me at all. And, yes, I have kids (5) and some assets of my own. And if I died before they were out of university or at least 18, I would expect some of my assets to provide for them until they were 18. But after that, I have confidence that if I raised them right they will be able to provide for themselves. They don't need daddy's money to make a life for themselves.


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jeff house
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posted 17 August 2006 03:56 PM      Profile for jeff house     Send New Private Message      Edit/Delete Post
Warren Buffet said that, without an estate tax, economic policy in the United States amounted to choosing the 2020 US Olympic Team from the children of the Olympic team of the year 2000.

In other words, if competitive excellence is really the goal of the economy, then reward those who can, rather than those who inherit.

Franklin Delano Roosevelt put it another way:

“In the last analysis such accumulations [of inherited wealth] amount to the perpetuation of great and undesirable concentration of control in a relatively few individuals . . . Such inherited economic power is as inconsistent with the ideals of this generation as inherited political power was inconsistent with the ideals of the generation which established our Government.”

roosevelt speech


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Proaxiom
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posted 18 August 2006 06:52 AM      Profile for Proaxiom     Send New Private Message      Edit/Delete Post
quote:
I happen to understand just fine what double taxation is. I also understand that those who 'widely consider it to be undesireable' are those who will have to pay the tax. These are generally the same people who follow an economic model whereby any sort of government interference in the economy such as minimum wage, health and safety legislation, labour standards, etc. is inherently bad.

Okay, sorry then, it seemed to me you misunderstood because the example you gave didn't qualify.

The second statement you wrote is nonsense. Those who believe it undesirable are economists, when they write about tax theory. They'll tell you that it has nothing to do with paying more or less taxes, it has to do with unintended consequences of not having a coherent tax policy. It is better to raise an existing tax than apply a second separate tax on what amounts to the same activity.

Anyway, as I pointed out above, you can easily have an inheritance tax without it constituting double taxation, so the argument on this front is moot.


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Rod Manchee
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posted 20 August 2006 07:10 AM      Profile for Rod Manchee     Send New Private Message      Edit/Delete Post
It seems to me that, as people like Stephen Gordon have pointed out, “it's a very sensible policy, but it was terribly presented.” There are two, interconnected, problems: the first is that it is presented as a specific, universally and uniformly applicable policy,, and the second is that the link to fairness and even-handedness in tax policy was very weakly made(maybe the proponents felt it was obvious - apparently not.)

As to the first point, the point of the exercise is to fairly stimulate investment in a diverse range of Capital investments without giving away the store. The current model is based on the assumption that all capital investments are equal, or to the extent they are not the market will sort them out. In a world of perfect information and rational investors, this would be an even-handed approach, but in a world of cyclical markets, Bre-X, etc and damage control(if any) regulation this is clearly not adequate.

As jester pointed out “The only path to building wealth for the average person is their principal residence” yet, while it is “capital,” it differs from other capital simply because of this fact. Different types of capital tend to be treated differently not because they are but because of their political base. This throws a bone to people who don’t make much from capital appreciation, while at the same time blurring the distinction between housing as investment and housing as necessary to life by providing shelter and a base.

People live in housing, and whether it is built and then sold or rented to them is an issue of wealth accumulation, not one of providing housing. For a multitude of reasons(public health, social stability...) it is in a government’s interests to promote good housing for its residents, but there is no reason why such a policy should differentiate between renters and owners. Rather than giving only owners a capital gains exemption on their housing, and alternative would be to replace such an exemption with an annual indexed deduction to taxable income of up to(say) $6K in housing expenses, applicable to both renters and owners with the option of claiming it annually or(as with a house sale) accumulating it for one-time use and indexed to avoid the “bracket creep” jester mentions. Such an approach would not substantially alter the benefit to most homeowners, but would extend its effects to renters. This would make the policy more saleable and reduce the tax burden for lower income households.

It is a common-place that the unique characteristic of capital is time, and so its value is attached to interest rates, real value, and all that. So one question is “why is there a(generally) 50% exclusion rate on capital gains rather than one which adjusted the recognised value of the investment for inflation(ie recognised the real value) and included gains above that amount as regular income?” One answer is that people might be motivated to stick with their investments a little longer, reducing the commissions paid to traders. This would result in the sale of fewer tennis club memberships, luxury cars, and offshore investments, all of which would cripple our economy. The 50% exclusion might be a necessary simplification in an era of pencils and Hollerith machines, but everyone’s tax file can now handle much more complex information and not using that capacity simply means the perpetuation of senseless unfairness.


From: ottawa | Registered: Apr 2001  |  IP: Logged

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