OJ, who?

I recently read a news story about a man named OJ Simpson. Now, understand, I have followed the news with avidity for the past 30 years; ever since I was a child. I am, in the cant phrase, a news junkie. However, until yesterday I had never heard of OJ Simpson.

Apparently, Mr. Simpson is some sort of retired film actor or golfer or something like that. Sometime in the late 1980s or early 1990s, he is alleged to have murdered his wife, Nathalie Wood, and a garbageman at their home somewhere west of the Mississippi. From what I read between the lines from the news reports, this killing did not sit well with Ms. Wood's family, the garbageman's family, or the police. That said, Mr. Simpson was not found guilty of the kilings in criminal court, but was found liable for the killings in civil court. Apparently, his larger crime to humanity was to expose the distinction between proof beyond a reasonable doubt and proof on the balance of probabilities. Moreover, I understand that Mr. Simpson moved to Florida to take advantage of the fact that, in that State, judgment creditors cannot seize or sell your home to satisfy your debt. Something to do with retired Republican politicians living there, I guess.

Now I want to ask you, the discerning reader, a simple question. First of all, why do I really care about OJ Simpson? Educated, objective researchers are saying that the American invasion of Iraq has led to the premature deaths of several hundred thousand people, including a six month old baby just the other day killed in an air strike. We are closing on 3,000 American men and women having been killed in action in Iraq since 2003. Earlier this month, President Bush suffered a political disaster when the American electorate sent the Republican caucus in Congress to the unemployment lines for its role in permitting this invasion. There is talk of impeachment, which is more than ever happened to Richard Nixon or Lyndon Johnson when they lost the Vietnam War.

I am sure that Nathalie Wood, or whatever her name was, and the garbageman, were perfectly nice people and should never have been killed, or not killed, depending on what court you listen to. However, they are indubitably dead, have been for a long time, and are not likely to be resurrected. Until the other day, that six month old baby was alive and was probably the apple of his parent's eye. He represented all that was hopeful and good about life. Then, an American bomb splinter tore his head apart and left him to die in pain, confusion and - no doubt - fear. George Bush is unlikely to be prosecuted for his role in the death of that six month old baby the other day, although he may be impeached. In the proverbial grand scheme of things, why is Mr. Simpson such big news when the newspapers failed to even mention that poor child's name?

Income Trusts, Part II

It is frightening how much American-style economic theory has permeated the thinking of the Canadian media.

This morning, on CBC Radio, a commentator was complaining about the decision to tax income trusts in the same manner as corporations. Among the commentator's concerns were that foreign investors would take their money to a jurisdiction with lower rates of corporate tax, that the Toronto Stock Exchange index collapsed after the announcement, that taxes on corporations are regressive, and that Canada has too much taxation to begin with.

It is true. Foreign investors did withdraw money from Canada immediately upon news of the change in Canadian tax law. I am told that the value of the Canadian dollar on international currency exchange markets fell by one cent in one day as a result. Leaving aside the fact that the Canadian dollar has been overvalued for quite some time now as a result of the diminished value of the American dollar on world currency markets, no one should be too worried that foreign investors are going to bankrupt the Canadian economy. Why? Because there are already plenty of places they can invest their money where corporate taxation is much lower, or non-existent. If you honestly believe that the only reason foreign investors invested in Canada was because of the existence of the income trust loophole, you are guilty of one dimensional reasoning. The real reason that foreign investors invest in the Canadian economy is because it is efficient, profitable and booming.

A one cent drop in the value of the Canadian dollar signifies that a minority of investors withdrew their money. Investment is amoral, but greedy. There are plenty more ways to make money in Canada than by taking advantage of a tax loophole.

It is also true that the TSX index dropped on 1 November as a result of the news. That is hardly surprising. Bell Canada and Telus saw their share values drop by about 13%, and Bell Canada is a major part of the TSX index's value. The reason the value of the Bell and Telus dropped was that they had already announced plans to convert from a corporate to an income trust structure. Investors had been snapping up shares on that news, and assuming the risk that the Government of Canada would not change the tax laws. They lost that bet.

Does anybody still believe that income taxes on corporations are regressive? Corporations benefit from carrying on business in Canada. Contrary to what many neo-conservatives will tell you, these benefits are real and significant. They get educated workers. They get a health care system they do not have to entirely fund out of their pockets after already paying taxes. They get a peaceful, lawful and wealthy society. They get close access to lucrative markets. Not the least importantly, their executives and directors get to live in a healthy and wealthy environment without having to live behind security fences and employee armed guards. All of these benefits are products of a society which values a significant government role in managing society. Neo-conservatives will call this "social engineering". That is nonsense. If running courts and prosecuting crimes is "social engineering", then we have had social engineering for an awfully long time in the western world. If a publicly-funded health care system is "social engineering", it is awfully popular among voters who see what private health care looks like in the United States. As I have said before, if you like what Canada has to offer, you have to contribute to the cost of paying for it. By and large, business corporations in Canada do contribute to that cost and are happy to do so. Otherwise, they would move to Panama.

Does Canada have too much taxation? This has been the touchstone of the neo-conservative movement since Ronald Reagan ran for President in 1980. It is based on the idea, espoused by Milton Friedman, that if you lower taxes, people get richer because the wealthy spend more money which "trickles down" to the rest of us. Margaret Thatcher believed this, and destroyed the British welfare state in her efforts to implement it. Britain has spent the last 16 years undoing the damage Thatcher wrought on her people, and I do not hear about a lot of people choosing to emigrate from Canada to Britain to improve the quality of their lives. Ronald Reagan believed it, too, but forgot to lower government spending at the same time that he was lowering taxes so that he (largely) was responsible for the US national debt. Brian Mulroney believed it, too, and he created the Canadian national debt, albeit with a generous head start provided by Pierre Trudeau, who did not believe it.

Truth be told, there will always be investment capital which gravitates towards what I call "lowest common denominator countries". Right now, that is places like Indonesia, India, Brazil, and similar places where you really would not want to live, but where you can have running shoes assembled for next to nothing. This is low end industry, and the world loves low end industry because it means the price of blue jeans and similar consumer products has not increased in 25 years. Would you buy clothing made in India? You probably already have.

That said, consumers do not just buy cheap consumer products. Automobiles are consumer products, and are decidedly not inexpensive. CNN is a consumer product, and people prefer it to Al-Jazeera by overwhelming margins because they consider it superior. The New York Times is a consumer product, and in North America it outsells The Times of India by a huge margin. Would you buy a car or a news service made in India? I think not. Does Honda make huge profits? Of course. Does CNN? Of course. Are Hondas and CNN made in countries with high rates of income tax, certainly.

Has Canada had income tax rates which were too high? Probably. Are they too high right now? I do not see a lot of Trabants on the highway, and the boutiques of Yorkville and Niagara-on-the-Lake are still busy, so I do not think so.

To belatedly make a long story short, Canada's economy is doing just fine, thank you. In order to keep it that way, income trusts needed to be taxed at an appropriate rate.

Income Trusts and Other Tax Avoidance Schemes

In case you did not hear, Finance Minister Jim Flaherty announced earlier today that the federal government will shortly begin taxing income trusts in the same manner as corporations. This set off a storm of controversy among low-brow financial types and knocked some wind out of the Toronto Stock Exchange index.

An income trust is a tax avoidance scheme which ensures that income tax is primarily paid by the beneficiaries of the trust rather than by the corporation and the shareholders. It is perfectly legal, and you have to admire the ingenuity of the lawyer or accountant who invented it (I suspect he or she was never adequately thanked). The fear from the Canada Revenue Agency's perspective was that, if companies like Bell Canada or the major banks suddenly set up income trusts, they would stop paying income tax and Ottawa would have to collect same from the beneficiaries in the mother of all income splitting schemes.

Now I dislike Revenue Canada as much as the next taxpayer, but I willingly pay my taxes each year so that my kids can continue going to school, the police and army show up to work, and our national park service is not sold to Disney for use as a chain of theme parks. Canadians pay a lot of tax, but we enjoy a very high standard of living, too. Companies like Honda and Toyota love building new factories in Canada because, although they pay high rates of tax, those taxes go to pay for hospitals, doctors, schools and infrastructure rather than the cost of invading Iraq.

There were a lot of letters in The Globe and Mail this morning complaining that the Conservative government has betrayed small-time investors such as retired people. These people tended to vote Conservative anyway, so this is probably a real blow to Stephen Harper's chances of forming a majority government.

Now, I appreciate old people. Some of my best friends are old people. But give it a rest, folks. The real beneficiaries of the income trusts were Bell Canada and other companies which basically stood to save a fortune in taxes. If the major banks had played along (and they would have), our nation's tax revenues would have declined precipitously, threatening all of the wonderful government programmes at the federal, provincial and municipal levels. Guess what that would have meant? Individual tax payers (ie. you and I) would have seen our rates of income tax increase. Instead of individuals paying more than 85% of the freight for government programmes, it would have gone up above 90%. Sound fair to you? Of course not. Income trusts did not benefit small-time investors. They benefited rich people, who barely pay any taxes to begin with.

Now I know that people with investment incomes are on fixed incomes. Actually, that is not true either. Investment incomes fluctuate with the market, interest rates, and any number of other factors - up as well as down. But let's pretend that people with investment incomes are on fixed incomes. The reason so many people in Canada own their homes, have investments, and can retire with a good deal more comfort than their parents or grandparents ever enjoyed is because Canada is both a rich and fair country. Say what you like about crazy left-wingers like Trudeau and Douglas, but we are the beneficiaries of their foresight in ensuring that people like Conrad Black do not keep all of the money.

Lately, we have seen a fair bit of laissez-faire mumbo jumbo in public forums. People assume that they can have all of the benefits of residing in Canada without having to actually pay for any of it. Indeed, many people assume that they have the right to not pay for it at all. They are happy to take the free health care, the RRSP tax shelters, the peace and the political and economic stability, but think that all of this should be funded with the absolute minimum contribution from the taxpayer. My favourite are those people who say that they should be entitled to "opt out" of the provincial health care systems, thus demonstrating a complete lack of understanding about how insurance actually works. I always tell them that if they really want to opt out, Buffalo and Detroit have excellent medical facilities that accept all major credit cards.

All of this is nonsense. If you really like laissez-faire government, move to Mexico, Panama, or Pakistan. Or move to England in 1830, for that matter. You will love it. No taxes if you do not want to pay them. No health care system to opt out of. No political stability. No economic prosperity. None of the stuff that tax money pays for.

Notice something else? In these sorts of countries, wealth is concentrated in the hands of a tiny minority while the majority of people live in squalor and old people die of neglect and hunger. That is what a laissez-faire system really provides for the vast majority of people. The people who really benefit from the laissez-faire system are people just like Conrad Black, and I bet he wishes that the US justice system was a little worse-funded these days. I find it horrifying that ordinary, middle class people who have worked hard all of their lives to build a nest egg fall for the nonsense that Black and his peers espouse.

I will take Trudeau and Douglas' vision over that vision anyday.