From: cbbrowne@csi.uottawa.ca (Christopher Browne)
Subject: Re: Nothing is free ... (Was: Ontario "socialism")
Organization: Dept. of Computer Science, University of Ottawa
Date: Mon, 5 Oct 92 12:23:22 GMT

In article <BvGnur.2ty@watserv1.uwaterloo.ca> dbowman@warp (Don A. Bowman) writes:
>Gerald Olchowy (golchowy@alchemy.chem.utoronto.ca) wrote:
>: What we need to do is not have deterrance fees, but make the health
>: premium or health tax visible...for example: have an N% flat rate 
>: income tax dedicated to health care funding...and take N% off the
>: top of every welfare check and UI check as well.
>
>The problem with a flat rate for all income brackets is that this is much
>harder on lower-income people. Lower income people spend a greater proportion
>of their income on necessities, leaving less for the tax department. 

Agreed.

>This is
>one of the reasons I oppose the GST. An across the board tax penalizes
>exponentially as you lower income. 

That must be yet another definition of "exponentially" of which I had
not previously heard.

The only (observed) sort of tax that penalizes exponentially as you
lower income is a FLAT TAX.  Aka "head tax."  Everybody is forced to
pay a FLAT AMOUNT.  You, with an income of $40,000, pay a tax of $400.
I with an income of $4,000, also pay the same tax of $400.  As income
heads to zero, this becomes exponential, and actually hits a
mathematical singularity if somebody's income falls below $400.

I'd have no arguments with calling THAT a tax whose penalty increases
exponentially as income falls.  A constant "Band-aid" charge of $8.00
would fall into that category, assuming that this charge is actually a
tax, and not a fee for services/goods rendered.  (Is it "regressive"
for groceries to charge the same price for a loaf of bread to both the
rich and the poor?)

The GST is NOT that sort of tax.

To "penalize exponentially", the rate has got to increase more and
more quickly as you head in some direction.  And the way the GST
behaves is, if anything, anti-exponential.  The WORST rate that
ANYBODY can pay is 7%.  Assuming that the rate rises as income falls
(which isn't NECESSARILY true - see the next paragraph), the rate is
rising at a DECREASING rate as income approaches zero.  (Or $1000.  Or
$8000.  Or whatever you'd consider "low".)

For low income-earners, FOOD, which is GST exempt, is likely to make
up a LARGER component of their spending than for that of the "rich"
people.  The point here that EVERYONE will shelter SOME of their
income from GST.  It is NOT obvious that the poor are harder hit by
the GST than the "rich people that can choose to save/spend on GST
exempt stuff."  High-income individuals will have certain choices that
the poor don't; but this doesn't solve all of their GST woes.

It's worth noting that the introduction of the GST provided a ONE TIME
dose of inflation, and that that dose has not been repeated.  Assuming
that it is not drastically changed, which is pretty reasonable at this
point, the GST will quickly become IRRELEVANT (and it would be
quicker, and have fewer exceptions, if it had been at a slightly lower
rate, with more universal application, as was originally planned).

To wit: The GST is becoming a constant drag across the entire economy.
There has been some time (and pain) spent adjusting to it.  Once the
adjustment is made, it becomes yet another constant within the
economy.  A cup of coffee costs an extra 6 cents.  Guess what?  That's
little different from an extra dose of inflation.  We had worse in the
early '80s.

>A better way would be to base the tax on
>your current tax bracket (this ignores the problem of inequities, but o(h)
>well).

Well, that means tossing an extra "surcharge" into the income tax
system.  Not new.  Most of the measurement apparatus is there to deal
with it.

>It seems silly to me to pay tax on UI or Welfare -- the government spends
>money keeping track of giving you money, and then spends money keeping track
>of you giving it back. Dumb. 

Actually, it wouldn't cost MUCH - the government feels the need to
keep track of your income ANYWAYS, for income tax purposes.  This
SLIGHTLY complicates the job - but not much.

And actually, having the opportunity to "tax back" things like UI and
welfare payments alleviates problems with things like UI & Welfare
fraud.

Supposing I, as an individual earning $60,000 a year, decide that I
need some extra cash.

I come up with a bright idea about some sort of UI fraud.  I'll
collect UI simultaneously with collecting salary elsewhere.

Now, the government has TWO approaches for dealing with this sort of
problem:
a) Send out UI auditors to look for UI fraud
b) Wait 'til the end of the year, and check my tax return.

Seeing as how they already do b) for a variety of other reasons, b) is
probably the most effective way of dealing with "UI fraud."

And the REAL beauty of it is that it is relatively non-judgemental.
The T1 UI-Repayment (See ITA, Sections 60(n)(iii), and the Unemployment
Insurance Act, 1971) takes back the REALLY excessive parts of the UI
that I might have collected, and the ITA 56(1)(a)(iv) allows the rest
to be taxed.  It doesn't say "Go to jail - Do not pass GO - Do not
collect $200"; it just takes the money back.

And the verification system is ALREADY THERE.

>: In Ontario, a payroll tax (or a hidden income tax) is used anyway
>: for example...let's just make it a visible tax so people are aware
>: of the cost of the system.
>: 
>
>We are aware of the cost. We know that between 9 and 10% of our GNP
>is spent on medicare annually. We also know the total government
>revenues.

Yes, but that information is pretty impersonal.  I can look at that
information, and say "Wow!  There must be a lot of people out there
abusing the system!" and be unaware that I'm one of the ones doing the
abusing.

Allowing ME to see at least some reasonable estimate of what MY use of
the health system costs would be a very useful and very personal
object lesson.  Perhaps the cost of providing such information is
high; it could still be worthwhile.

There ARE some hyperchondriacs out there, and they might take pause if
they knew that their personal actions were costing the system $300,000
a year.  (Number picked out of the air, just for laughs!)

>I don't think we need new taxes with new administration departments
>when the old system is working.

Taking slight issue with the statement that the system is working, I'd
agree that I can't think of any TRULY useful way to change the system.
It's pretty shaky; but I'm not sure that pat solutions would actually
fix anything.

-- 
Christopher Browne
cbbrowne@csi.uottawa.ca
University of Ottawa
Master of System Science Program