Tax Strategy

The government and the people differ

There was a time, quite some time ago now, when the government existed to serve the people. Governments did things that were beneficial and needed economic and legal force to get them done. The St. Lawrence seaway and the large airports would not be present absent this ability. Think of highway systems.  What developer could do those?  None.

Times are different now.

Governments still do some things that only they can do, but attitudes have changed. Strategic vision is now less for the people and more for the enduring glory of the institution of government.

Case in point – proposed amendments to the taxation of small businesses.

There is a fundamentally different viewing point problem with the proposal. The government wants, possibly needs, more money to fulfill their plans. They use the diversion of fairness to mask their grab. Ask yourself one question. Can a tax system be fair if the proceeds of the tax are not spent on things the people want and need?  How about if a meaningful share of the money is wasted?

Answer: Fairness is a trick.

Economies are not built on political narratives.

Opposing attitudes.

Government attitude seems to be they are entitled to the money from anywhere in the economy and all they have to do is make a good political narrative.

On the other side, businesses think all the money they earn is theirs and are reluctant to give any to the government.  Not a very smart approach either. Mature business people know they must pay tax.  The infrastructure they depend on is important and costs to maintain. No one begrudges some level of basic tax.

When governments feel entitled the people have a problem.

Recall bank robber Willie Sutton.  When asked why he robbed banks, he replied, “Because that’s where the money is.” So with the government. They cannot impose adverse taxes on people who have no money and no income.

The problem is a simple one to see.

Who builds wealth.  

Not the government. They absorb money. Business people create new wealth with new businesses and efficiently operate old businesses. They employ people.  Your friends and neighbors. They support their community.

Business ownership has risks, but once they are established, fewer than people would have you believe.  The young ones are the risky ones. Most go away within five years. They didn’t have any income to speak of so no tax policy will hurt them.

Should the government feel able to take money from the successful? Seems so.

Will the government’s taking have any effect?

Not much on the older businesses. They can afford to manage their taxes effectively. The easiest solution is to go elsewhere. Maybe not all at once. But, you can bet, given the opportunity to expand, it won’t happen here. Ask Ontario how a dumb approach to business is helping them.

It will affect young businesses.  Fewer will form. Of a hundred that form, probably only thirty would make it to the successful level even in good times. The problem is no one knows who the thirty are. If instead of a hundred forming only seventy do so because they entrepreneurs can’t see the long value to them, now only 20 or so will be successful.

There are 10 missing successful businesses. Each with zero Canadian employees. Each with zero Canadian suppliers, bankers, lawyers, accountants and advertising agencies. Each paying no tax at all.

To believe otherwise is delusional. Things you punish, you get less of.

Is there a need for reform?

Probably, but this looks like a foolish way to do it. The government will get more money in the short term and materially less in the long term.  Governments should have a time scale where the long run is somewhere beyond 90 days in the future.

As my friend Gord Stovell recently commented,

“Canadians want the best social services, yet they discourage the things that will give them the resources to provide them.”

Things break down when governments behave like kings. The government thinks all the money is theirs and you can keep some while the people think exactly the opposite. Seriously conflicted viewing points.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  866-285-7772

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