Taxes! Taxes! Taxes!

Hi Everybody,

It's that time of year again... Nope, not spring, because as the weather has just reminded us here in the GTA (Greater Toronto Area), we really can't rely on the past to help us figure out the weather's behaviour in the present (maybe it's supposed to be spring, but no... some more snow for us). No, now is the time when all the little accountants start sharpening their little pencils and stacking up the rolls of adding machine paper (I don't really know the name of that paper, sorry). It's Tax Season folks!!!

Aren't you all excited? I am! Well, I was, but I got my refund two weeks ago, so my excitement has subsided a little. I have safely tucked most of it away (no I'm not telling where!). I am kidding about getting really excited about tax time; slightly. Taxes are so easy now if you use software and file on-line that it literally takes only a week (maybe two if you file closer to the deadline) to get your assessment. If you have arranged for direct deposit, and you're getting a refund of your hard-earned money, then the money is in your account before you even get the paper assessment.

But I digress. My excitement was not why I wanted to discuss taxes today. A friend of mine sent me an email today that reminded me that I've wanted to discuss taxes before (but clearly had not gotten around to it). This is what she sent me:

Explaining Taxation

Sometimes politicians, journalists and the liberal left exclaim; "It's just a tax cut for the rich!" and it is just accepted to be fact. But what does that really mean?

Just in case you are not completely clear on this issue, I hope the following will help. Please read it carefully. Let's put tax cuts in terms everyone can understand:

Suppose that every day, ten men go out for dinner and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

* The first four men (the poorest) would pay nothing.
* The fifth would pay $1
* The sixth would pay $3
* The seventh would pay $7
* The eighth would pay $12
* The ninth would pay $18
* The tenth man (the richest) would pay $59

So, that's what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." Dinner for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still eat for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his "fair share?"

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to eat their meal. So, the restaurant owner suggested:

* The fifth man, like the first four, now paid nothing (100% savings)
* The sixth now paid $2 instead of $3 (33% savings)
* The seventh now paid $5 instead of $7 (28% savings)
* The eighth now paid $9 instead of $12 (25% savings)
* The ninth now paid $14 instead of $18 (22% savings)
* The tenth now paid $49 instead of $59 (16% savings... the least proportionate savings)

Each of the six paying customers was better off than before. And the first four continued to eat for free.

But once outside the restaurant, the men began to compare their savings: "I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man, "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

As a consequence, the first nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating overseas where the atmosphere is somewhat friendlier.

Okay, that may be a slightly heavy-handed example, but it's essentially true. As much of a socialist as I am (sort of), I am not a fanatic and I do understand money management. People (media, politicians) like to grab headlines, but the bottom line is that a tax cut is not 'free money' for anyone. It simply means that the amount of taxes we have to pay is proportionately less. That's why they call refunds; refunds. We're getting our money back. It was our money to begin with. It may seem as though the wealthy are getting a break when others are not (or are not getting much of one), but only because they were paying more originally. If we're not paying any taxes, then there is nothing to refund. If we're paying some, then we'll get some back, and if we pay lots, we'll get more back.

The bottom line for me is that I support paying taxes. I don't think I've ever complained about it, and I know several others who feel the same way. I think that we need to pay taxes to keep our social services alive and well. Yes, I am aware that there are some serious problems with our social services in Canada, and I am also aware that the more wealthy you are, the more opportunites your accountant will find to save you tax money. But, the wealthy (and businesses) still pay more in taxes than middle income or low income earners, and when there is a cut, the dollar value looks better for the wealthiest, even if the percentage doesn't.

When you enter into a social contract, there are benefits to be gained and there are obligations imposed. The taxes are one of the obligations we must meet so that we can benefit from living in one of the most developed nations in the world. Benefits like socialized healthcare and welfare, and passable roads and clean drinking water running hot and cold from our taps inside our homes (for the most part; if you don't have a home, you're probably not paying taxes).

I hope this little post of mine hasn't offended anyone!

Drive safe peeps!