June 6: Happy Tax Freedom Day, Canada!

Today is the magic day when you stop working for the government and you start working for yourself. Yes, this is the theoretical day that when you go to work, the money you earn stops going to the government to pay for its budget and the money you earn goes into your pocket. If that seems confusing, don’t forget that your annual taxes are spread out through the year so your paycheque has only part of your annual burden removed each week. The idea is that if 100% of your paycheque went to your taxes, you wouldn’t get any money yourself until June 6. Wow, isn’t that enough to make you stand up and scream? On a week to week basis, we don’t really notice this. We’ve come to accept that it’s the price we pay to keep the lights on and the buses running. – I could say the mail delivered but it’s a private corporation and a whole other story.

So, when I present the idea that instead of spreading your taxes out, 100% of your paycheque went to pay your taxes and you wouldn’t get anything until June 6, don’t you wonder just what the heck “they” are doing with all that money. Welcome to the wonderful world of politics and government budgets. Yes, I’m paying the government all the way to June 5th then on the 6th I get something for myself. Heck, yes, just where are all of my tax dollars going? That’s a good question. No, it’s a damn good question.

When the newspapers are filled with story after story questioning the purchase of these new F-35 fighter planes for a gazillion dollars, I realise they’re are talking about my money. Just when did anybody ask me what plane to buy? I’ve read a number of experts criticizing this purchase so what if it turns out this is a mistake. Who can I blame for wasting my money? Did I work all the way to June 6th for nothing?

In the run-up to the election, Jim Flaherty promised to keep taxes low. Well, the Conservatives now have the majority we gave them so now they have carte blanche to do anything they want. Are taxes low? If I look at the Wikipedia article Tax Freedom Day around the world, I can see that Canada’s rate of taxation is 42.6%. Not the highest in the world as I see Norway is at 56.7%. However the United States is at 26.9%; India is at 20%; England is at 40.9%, and Australia is at 30.7%. Just what does this mean? Yes, the lights are still on and the buses are still running but why are so many experts complaining about the F-35? Just what the heck are the Conservatives doing with our money?

This year, it is estimated the Canadian federal government will be running a $30 billion deficit. That’s a deficit; I’m not talking about the debt which is estimated at $566.7 billion. This year, our government is going to spend $30 billion more than it earns. Just imagine that each year you spent more than you earned. How long do you think you could do that before you went bankrupt? Now running a government is a little different from you or me as we don’t have the power to raise money through taxes, but I’d say there are similarities and sooner or later something is going to happen or something is going to have to happen. Invariably we could see Tax Freedom Day pushed later into the year. July 1? August 1? How long will we all have to work until the magic day where our money is going into our pockets instead of the coffers of our governments?

Here’s a little note about the debt. Right now, Canada’s national debt is $566.7 billion; that is $16,600 for every man, woman, and child. That means the government has had to borrow that money to pay for its business. That means at some point, that debt must be paid off. Picture Canada walking into the bank to borrow $566.7 billion. At a modest 5%, each year that would generate $28,335,000,000. Yes, that’s $28 billion in interest. That means the government must pay the $28 billion then some to eventually pay off its debt. But, this year the government has a $30 billion deficit. That means it has to spend $28 billion just to cover the interest on its debt but it’s borrowing $30 billion. That would seem to mean that our government doesn’t earn enough to pay the interest on its loan and cover its other obligations. My goodness, I don’t run my own finances like that. Just how long can the Canadian government keep this up?

This is the catastrophe waiting to befall our southern neighbour. The U.S. has a debt of $14 trillion which works out to approximately $42,000 for every man, woman, and child. Just what mess are they going to eventually find themselves in if they’re aren’t already there? We need to pay attention. I don’t want Tax Freedom Day to end up in September.

Final Word

I’m sure somebody can work out some numbers which are more precise than the ones I presented above but the idea is the same. I can’t spend more money than I earn for very long. Sooner or later I am going to have to pay the piper. Yes, I know every course at university on macroeconomics discusses how governments have the ability to tax but come on, guys, you can’t keep doing that forever. My policy is that if I have a hundred bucks, I spend a hundred bucks. Actually, I spend less than a hundred bucks as I am a strong proponent of the principles laid out in the book The Wealthy Barber. It would nice to have a Porsche, I guess, but I don’t need a Porsche therefore I don’t own one. Instead, I’ve put my money in the bank to save for that rainy day. Maybe I’ll never be rich, but I can be “well-off” living within my means and that doesn’t mean spending more than I make. And at the moment, I don’t start making for me until June 6th. Spend wisely Stevie; I’m watching.

References

Wikipedia: Tax Freedom Day

http://en.wikipedia.org/wiki/Tax_Freedom_Day

Tax Freedom Day is the first day of the year in which a nation as a whole has theoretically earned enough income to fund its annual tax burden. It is annually calculated in the United States by the Tax Foundation—a Washington, D.C.-based tax research organization. Every dollar that is officially considered income by the government is counted, and every payment to the government that is officially considered a tax is counted. Taxes at all levels of government—local, state and federal—are included.

Wikipedia: Tax Freedom Day around the world

http://en.wikipedia.org/wiki/Tax_Freedom_Day#Tax_Freedom_Day_around_the_world

Many other organizations in countries throughout the world now produce their own “Tax Freedom Day” analysis. According to the Tax Foundation, Tax Freedom Day reports are currently being published in eight countries. Due to the different ways that nations collect and categorize public finance data, however, Tax Freedom Days are not comparable from one country to another.

Canada: June 6

Day of the year: 157

Percentage of the burden: 42.6%

Calculated by the Fraser Institute; last updated 2009

India: March 14

Day of the year: 74

Percentage of the burden: 20%

Calculated by the Centre for Civil Society; last updated 2000

United States: April 9

Day of the year: 99

Percentage of the burden: 26.9%

Calculated by the Tax Foundation; last updated 2010

The Fraser Institute – June 3/2011

Canadians Celebrate Tax Freedom Day on June 6, 2011

http://www.fraserinstitute.org/research-news/display.aspx?id=17626

Tax Freedom Day in 2011 arrives two days later than in 2010, when it fell on June 4.

The Fraser Institute – June 3/2011

Tax Freedom Day falls on June 6 as Canadians work an extra two days in 2011 to pay taxes

http://www.fraserinstitute.org/research-news/news/display.aspx?id=17634

Tax Freedom Day, the day when Canadians start working for themselves after paying off  the total tax bill imposed on them by all levels of government , falls on Monday, June 6, two days later than in 2010, according to the Fraser Institute’s annual Tax Freedom Day calculations.

But the report also warns that Tax Freedom Day would come 16 days later, on June 22, if governments paid for their current levels of spending with additional taxes, instead of running deficits.

“Finance Minister Jim Flaherty, who coincidentally is scheduled to deliver the federal budget on Tax Freedom Day, should put forth an aggressive plan that balances the budget within two years through spending cuts. This would provide the fiscal room for a multi-year plan to reduce taxes,” said Niels Veldhuis, Fraser Institute senior economist and co-author of Canadians Celebrate Tax Freedom Day on June 6, 2011.

“Today’s deficits must one day be paid for by taxes. The longer the government delays balancing its books, the more likely it is that Tax Freedom Day will fall later in the year.”

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