Quick (and Late) Comments on the Federal Budget

This will be a very short post about the federal budget.

I give this budget a B-.

Generally, I agree with most of Mintz assessments on the federal budget, since I am not a big fan of various tax credits for too many different groups. The only thing that I am not sure is how it measures up with those during the Trudeau years.

I am not so sure if the 2007 budget is so bad that needs a major tax reform to fix things, because I think future federal budgets will get better once there is a majority government.

--------------------------------

Mess in the making: We'll need another major tax reform in a few years to fix the Trudeau-style tax mess being cooked up by the Tories

FP Comment Jack Mintz Financial Post 936 Words

21 March 2007

National Post

FP19

English

(c) 2007 National Post . All Rights Reserved.

Finance Minister Jim Flaherty's 2007 tax plan is a mixed bag. Some intiatives move our highly complex tax system toward more efficiency and fairness, but others just complicate it needlessly to further political ends. The tax plan contains no broad tax relief; it instead succumbs to low-fiscal- cost targeted tax reductions, as it did in the last budget. Investors will be highly disappointed by the absence of capital-gains relief or any other significant savings tax incentives. Environmentalists will be delighted with a move towards a new environmental levy.

The budget even has some surprising new tax hits, such as a green tax on gas guzzlers and the removal of the fuel excise tax exemption for renewable energy. It also scales back incentives for oilsand developments and debt-financed foreign direct investments made by Canadian corporations.

Overall, the 2007 budget tax agenda has no plan to address the productivity and demographic challenges facing the Canadian economy over the long term, which have taken second place to environmental concerns.

In the past seven years, Canada has reduced high taxes on work, investment and saving. However, with one of the highest effective tax rates on capital in the world, high taxes on savings, and continuing high marginal tax rates, especially on low-income workers, we still have a lot of work to do to make our system more efficient and fair.

Lots of good ideas have been expressed this past year to improve the tax system, such as reducing marginal personal tax rates, increasing the basic personal exemption, expanding tax relief for over-taxed savings, removing capital-gains tax barriers when rebalancing portfolios, introducing a refundable dividend tax credit for pension accounts and RRSPs, and advancing planned corporate rate reductions. None have been included in this budget.

With federal revenue of over $230-billion, broad tax cuts seem elusive. Federal program spending will continue to inch up as a share of GDP over the next two years, and actual spending will likely be much higher than planned. This budget marks a turning point -- major tax relief seems impossible, even from this government.

At least, we could have started to make inroads with a pro-growth, revenue-neutral tax reform, rather than being driven by a hodgepodge of tax measures aimed to garner political support. The aim of taxation should be to raise revenue for government in the least painful way possible -- the best approach is to make sure rates are low and tax bases are broad.

The Conservatives' most important tax cut is the reinstatement of a universal tax credit, typically used in most countries to recognize the costs borne by parents to raise children. The federal credit, equal to 15.5% of $2000 for each child, as well as the bump-up in the equivalent- to-spouse credit, will be welcomed by families who have been unfairly treated.

Some other measures are consistent with this approach. Low-income workers will be encouraged to enter the labour force, although the new working income credit adds a 15% marginal tax rate on income between $10,000 to $21,667 as the subsidy is clawed back. Taxpayers will be delighted with the change to RRSPs allowing them to contribute to the age of 71 rather than 69, restoring the age limit of earlier years.

Certainly, the idea of making the tax structure more efficient, fair and simple takes a back seat to the rash of special politically driven measures.

We have expanded credits for certain transit passes, a hike in the lifetime capital-gains exemption for farm and fishing property and owners of Canadian-controlled private corporations from $500,000 to $750,000, special tax exemptions for participants in the 2010 Vancouver games, deductions for meal expenses for truckers (what about other working folks?), and incentives for foreign conventions and tourism.

At least, the two-year write-off for manufacturing equipment is provided temporarily (until 2009) before it starts doing real economic harm by allocating investment dollars from some profitable activities to those cherished as a tax shelter.

It is ironic that this government, which professed its desire to quit using subsidies for various industries, has decided the winners are Central Canada's manufacturing (which also was one of the few industries to get some other goodies, but these made more tax-policy sense). Meanwhile, Alberta's prosperous oil and gas industry takes a hit as oilsands lose their coveted accelerated cost deduction for investment. It is sensible to make the tax system more neutral among investments -- such as by adjusting capital cost allowances for certain assets to reflect the true cost of depreciation -- but this principle should be followed through on a fair basis and applied to all industries, rather than picking some and not others.

This and last year's budgets return us to the old Trudeau days of putting a chicken in every pot. We made a mess out of the tax system by introducing a host of special preferences that was corrected by 1987 via a major tax reform that lowered rates and broadened bases without costing the government money. At this rate, we will need another major tax reform in a few years.

- Jack M. Mintz is Professor of Business Economics, J.L. Rotman School of Management, University of Toronto and Visiting Professor at New York University Law School

This is for "The Hack"

Now, if you have been following this blog, you know that I used to post quite a bit of Paul Krugman, but have not done so for the past little while.

Why? Not that I do not like Krugman anymore (he is still one of the smartest out there and can articulate his arguments and defend them very well), but he is getting too much political rhetoric in his column. I felt like being "key messaged" by Paul from time to time.

Anyhow, I found one of his previous articles being advertised on the NY Times, and it is fairly interesting. Not that it is something that I don't know about, but it is how close that I almost ended up with a think tank.

.....and I hope that the Hack will have a chance to read that.

------------------------
April 23, 2000

How to be a Hack
By PAUL KRUGMAN

Oh, the outrage! The Web site maintained by Mobilization for Global Justice, the umbrella organization for last week's Washington protests, gave precisely one example of the economic evil the World Bank does. I looked into that story, and found that it doesn't quite have the claimed moral. Actually, the bank -- not always a lovable organization, to say the least -- in this particular case comes out smelling like a rose. But clearly, to say this in last Wednesday's column was terribly unfair. If a story confirms what the protesters believe, it is a telling example; but if it doesn't, explaining the truth of the case is a cheap shot.

And anyway, as a number of readers have informed me, everyone knows that I am a hired tool of global capitalism. This charge upset me greatly. In fact, I asked my masters for a raise, to 35 pieces of silver, to compensate for my hurt feelings.

But maybe this is a good occasion to talk about political bias in economic analysis. It is a real issue. But the corruption is more subtle -- and also more evenly spread across the political spectrum -- than my hate mailers seem to realize.

First of all, academic research in economics is by and large carried out without strong political bias. I'm not saying that what you read in the journals is always right (don't get me started), or that the researchers themselves are noble characters: successful economists, like successful academics in any field, are usually ambitious men and women with large egos. But the structure of rewards in a field in which top departments are constantly jostling for prestige favors cleverness and originality, not political correctness of any stripe.

While hired guns do not flourish at Harvard or the University of Chicago, however, in Washington they roam in packs.

Portrait of a hired gun: He or she is usually a mediocre economist -- someone whose work, if it didn't have an ideological edge, might have been published but wouldn't have had many readers. He has, however, found a receptive audience for work that does have an ideological edge. In particular, he has learned that pretty good jobs in think tanks, or on the staffs of magazines with a distinct political agenda, are available for people who know enough economics to produce plausible-sounding arguments on behalf of the party line. Ask him whether he is a political hack and he will deny it; he probably does not admit it to himself. But somehow everything he says or writes serves the interests of his backers.

Most of these hired guns work on behalf of right-wing causes: it's a funny thing, but organizations that promote the interests of rich people seem to be better financed than those that don't. Still, the left has enough resources to front a quorum of its own hacks. And anyway, love of money is only the root of some evil. Love of the limelight, love of the feeling of being part of a Movement, even love of the idea of oneself as a bold rebel against the Evil Empire can be equally corrupting of one's intellectual integrity.

How can you tell the hacks from the serious analysts? One answer is to do a little homework. Hack jobs often involve surprisingly raw, transparent misrepresentations of fact: in these days of search engines and online databases you don't need a staff of research assistants to catch 'em with their hands in the cookie jar. But there is another telltale clue: if a person, or especially an organization, always sings the same tune, watch out.

Real experts, you see, tend to have views that are not entirely one-sided. For example, Columbia's Jagdish Bhagwati, a staunch free-trader, is also very critical of unrestricted flows of short-term capital. Right or not, this mixed stance reflects an honest mind at work. You might think that hacks would at least try to simulate an open mind -- that simply for the sake of appearances the Heritage Foundation would try to find some tax it supports, or the Economic Policy Institute find some trade liberalization it favors. But it almost never happens.

Of course, honest men can disagree, and they can also make mistakes. But it's still a good idea to tune out supposed experts whose minds are made up in advance. Or at least that's what they told me to say.

E-mail: krugman@nytimes.com

Stomach Ache Caused by a Baby??

Now, this is even more weird...........

Is this another reason why obesity needs to be attacked??

------------------------------------

Obese L.A. Woman's Stomach Ache Is Really A Baby

(AP) LOS ANGELES A 39-year-old Los Angeles area woman went to an emergency room with a stomach ache and ended up with a baby.

Hospital officials said April Barnum didn't know she was pregnant when she came to an emergency room near her home this week, but gave birth to a full-term, 7-pound, 7-ounce boy by C-section.

The 420-pound woman said her size kept her and others from realizing she was carrying the baby.

Barnum said if the baby kicked, she didn't feel it.

Doctors saw the baby when they took X-rays of her abdominal area.

She was sent for prenatal testing, where doctors determined there was a healthy fetus ready to be delivered.

The baby is named Walter Edwards, after Barnum's fiance.

(© 2007 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. )

Two Stories about Birds

These are pretty interesting/funny stories, I found.

--------------------------------
Posted AT 7:16 PM EST ON 05/03/07

Farmer cries foul over impotent ostrich

Associated Press

BERLIN — Three teenagers may face a hefty fine if a court decides their festive firecrackers outside an eastern German farm scared the libido right out of an ostrich named Gustav.

Rico Gabel, a farmer in Lohsa, northeast of Dresden, is claiming about $7,600 in damages for the alleged antics on Dec. 27 and Dec. 29, 2005, by the three teens.

The farmer claims that fireworks set off by the boys made the previously lustful Gustav both apathetic and depressed, and thus unable to perform for six months with his two female breeding partners, according to the lawsuit.

Before Gustav regained his sex drive in the second half of the year, the farmer estimates he lost out on 14 ostrich offspring — worth more than $540 each.

The suit is to be heard March 12 in a regional court in nearby Bautzen, the court said Monday. The teens' identities were not released.

© Copyright 2007 CTVglobemedia Publishing Inc. All Rights Reserved.

--------------------------------

Posted AT 5:03 PM EST ON 05/03/07

Birds don't mess with the cowbird mafia

RANDOLPH E. SCHMID

Associated Press

WASHINGTON — Raise my kids, or else!

People have long wondered how cowbirds can get away with leaving their eggs in the nests of other species, who then raise the baby cowbirds. Why don't the hosts just toss the strange eggs out?

Now researchers seem to have an answer — if the host birds reject the strange eggs, the cowbirds come back and trash the place.

The so-called “Mafia behaviour,” by brown-headed cowbirds is reported in this week's online edition of Proceedings of the National Academy of Sciences.

“It's the female cowbirds who are running the mafia racket at our study site,” Jeffrey Hoover, of the Florida Museum of Natural History and the Illinois Natural History Survey, said in a statement.

“Our study shows many of them returned and ransacked the nest when we removed the parasitic egg,” he explained.

Dr. Hoover and Scott Robinson of the Florida museum studied cowbirds over four seasons in the Cache Rover watershed in southern Illinois.

While cowbirds leave their eggs in many other birds nests, the researchers focused on warblers in the study because warblers usually accept and raise cowbird eggs.

To see what would happen, Dr. Hoover and Dr. Robinson watched where the cowbirds left eggs in warbler nests, and then removed some of them.

They found that 56 per cent of the nests where cowbird eggs were removed were later ransacked.

They also found evidence of what they called 'farming' behaviour,' in which cowbirds destroyed a nest to force the host bird to build another. The cowbird then synchronized its egg laying with the hosts' ‘renest' attempt.

“Cowbirds parasitized 85 per cent of the renests, which is strong supporting evidence for both farming and mafia behaviour,” Dr. Hoover said.

The research was supported by the Illinois Department of Natural Resources and the U.S. Fish & Wildlife Service.

© Copyright 2007 CTVglobemedia Publishing Inc. All Rights Reserved.