Saturday, 19 March 2011

Shutting down Harper's tax boutique

Shutting down Harper's tax boutique.
Beginning with his first budget in 2006, Mr. Harper has been an enthusiastic creator of “boutique tax cuts.” These are narrowly focused non-refundable tax credits aimed at the middle class in hopes of currying political favour for the Conservatives come election time. They include the children’s fitness tax credit, public transit credit, tradespersons’ tool deduction, textbook amount for university students, and the home renovation tax credit.

A closer look at one example reveals the inherent flaws, and substantial scope for savings, at play with boutique tax credits. The children’s fitness tax credit allows parents to claim as much as $500 for their child’s participation in such things as hockey, dance or kung fu. While such a program might properly be aimed at lower income families struggling to pay the fees, two-thirds of all claimants have incomes above $50,000. The actual dollar value of this credit is even more skewed, since non-refundable tax credits provide a bigger benefit to higher income tax filers. More than 70 per cent of the dollar value of this credit accrues to taxpayers earning above $50,000 a year. Keep in mind, only a quarter of all individual tax filers report income over $50,000.

This story gets worse. According to a University of Alberta survey of 1,000 parents, the tax credit plays a negligible role in encouraging participation in youth sport. For low-income families, it’s entirely ineffective. The only reason the children’s fitness tax credit exists is to woo middle-class families to the Conservative banner. ...

Figuring out the gain to government coffers from eliminating boutique tax credits is complicated by the progressivity of the tax system and interplay between different credits and benefits. Our calculations show that removing the fitness tax credit would provide $67-million in savings. Cutting the public transit credit, another politically motivated tax expenditure with no apparent practical impact, could add another $100-million. A comprehensive review of all federal tax expenditures holds the promise of even more substantial savings.
Apparently the upcoming budget is going to include a tax credit for children's art programs.

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