Saturday, January 14, 2017

Liberals break promise to plug tax loophole for the rich

The loophole involves executives taking remuneration in stock options rather than cash. If the price of the stock is lower than the market the difference is taken as remuneration. An executive can claim a 50 percent tax deduction. when selling the stock.

The decision to not plug the loophole was made after pressure on Finance Minister Bill Morneau by bigwigs from the financial elite. Liberal campaign literature from the 1915 election proposed that as many as 8,000 people were claiming an average of $400,000 a year through the loophole. In the campaign the party platform called the loophole a disproportionate benefit for the wealthy and promised to cap the benefit at $50,000.
One of those who contacted the new Liberal government was John Manley himself a former Liberal finance minister who now heads the Business Council of Canada. In November of 2015 Manley wrote: “Doubling the tax rate with a retroactive impact on existing options would be unfair. Allow for a gradual phase-in of the changes.” Just a few weeks later Morneau announced that the changes would not be retroactive.
However, last March Morneau went even further and said that closing the loophole was completely off the table. The concern about wealthy executives profiting from the loophole is now replaced by concern that "small firms and innovators" will find their businesses hurt by blocking the loophole. When asked why Morneau never mentioned messages from larger firms and others, he replies that the Liberals are concerned to strengthen the middle class through broad consultation and notes that the department gets a large range of correspondence.
NDP finance critic Guy Caron noted: “There are many problems. I think that shows the influence Bay Street has over the Liberal Party. That’s something we knew in the past and it’s still very much like this nowadays. I think this is a perfect example of this.” The move shows a cynical attitude on the part of the government according to Caron.
Dennis Howlett, president of Canadians for Tax Fairness, noted: “The prime minister campaigned on a promise to get rid of the stock option loophole which has put billions back into the pockets of wealthy CEOs, including bank presidents, real estate moguls, and heads of powerful multinationals. Those guys send their lobbyists to talk to the Finance Minister and — just like that — their commitment disappeared.” The group also criticized the Liberal government for having private dinners with Liberal cabinet ministers and even Prime Minister Trudeau for a high fee. A ticket can cost over $1500. At first Trudeau denied that there was any lobbying at these cash-for-access events. Just before Christmas, Trudeau admitted that lobbying did take place but did not affect his decisions.
By the end of October this year, 16 fundraisers were reportedly held by Trudeau. But he had reportedly held 16 such fundraisers by the end of October. The Tyee has reported on two dinners in private homes — one in Toronto, one in Vancouver — attended by a combined 120 people. Some might have not been paying guests, but if 90 per cent were, the haul from those two nights would be about $165,000. Trudeau’s cash-for-access events to the end of October could easily have pulled in $1.3 million. Cabinet ministers and officials had held more than 70 similar fundraisers by the end of October. t=_blank]The Tyee reported on two dinners, one in Toronto and the other in Vancouver attended by about 120 people in all. Even if only 90 percent were paying guests the take from the two nights would be around $165,000. For all 16 the take could be up to $1.3 million. During the same period cabinet ministers and government officials held more than 70 similar fundraising dinners.
The tax loophole deprives Canada of about $750 million in lost revenue each year. It is now the little guys and struggling startups that are going to be hurt by the change even though most of the benefits go to executives who are already doing well. Canada's top CEOs earn 193 times what the average worker earns. They earn so much that they benefit greatly by taking much of their compensation as stock options which are taxed at half the rate of regular salaries. Yet Morneau justifies his refusal to act by saying: "I heard from many small firms and innovators that they use stock options as a legitimate form of compensation, so we decided not to put that in our budget." The Liberals and Conservatives agree on promoting policies that make the rich richer while the burden of taxes is placed squarely on less wealthy taxpayers. Some industry representatives suggested different ways of closing the loopholed that would have a less drastic effect on the wealthy. The Liberal government decided that they simply would not bother even to try to close the loophole at all. Maybe Stephen Harper the former Conservative Prime Minister suggested that idea to Morneau.