May 9, 1952

LIB

Stuart Sinclair Garson (Solicitor General of Canada; Minister of Justice and Attorney General of Canada)

Liberal

Mr. Garson:

Would the hon. gentleman permit a question? Would he apply a means test to the baby bonus too?

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CCF

Stanley Howard Knowles (Whip of the Co-operative Commonwealth Federation)

Co-operative Commonwealth Federation (C.C.F.)

Mr. Knowles:

Over my dead body.

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CCF

Wilbert Ross Thatcher

Co-operative Commonwealth Federation (C.C.F.)

Mr. Thatcher:

I thank the minister for his question and I should like to answer it. I wonder whether it is sensible to pay old age pensions or family allowances to those with an income say of $5,000 a year or more. I take that figure out of the air, as perhaps it should be $6,000.

Income Tax Act

I should like hon. members to keep especially in mind that figure.

I am referring to those people who have no need of them. If the minister adopted this suggestion my closest estimate is that he would save the taxpayers about $30 million.

The hon. member was not here when the first family allowance bill was passed, so perhaps he has forgotten the implication of it. When the bill was first passed it was designed to help the lower income families, families with less than $3,000. A man who paid no income tax got the full amount, and then the benefit tapered off so that at $3,000 a man with a family really got no benefit. The extra taxes he paid and the family allowance evened out.

One year's experience with that, however, showed that it had the same grave weaknesses that our former old age pension scheme had. There were two weaknesses. The first, so far as the public was -concerned, was that this family allowance then had, in the minds of many people, the stigma of charity, the stigma of almost poverty; it was only people who were poor who were going to get it. In this country we have a great many proud people-that is, proud in the good sense of wanting their own independence-and they are not going to take handouts from anybody. During that first year a great many people who actually needed these allowances and who qualified for them would not take them because of that consideration. At the end of the first year a change was made in the Income Tax Act.

I may say that the second point-and an important point as far as the cost of government is concerned; and I know that is of great concern to the hon. member-is this. If the parent had the choice of having the family allowance and the $150 exemption or of not taking it and getting the $400 exemption, every single income tax form would then have to be checked over with the Department of National Health and Welfare to see whether the child had got the allowance. That would involve an enormous amount of paper work or red tape for both departments. Consequently a better plan was worked out the next year by the income tax department and the Department of National Health and Welfare, whereby the same result was achieved through the use of taxation but not with an open, obvious means test-with the humiliations which go with a means test and the stigma of charity which led certain proud and independent families to say: no, we will not get it-and at the same time preserving this important point that this money was not going to families such as those referred to by the hon. member.

Let me show you quickly and easily just how this plan works out. The hon. member for Moose Jaw suggested as an example this innocent bystander, the -hon, member for Comox-Albemi. I think it is most unfortunate to use as an example somebody who had not participated in the debate. As a matter of fact, I have the same view as has the income tax department, namely, that the individual's personal income is a matter for himself. However, we are extremely fortunate this week in seeing, in a national magazine, an estimate of the income of the hon. member for Moose Jaw; and since he raised the question-

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IND
LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

That is exactly the basis on which I want to work it out. If hon. members will just follow item 1, they will find that the income attributed to the hon. member by this magazine, which prides itself on the accuracy of its research, -comes under item (k) of resolution 1, whereby the marginal rate is 60 per cent. If we had not this new family allowance scheme, the hon. member could claim a $400 exemption for his one child, but because this family allowance is now made applicable to everybody he is allowed only $150 and receives family allowance. We have therefore removed $250 and put it back in the taxable income on this 60 per cent rate, which means he pays $150 more tax, quite aside from his other taxes, for the privilege of receiving $84 a year in family allowances. Therefore, far from having no means test and giving these family allowances to the rich, we actually are making the rich pay toward this great social measure even more than they did under the first year's plan where there was this arbitrary-, open means test.

I could describe it as having a built-in means test where there is no public humiliation, where all may recognize that whether they take it or not, they are going to be assessed as having taken it; where the people who need the benefit get the most benefit; and where those in the upper classes-in the brackets to which the hon. member referred in his speech-not only get no benefit but have to make a fairly substantial contribution toward this fund.

Hon. members might ask me now where the breaking point is. It is an interesting breaking point. The hon. member, in his innocence-I was going to say in his ignorance, but "innocence" is perhaps a nicer word, and being charitable I will use it- suggested $6,000. The average family allowance across Canada is $6; that is $72 a year. Where, on this $250 difference between the income tax exemption given for a family

allowance child and a non-family allowance child, does the tax equal that amount? At the 30 per cent level 30 per cent of $250 is $75. Again, if hon. members will just follow item 1-and I am keeping deliberately to this item

you will find that the 30 per cent level starts with taxable income of $6,000. Hence we actually achieved four or five years ago the very purpose which the hon. member set out to establish in his speech, and I think it is a purpose which everybody interested in this legislation thinks is the best way out. We have no obvious means test. It is a solution which gives the maximum benefit to the people who are most deserving of it.

Curiously enough, exactly the same built-in provision now occurs in our new old age pension plan. You might expect that. The able Minister of National Health and Welfare had this experience with family allowances; we heard for many years the objection everybody made to the open means test that is contained in the former old age pension, and with that experience in mind we were able immediately to apply a similar provision through taxation-the taxation outlined in this schedule-to the old age pension.

Once again I want to be fair to the hon. member and not put words in his mouth. I will read the exact words he used in referring to the need for a means test in connection with the old age pension. This is again to be found at page 1573 of Hansard.

He said:

We have had this scheme now for four months and I cannot help doubting the wisdom of paying old age pensions to Canadians who are wealthy and have no need of them.

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

You want a means test, in other

words.

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CCF

Wilbert Ross Thatcher

Co-operative Commonwealth Federation (C.C.F.)

Mr. Thatcher:

Just let me continue.

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

You want a means test.

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CCF

Wilbert Ross Thatcher

Co-operative Commonwealth Federation (C.C.F.)

Mr. Thatcher:

I must say that I find it a little

ludicrous that the taxpayers of Canada, overburdened as they are, should be paying an old age pension-I take this gentleman only as an example -to the Prime Minister (Mr. St. Laurent). I cannot believe that a man in his financial circumstances needs it. I understand too that we are paying the pension to quite a few senators. I suppose even my old employer, multimillionaire J. S. McLean, now qualifies for the $40 monthly cheque, although I do not know whether he is collecting it or not.

Let me take his own example once again, and we will just see what the net return is to his friend Mr. McLean under the new old age pension scheme. The fact that Mr. McLean is referred to by my friend as a multimillionaire probably puts him in the class around $100,000 a year income. Again if hon. members refer to these schedules here they will see in schedule I that that is at the rate of 75 per cent. It is near the top bracket. Therefore, out of the $40 a month that Mr. McLean may or may not receive-I

Income Tax Act

do not know whether he takes it or not-we take $30 back, leaving him a net of $10 a month. Therefore on the year he is $120 better off because of the introduction of this means-test-free old age pension.

But this is not paid out of the general treasury. We have established definite methods of contributions, of payments from everybody, including those on pension, for this plan. The first is the 2 per cent tax with the ceiling of $60. This gentleman is obviously at the ceiling. During the course of the year he pays first of all $60 as that contribution. Second is the 2 per cent sales tax. I tried to get some estimate from the dominion bureau of statistics as to what the spending habits of a man in that income bracket would be, but I was unable to get it. I do not know myself. I would presume that a man in the bracket of a multi-millionaire would spend $10,000 a year on goods other than food, fuel and building materials; in other words, goods on which sales tax is payable. So he is paying at least $200 a year more because of the fact that he is now receiving means-test-free old age pension.

Third is the two per cent levied against corporations. The incidence of this is very difficult to assess. Economists and tax authorities can dispute at long length where the actual incidence is, where that burden is carried; whether it is carried by the shareholders of the company; whether it is carried by the ultimate consumer or whether it is carried by labour who get less of the share of the profits because of the extra tax burden. It is sure to be somewhere in between. This gentleman is obviously a substantial shareholder in many corporations, and a consumer. I will say that his contribution in that way would be at least as large as his contribution to sales tax. But suppose it is even less than his direct contribution of income tax as a consequence of the tax changes to bring in this old age pension. He is paying at least $300 more in taxes to net this $120, once again showing that this measure was very carefully designed to have precisely the effect that the hon. gentleman is advocating, so that the old age pension will be of maximum benefit to those who have most need for it, and will be not only of no benefit but a major charge on those who have no need for it.

I know that the hon. member made these suggestions in good faith. He also mentioned the Prime Minister.

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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. Macdonnell (Greenwood):

May I ask a

question? I failed to follow the parliamentary assistant toward the end. I thought in his

Income Tax Act

consideration of this income that he had got to the point where he said that the recipient would have something like $120 left.

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

Yes.

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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. Macdonnell (Greenwood):

Then he proceeded, if I understood him correctly, to say that would be cut down by reason of various taxes which the recipient would pay on that.

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

No, that is the benefit he receives.

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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. Macdonnell (Greenwood):

May I just finish? If it is not cut down by taxes that he pays on it, I am not able to follow the argument.

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

I am sorry if I have not made myself clear. I am comparing the position of this gentleman before we brought in this old age pension plan; that is, before we put on this extra two per cent sales tax and the extra two per cent income tax and the extra two per cent corporation tax. In those happy days, so far as he was concerned, he did not have these extra taxes to pay that he has to pay now. When he pays those extras he does get a benefit of $120 a year, but let us see the extra he pays for that. That $120 is the net. He actually gets $40 a month, $480 a year. Then, being at the top level, he pays a 75 per cent tax on that, which leaves him a net of $120, so he is $120 better off as far as receipts are concerned. Let us see what he did for this benefit. In my rudimentary calculation he paid at least $300 more than the tax he paid before this scheme came into effect, that is before he got this $120.

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CCF

Major James William Coldwell

Co-operative Commonwealth Federation (C.C.F.)

Mr. Coldwell:

On the 2-2-2 formula.

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

Yes.

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CCF

Wilbert Ross Thatcher

Co-operative Commonwealth Federation (C.C.F.)

Mr. Thatcher:

Will the parliamentary

assistant permit me a question? Would he not be paying that whether he got the pension or not? That is the law.

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

That strengthens my argument, because if he does not care to take the $120, then he pays $300 extra and gets nothing back. I would not have used him as an example except that the hon. member wanted to use him as an example to strengthen his case. From the point of view of tax levels, he could not have picked a better case.

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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. Macdonnell (Greenwood):

May I ask a

question again? Am I not right in saying to the parliamentary assistant that by reason of putting this universal old age pension in we put on the 2-2-2 tax formula, and this man by reason of that pays this amount -I think you said $300; but surely that has nothing to do with it. He would be paying

this at the present time anyway. He would be paying it whether he got the old age pension or not. Surely it is not a fair argument to say that because we have created a tax as part of the institution of old age pension by reason of which these rich men will pay more than they receive therefore it costs nothing to pay them the pension. They would pay those taxes whether they got the pension or not. Surely in order to make your argument you have to figure what he pays on the exact amount of his allowance and not bring in other taxes which he pays.

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May 9, 1952