Blessed by the Potato

In my riding, both this election and last, 58-59% of people voted for either NDP or Liberal (the centre/centre-left parties). Last time it was 40% Liberal, so the libs got it. This time, 34% Liberal, 25% NDP, splitting the vote and letting the cons take it. The same for my parents’ riding: 49% lib, 10% NDP last time; 40% and 18.5% now, splitting the vote just enough for a con to sneak in. As you may already know from previous discussions on electoral reform, I prefer STV to PR, but nonetheless, have a read of the comparison b/w FPTP and PR at Fair Vote Canada.

Anyway, as you may expect I was disappointed by the con majority result. To be fair, I’m a curmudgeonly cynical old spud who’s managed to find fault with every government at every level, but Harper enjoys a special level of asswaditude. I had a list of things I didn’t like about the Harper government as long as my arm going into this but I think my discontent can be best summed up by one thing: a contempt for data.

The day after election day and naturally the papers are full of articles with titles like “what can we expect from a Harper majority” and I can’t help but think “who can possibly know?” It’s been a pretty ad hoc government so far, and the implementation of most of the election promises were explicitly not even going to be attempted for years. Likewise with the “now that the cons have a free hand with their majority…” articles: were they really all that constrained by the minority status of their government before?

Anyhow, as much as I’d like a better system than FPTP, I have to say how impressed I am with Elections Canada. This was the second year I’ve worked the election, and the procedures put into place for our elections seem quite well designed. The paper ballot system is elegant and nearly fool proof: there’s no conspiracy-theory allegations of manipulating the machines, and hardly any opportunity for failure. The votes are hand-counted at the end of the night in full view of candidate’s reps and any members of the public that care to audit the process. We usually have a count within an hour or so, and accurate ones at that: I’m not aware of a recount ever overturning the initial count. A small army of temporary workers are employed so that polling sites are well-distributed for convenience, and generally there are less than 300 electors per poll site so the counting job at the end of the night is not too onerous (I had about 200 yesterday, and it was a busy day with good turnout). There are many features in the process to ensure the sanctity of the vote: that the ballot put in the box is the ballot the elector was given, that only the elector marked the ballot, that it is anonymous, etc. It’s also well-designed to allow said army of temporary workers to carry it out: simple instructions, every document and envelope is numbered for reference, and flowcharts and checklists to follow to make sure everything is done right. After all, a great many workers are doing it for the first (and only) time, and even the experienced ones only do it once every few years, so it’s essentially always training day.

Personally, it was a good experience. Some decent pizza money for a day of moonlighting. It felt good to interact with people and feel confidently competent at a job. One of the downsides of research is that often I’m doing something no one else in the world has ever attempted before, and I’m in competition with the ones who have, so I have few resources to seek help or even confirmation if I’m doing something right — if there even is a right way. There’s a lot of trial-and-error-and-disappointment involved, which makes it hard to ever be sure I’m doing something right. And even though I’m a smart cookie, on the grad student/scientist scale I’m of somewhat average intelligence/competence. So it was a nice pick-me-up to be the one who knew what was going on: even my CPS was turning to me for help with procedures and to help solve problems (and she said I should be a CPS next time around). It’s also a nice motivator to remind me that clerical work and customer relations is not really what I want to do with my life.

It’s tax time again, so discussions about the tax system are bound to pop up, indeed, here’s a thread on CMF. This time last year I covered the big problem with the flat tax system: that it severely compromised progressivity/fairness for simplicity, and that unless it also dealt with the other bits of the tax system, it wouldn’t really help the complexity issue. But, the people who espouse the flat tax idea do generally share a desire to simplify* the tax system, which I can get behind.

Indeed, I think three guiding principles for our tax system should be: effectiveness, fairness, and simplicity. Simplicity, in my opinion, should come last: it’s nice to have, and helps ensure fairness if people can actually wrap their heads around how it all works, but we should only try to make it as simple as possible and no simpler.

Where to start? Well, first off, look at the problem. As I’ve said, the problem is not that we have tax brackets.

My tax return is 29 pages, and most of that is just focused on figuring out what my “taxable income” is to begin with — later splitting that up into brackets is trivial. And the fairness it adds is certainly worth the tiny complexity there. But the length on the page belies some of the more complex issues, for example, Wayfare bought a computer for her self-employment business, and there are at least four different categories for claiming depreciation for a computer. There are two different ways to enter rent as an expense, depending on whether you rent an office/commercial space for your business, or are claiming a portion of your home rent. Do these fine distinctions really matter that much in the end? Then there are smaller issues that add to the complexity needlessly: as a student, I get a T2202A form from my university, and enter in the amount of “eligible” tuition I paid from there and the number of months I was enrolled, and then do two more calculations: multiply the number of months by $400 for the “education amount” and again by $65 for the “textbook amount”. They’re not hard calculations, but a) why couldn’t I just multiply once by $465, and b) why couldn’t the university do that and put it on the T2202A so I just have to put in one number to the return itself? I don’t actually mind, since the computer does the heavy lifting these days anyway, but it does go to show that the tax return was not designed or closely reviewed with simplicity of completion in mind.

Plus the government seems to like making the return more complicated by needlessly throwing things on there that they could be funding directly. Like the transit pass tax credit: wouldn’t it be just as easy to directly subsidize the transit systems? This ties into some general psychology and misunderstandings out there: I know a lot of people who have a bizarre hatred of taxes. That desire to save on taxes can help drive behaviour far beyond the economic incentive of the dollar-value saved. Look at the home renovation tax credit last year: how many people scrambled to get work done to take advantage of the tax credit? How many people would have done the same if the government had directly subsidized things by <13%? Or better yet: how many people happily engage in money-losing activities for a tax break? I’ve even seen “gurus” on TV recommend buying a money-losing “investment” condo because the money lost gives you a tax deduction! So despite the complexity, it appears as though our array of tax credits does create behaviour-changing incentives that cost the government less than direct spending might.

So, we have many different issues leading to complex/difficult tax returns:

1. Inefficient form design (of the form multiply X by 400, then, multiply X by 65, then, add those two). Very easily fixed with computerization (letting the tax program handle the multiple steps), or shifting some of the burden around to providers of forms, or just fixing the tax return design in the first place.

2. Inefficient/confusing segmentation of expense classes, often for arbitrary reasons (computer equipment purchased on certain dates are treated differently, “network equipment” is different again from computers, cars over $30k are different from cars under $30k, buildings purchased before 1987 are treated differently from those purchased after, which are again a different beast if made of frame or stucco-on-frame or corrugated metal… expensing a portion of the rent you pay for your home to have a home office is different than expensing rent for an office office).

3. Confusing wording (“Include general purpose electronic data processing equipment (commonly called computer hardware)” vs “computers and electronic equipment”). This may go away if expense classes go down to 2-3-4 (in my mind, buildings vs all other equipment — I don’t really see how it matters that much whether your filing cabinet or car or computer are depreciated on different timescales, just pick a few increments of years, like 3, 5, 7, 10, 50 and run with it).

4. Different treatment of income from different sources. I understand why dividends are taxed more favourably than regular income, and I agree with it, but it does add complexity — especially with “eligible” and “ineligible” dividends and the whole gross-up plus credit issue. Same for capital gains – tracking ACB (especially with RoC distributions) and carry-forward losses can get tough over the years; though making capital gains tax free would blow the Fraser Institute’s minds.

5. Special deductions: everything from transit passes to your kid’s fitness programs or your home renovation gets a tax credit these days, and each comes with receipts to keep. Perhaps some of these aren’t worth bothering with.

6. Special treatment for sectors: I said two posts ago that “drilling for oil and gas is its own reward”, yet there are special (and confusing) tax breaks for flow-through shares and other activity. Likewise, farming, forestry, fishing, and I believe “Quebec” have their own set of rules and forms, expenses and incentives.

7. Stuff for low income people. There are a lot of different social programs out there to support low-income Canadians, and even more for seniors. GST/HST rebates, property tax rebates (though that’s provincial), GIS for seniors, OAS for seniors, age credits… can this be streamlined?

8. RRSPs. I’m a huge fan of the TFSA – it makes everything so much simpler, there’s much less tracking to do, etc. I think we could just bump up the TFSA room to $20k/yr and do away with RRSPs entirely going forward. No more trying to figure out your tax brackets and deduction/refund, no more losing contribution room when you need to withdraw, no more pesky HBP or LLP, no more confusion over the difference between tax liability and tax withheld on withdrawal. The RRSP is a huge cause of complexity in the average Canadian’s tax return (for those that don’t invest outside of a tax shelter or have self-employment income, it’s pretty much the only amount they have to track year-to-year and carry-forward). But because they’re stricter for long-term savings, they’re better for encouraging average Canadians to save (and also because they come with a refund which people like beyond all rationality). I don’t seriously expect anyone to say we should scrap the RRSP to simplify the system, because there are many people who might not save for the future at all, were it not for the structures of this device. But it does serve as an excellent example of the trade-off between policy and simplicity: it’s complicated, but we can’t very well get rid of it.

9. Labour-sponsored funds. I don’t even really understand fully what they are, but everything I’ve read about them suggests that maybe they shouldn’t exist at all.

10. Carrying expenses. A lot of column space is spent on people discussing how to structure their borrowings so that they become tax deductible (google “Smith Manoeuvre/Maneuver” for example). But why is interest an expense for borrowings at all? Yes, it’s a legitimate cost of making money with leveraged investments, but making it so encourages leverage. After the financial crisis, perhaps the government should be asking itself if that is something it wants to create incentives for. High amounts of leverage lead to wild booms and perverse risk avoidance — find a “safe” thing to invest in, then lever the hell out of it until it yields like a risky investment… but that process invariably turns the safe thing into a risky thing (see: real estate, ABCP, etc). Getting rid of interest/carrying cost deductions would also help simplify the tax return. Though it would create a disconnect between people and corporations, since it would be pretty much impossible to get rid of leverage in the corporate world. Perhaps another example of irreducible complexity.

11. Donations, especially political.

Of course before getting into simplification we need to consider the other guiding principles for a tax system:

Effective: Is enough money raised? If the tax system is used for policy (e.g.: targeted tax credits/deductions), are these effective at what they do (and worth the hit to simplicity)? Is the system actually collecting taxes, or is evasion too easy (cf. Toronto’s vehicle registration tax)?

Fairness: is it fair? Does it meet with the Canadian sensibility of progressiveness, the notion that the poor should pay less and the rich pay more (within limits) because of their means? Does it otherwise tax everyone fairly?

The way I like to think of that one wrt progressivity is that life taxes you on the first bit of income: just meeting your basic needs like food, shelter, etc. The government, which explicitly provides these basic considerations for those in need, shouldn’t be taxing income that would go there. As you get more income, more of it can be spent on wants (including upgrades to shelter/food/security needs) and savings for the future, which means that income is more able to be taxed.

Anyway, simplification is, somewhat ironically, not a simple topic: the tax system is in part as complicated as it is because of all the different competing interests it has to serve.

* – some of them just don’t like the idea of a progressive tax system where the rich pay proportionately more than the poor, so the flat tax is as much about ideology and their idea of what’s fair as it is about eliminating complexity. To some extent, this fits in with the biblical notion of tithing — 10%, no matter what you make. That of course raises many debates from those of us who think about taxes in a progressive way, since at some point (e.g., when you’re trying to feed yourself on a buck a meal or less) you should probably become a recipient of the church/state’s largess, rather than paying into it.

There was a recent CBC Marketplace episode on homeopathy, in particular, the bizarre decision by the Ontario government to regulate some homeopathic preparations. I have to agree with the hosts of the show that this is a dangerous move by the government, as it may lend credibility to a practice that is void of any evidence of efficacy. For those unaware of what homeopathy is, it’s an old belief that if an agent does something (e.g.: arsenic is a poison that can lead to gastrointestinal and liver issues), then a dilute solution of that something does the opposite (e.g.: a homeopathic preparation of diluted arsenic is given for gastrointestinal issues). However, homeopathy has never been shown to do anything, and the theory and dilutions were developed before key advances in our understanding of molecular chemistry: many homeopathic tinctures are diluted so much they contain zero molecules of the supposed original substance. I had long heard about British evidence-based medicine, skeptics, and science advocates in general battling against homeopaths in the UK, but this Marketplace episode was the first time I found out that there was any homeopathic activity here in Canada. I found that surprising, as unlike other controversial alternative therapies (e.g.: herbal/”natural”, high-dose vitamins, chiropractic), homeopathy is a whole new level of nonsense. There’s literally no there there. It’s not that the evidence is weak, it’s that there’s no evidence, and no rational theory suggesting any efficacy. Homeopathy is completely, utterly, without merit.

I wrote to my MPP & Minister of Health and Long-Term Care Deb Matthews with one simple question: is this a program that is a cost centre for the government, or does it generate revenue by charging fees to the homeopaths? This is a relevant question, as we must control health care costs in our province, and we can not afford to waste money “regulating” sugar water.

I hope that the government is at least making money off the attempt, because I do believe that certifying in any way a homeopathic preparation does, in the eyes of the lay public, lend an air of credibility to the woo-woo. It’s been over a month, and I haven’t heard back on that yet. I got a response from one of her staffers that I would hear back later, but after several weeks with no response I re-sent my question. It’s been another few weeks and still no response.

“Dr. Joshua Tepper: People are choosing health care, people are voting with their feet, if you will.”

You know what else people are voting with their feet for? Marijuana. People who know me know that I am not a user. I despise the weed, and don’t think really it should be legalized (though to be fair, cigarettes should be criminalized). But you know what? I bet that there are way more users of pot than there are of homeopathy in Ontario. And there is much better evidence that pot might actually help a few medical conditions! So I don’t see any reason for this kind of “voting with their feet” logic for homeopathy but not for marijuana.

Something else millions of Ontarians are voting with their feet for is vision and dental care. The government’s never paid for dental care, and cut regular eye check-ups out of OHIP coverage years ago, yet somehow has the money and energy to worry itself about homeopathy?

Ugh.

The legislation to make the TTC an essential service is in the pipeline, and may well be in force by the end of the month, when the contract again comes up for negotiation. It is a delicate issue, but one I’ve supported for a while.

I don’t want to be too indelicate on the matter, and there are several intertwining issues.

The first is the unique situation of the TTC itself: many people in Toronto rely on the TTC to get around. Not just for commuting, but getting to doctors’ appointments, picking up groceries, and just living their lives. Because transit in Toronto is decent, people don’t have cars: most new condo buildings don’t even have parking spaces for 1 car/unit; some famously have none. Likewise, we don’t have the taxi fleet, road infrastructure, or parking spaces to fully deal with the spill-over from a transit strike: the city shuts down. With some notice, the worst of it can be dealt with, at least temporarily: people can shift their hours to spread out rush-hour, businesses can arrange to work with skeleton staff and get people to telecommute, individuals can arrange car-pools, and people can restock the fridge. Of course, last time around, the union promised to provide notice, and then walked off at midnight, stranding people in a disgusting display of selfishness and greed. That kind of thing can’t be allowed to happen again: if the union can’t be trusted at its word to provide notice — or even to use something less than the nuclear option, like reducing service to holiday hours — then essential service legislation may be the only way left to keep Toronto moving, and to give people the confidence they need in the TTC to leave their cars at home.

With the chaos in Wisconsin, a parallel was almost immediately drawn:

“The leaders were also quick to equate Ontario with Wisconsin, where tens of thousands of workers have protested a proposed crackdown on public-sector unions.

In Ontario’s case, however, the legislation is not about saving money – declaring the TTC an essential service is widely expected to cost the city more in the long run. Ontario Labour Minister Charles Sousa stressed that the legislation is expressly designed for the unique and critical role Canada’s largest transit system plays in the lives of Torontonians.”

And that is a different issue. Even though I suppose you could label me as anti-union (I’ll try to clarify that below), from all accounts it looks like the republicans of Wisconsin have lost their minds. They’re not just trying to readjust the balance of power, or to get some much-needed concessions from an obstinate, entitled union (indeed, it appears as though the unions are willing to work with the state to try to balance the budget), but rather to annihilate collective bargaining all-together. And that’s going too far.

I’ve written about the power of unions before, and how in particular with government (garbage collection, TTC, etc.), the balance of power is out of whack: the unions hold too much. But removing the right to organize entirely isn’t the answer. Essential service regulation for some may be the key, especially where sudden strikes can lead to hardships. Other striking restrictions may be called for, such as some minimum standard of service during a job action (e.g., at least once-a-month garbage collection).

Part of where I stop seeing eye-to-eye with government unions is in their monopoly nature: just as corporate monopolies can lead to abuses, the same can happen on the labour side. I don’t want to take away anyone’s right to get together and collectively bargain, but why, once a union is formed, is that then the only option? If a union wants to walk off the job rather than negotiate, why can’t the government then try to negotiate with someone else to do the job? Why does it take a special exemption for someone who disagrees with the union to get a job, and even then, she still has to have union dues deducted from her pay (though in this case, they won’t go to the union)?

The balance-of-power just isn’t quite right at the moment. I don’t think radical reform a la Wisconsin is in order, but something along the lines essential service regulation does a lot to re-level the playing field. It’s just not fair that tax-payer funded workers are better off than many of the tax-payers themselves. Pay increases can’t increase faster than the rate of inflation indefinitely; and stuff like this burns too:

“The Ontario Liberals, trying to trim a nearly $19 billion budget deficit, raised the hackles of local unions when they announced in the 2010 budget that they would seek a two-year wage freeze on about one million public sector employees. However, apparently to avoid a labour showdown, the government failed to introduce legislation to back up the plan. Non-unionized salaries were frozen immediately. That means many unionized public sector workers have been getting pay hikes while their nonunionized counterparts doing the same work, often in the same location, have not. The Ontario Hospitals Association has been particularly vehement about these inequities.”

Mere hours after a strike deadline, the University of Western Ontario Faculty Association negotiated a settlement worth 1.5 per cent for each of four years.

That one in particular stings because grad students haven’t had an increase to their stipends in over a decade… but that’s a rant for another time. There’s a clear union/non-union imbalance there, and I don’t think the answer is “well, join a union” since there also looks to be a power imbalance between the government and the unions (an inability to extract even a minor concession like a wage freeze in the midst of a recession).

Anyway, I’m glad to see the TTC’s essential role recognized in the law, and hope that a more proper balance of power with other government unions is found. It could come from other legal changes, but it could also come just from the union leaders wising up to the fact that a strike, especially a public-sector one, is a severe undertaking, and not a biannual street party. Note though that I’m mostly only talking about government unions: the private sector does have a bit more of a balance (private companies can legitimately threaten to close down plants/offshore, simply fold up shop, or reason that a strike also hurts the union if it leads to the competition eating their lunch).

The CRTC is now seeking commentary on reviewing the 2011-44 UBB decision. Here’s the commentary I submitted.

CPAC has the committee meetings on the issue up. Video for the first one with the CRTC, and audio only for the second meeting with the independent ISPs.

The testimony by von Finckenstein was a travesty: he clearly doesn’t understand the issues at hand, the mechanics of the industry in play, and repeats verbatim Bell talking points. It was very tough to watch: the MPs didn’t even seem to know what questions to ask to get down to the core of the issue.

The independent ISPs provided much better testimony, but the technical presentation fell down (if you’re bilingual, then try that stream, as the English translation kept falling behind and dropping out). Fortunately, most of the meeting was in English.

Ellen Roseman reports that yes, Bell has some issues with its usage tracker.

An article in the Globe raises a very interesting point: “Imagine being asked to guess how much electric power you need every month, with a penalty for mistakes.” Because UBB is not a straight usage based fee. You pay out the nose if you go over your cap, but you have to, in part, choose your cap to begin with.