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February 2, 2020 | The Haters

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Five years ago the man who would be prime minister promised a balanced budget by 2019, fairer elections and a modest deficit for three years. He also promised to soak the rich and gut the TFSA. Being prudent and democratic was hard. Gutting and soaking was easy. So here we are.

The tax-free contribution limit tumbled from ten grand to just five, and has inched up to $6,000 a year. Trudeau dissed the Tories in 2015, arguing because only wealthy people could afford to invest $10,000 a year, the TFSA was a sop to the rich. Now the hate continues.

This weekend the Lib-friendly Toronto Star carried an article by Montreal academic Amir Barnea which may be a prelude to the next T2 assault on our most democratic tax shelter. (There’s a federal budget coming in a few weeks.) The arguments are familiar: because most Canadians are (a) too financially illiterate, (b) too poor, (c) too dumb or (d) too house lusty to find $6,000 a year to max their TFSAs, they should be frozen and capped.

Says the prof: tax-free accounts cost Ottawa money in forgone tax revenue. If they didn’t exist the feds would be collecting $1 billion more this year from people. Second, they’re unfair, since only 10% of people have maxed their plans. Third, they’re elitist, as people in the top tax bracket have more in their TFSAs than regular schmucks. “Based on this we have to conclude that TFSAs are effectively a regressive tax measure, offering the greatest tax breaks to those with the most money.”

His solution (and this may become Liberal policy) is (1) a lifetime cap on contributions. “To make things simple,” he says, “the current contribution room of $69,500 can be used…” And (2) a cap on the overall amount a TFSA could ever contain. “This could be set at $250,000 per individual. If an account reaches a higher value, the difference would be taxed like regular investment income.”

Well, let’s hope Barnea is not being a Trudeau/Morneau mouthpiece. Not everybody teaches university and has a DB pension, after all, so maybe you can excuse an academic for being an out-of-touch tool. But let’s use the next few paragraphs to state the obvious.

TFSAs were invented to be the most democratic vehicle possible, giving everyone a chance to save and invest for their futures. I know. I was there. Regardless of income or resources, we all get the same contribution limit. If you can’t afford to use it this year, it rolls over into the future – always giving you the chance to get ahead.

This is in stark contrast to RRSPs, which favour big money-earners by increasing the contribution limit as income grows – right up to $26,000 a year, or 18% of annual pay. Why the Libs would choose to gut and attack the one universal, accessible option everyone has while being silent on the 1%er RRSP gift is beyond me.

Let’s also not forget TFSA contributions are made with after-tax dollars – what’s left after people’s incomes have been hoovered by taxes and decimated by living costs. So is it really unfair that a family making $300,000 or more a year and forking over up to 50% of that in tax, while 40% of all families pay no net tax, should lose a modest way to save? Why do Liberals hate and punish success?

Then there’s the issue of independence. Given an aging population, governments that cannot live within their means and a health care/retirement bomb on the horizon, shouldn’t politicians encourage self-reliance? The TFSA was intended by F (and me) to be a supplement to the RRSP and inadequate, crappy corporate pension plans. Open, accessible, effective and democratic, it held out the promise of providing a meaningful income boost in old age. Let’s face the fact CPP/OAS will never provide enough to live on.

Moreover, why the war on responsibility? Ottawa gives tax-free money to people for breeding, which has removed hundreds of thousands from the tax rolls. But it’s ‘regressive’ that others manage to make their TFSA contributions? Meanwhile, 14 million Canadians opened TFSAs and contributed $280 billion precisely because of the rules put in place. To change them now because ‘the government needs money’ when it’s been Ottawa’s fiscal incompetence leading to structural deficits and higher taxes, is a sham. The problem lies not with people being responsible. It’s with the feds’ irresponsibility.

Wealthier people usually get that way for a reason. They pursue higher-paying careers, take risk and open businesses, budget, invest, save and plan. The fact most people want houses they cannot afford, borrow their way to oblivion and make appalling financial decisions is not the fault of anyone else. Get over it.

Gutting this tax shelter was bad public policy. Capping contributions or account balances would be a giant step backwards – unless you believe socialism works.

It doesn’t. Write your MP.

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February 2nd, 2020

Posted In: The Greater Fool

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