Thursday, February 28, 2013

It's A Tough Job Being A Canadian Senator

Since it appears almost as difficult for some of Canada's illustrious Senators to fill in the blanks on their annual Declaration of Primary and Secondary Residences form as it does for their fellow Senators to find them guilty of misdeeds with taxpayers' money, I thought I'd provide you with the questions asked of Senators every year, followed by the rules as outlined in the Senators' Travel Policy adopted on May 10th, 2012. 

First, every Senator is required to fill out the Declaration of Primary and Secondary Residences on an annual basis, covering the period from April 1 to March 31 each year.

For your illumination, here is a copy of the form (please pardon the poor quality):

They have two choices to make:

1.) Their primary residence is within 100 kilometres from Parliament Hill.

2.) Their primary residence is more than 100 kilometres from Parliament Hill.

This seems like a relatively easy question to answer; either your primary residence is more or less than 100 kilometres from Parliament Hill.  It does not seem that complicated!  In the case of Mike Duffy, this is quite obviously not his primary residence:

Then, Senators are to provide the following:

"For the purpose of the Twenty-Second Report of the Senate Committee on Internal Economy, Budgets and Administration, adopted in the Senate on June 18, 1998, the address of my primary residence in the province or territory that I represent is the following:...."

By giving the address of the pictured cottage as his primary residence and, despite the fact that he has lived in Ottawa for decades, Mike Duffy must have claimed that his primary residence was more than 100 kilometres from Parliament Hill meaning that the beige bungalow with all of the snow piled up in front of it is his primary resident.

Senators who live more than 100 kilometres from Parliament Hill have all of their expenses covered while they are in Ottawa.  Since these expenses are funded from a separate budget, they are exempt from the point system as shown here:

Here's another twist:

Basically, it appears that Senators win either way!  Even if they own a second home in Ottawa, we  as taxpayers pay.

Back to Mike for a minute.  Here's an interesting tidbit from the Elections Canada website:

Here's the address information that he provided for both this donation and two additional donations of  $298.50 to the Malpeque Conservative Association on September 25, 2009 and to the Cardigan Conservative Association on November 9, 2009, recalling that Mr. Duffy was appointed to the Senate by our current Prime Minister on December 22, 2008:

From the Senators' Travel Policy publication, we find the following:

Here is the Designated Traveller and Dependent Children Annual Declaration form:

This means that Mike Duffy's wife, if she was his choice as his designated traveller, would qualify to have her travel expenses covered under the 64-point travel system only if his primary residence was outside the 100 kilometre limit.  For your information, here's a brief summary of the 64-point travel system:

The number of points used for a trip vary with the destination and departure points, the number of days of travel and the mode of travel used.  A single point is deducted for every regular trip to the nation's capital no matter how many days are spent at either destination.  Travel within the Senator's region by car result in the deduction of one-quarter of a point and air travel between cities like Ottawa and Toronto would result in the deduction of one-half point for each round trip.

Please note that according to Section 2.6.3, a Senator cannot name a staff member as a designated traveller.  In case you wondered, according to Section 2.9.1, the standard for air travel by Senators, their designated travellers and dependent children is business class, after all, why sully yourself by travelling cattle class with the sweaty masses who are footing the bill!

In fiscal 2011 - 2012, Senate transportation and communications cost Canadian taxpayers $10,614,992, professional services, hospitality and meals cost $3,136538 and accommodation cost $13,158,452.

Here is a listing of the Senate sitting dates for 2012:

Here is a listing of the Senate sitting dates for 2013:

While I realize that Senators have the responsibility to sit on various Committees, their base work year consists of a whopping 90 days of sitting in the Red Chamber, usually on Tuesdays, Wednesdays and Thursdays.  Must be nice "work" if you can get it!  Fortunately, they have their taxpayer-issued Crackberrys to distract them while they sit there and listen to each other drone on endlessly.

All of this is ours for a mere $100,000,000 annually, give or take a few million!

As I stated in the title, it's a tough job being a Canadian Senator and thank goodness we have a few willing souls that are brave enough to tackle the hardships involved.  

The Mighty Temptation of a Value-Added Tax

At a recent conference held by the Hamilton Project, participants looked at various methods by which Washington could achieve fiscal balance.  One of the proposals by William Gale of the Brookings Institute and Benjamin Harris of the Urban Institute and Urban-Brookings Tax Policy Center suggested the introduction of a Value-Added Tax (VAT).  Here are the details.

Let's open by looking at a selection of VAT rates in Europe and a brief explanation of the concept:

The minimum standard VAT rate in Europe is 15 percent and states are free to set rates above that level.  As well, they have the option to set a lower rate on a restricted list of goods and services including food, medicines, books and newspapers among others.

The VAT or GST (in Canada and New Zealand among others) is an indirect tax on consumption that applies to most transactions that involve goods and services.  Value-Added Taxes were first introduced in France in 1948 at the manufacturing level and in 1954 at the consumption level.  These consumption tax systems exist in more than 120 countries around the world including every OECD nation other than the United States and rates range from 3 percent to 25 percent.  Value-Added Taxes are charged on the majority of transactions at every level in the supply chain from production through to the final sale of the product to the consumer.  For the most part, the levying of the tax is completely hidden to the final consumer.  These taxes are not meant to be a cost to businesses and are generally recoverable either by direct refund of the amount paid or by offsetting the VAT incurred in production against the VAT due.  Ultimately, it is the end consumer (you and I) that bear the entire cost of the VAT or GST unless local governments offer an offsetting tax credit.  Governments, in particular, like taxes like the VAT because they have more revenue potential (particularly as the rate generally seems to increase with time) and it means that there is a paper trail for governments to follow, ensuring that there is compliance.  It also allows governments the leeway to tax different goods at different rates; for example, China taxes most items at 17 percent while household necessities like food are taxed at 13 percent.

Value-Added Taxes can be extremely lucrative for governments.  As shown on this chart, on average, the biggest source of revenue for European Union nations is VAT, exceeding the revenue from personal income taxes and nearly tripling the revenue from corporate taxes:

In 2009, total VAT receipts in Europe were around EUR 783 billion, representing an average 7.4 percent of the GDP of all Member States.  In total, VAT raises about 20 percent of the world's entire tax revenue on an annual basis.

As I noted above, VAT rates tend to rise with time.  Here is a chart showing how VAT rates have varied since they were first introduced for several nations:

Only one nation out of the ten, Canada, has reduced its VAT since it was first introduced.  It is the fact that VAT rates can be so easily raised as time passes that is particularly appealing to governments.  Basically, don't trust the introductory rate as it won't last long!

Mr. Gale and Mr. Harris suggest that a broad-based 5 percent VAT accompanied by subsidies to offset the regressive impacts of imposing the tax could raise about $160 billion per year or 1 percent of GDP. Since the annual deficit currently sits at around 6.5 percent of GDP, this is not an insignificant amount but all of that money has to come from somewhere - Main Street America.  

Of course, there is always a downside.  Randall Holcombe at the Mercatus Center published a paper in 2010 that outlined issues which suggested that a VAT was not a good fit for the United States:

1.) The VAT would tax a base that has traditionally belonged to state governments who rely on that same base to provide 32 percent of their tax revenues through the implementation of sales taxes.

2.) The economic impact of a VAT would depend on how the tax was implemented and what rate was used.  The cost of both compliance and administration of the tax would negatively impact economic growth.  The imposition of a VAT that generated additional revenue to the government would divert resources from the private sector, implying lower growth levels.  Here is a chart showing how various levels of VAT would impact economic growth:

Upping the VAT rate to 10 percent would reduce baseline GDP growth from 3.0 percent to 2.46 percent, a fairly significant drop considering the low rate of growth since the end of the Great Recession.  In real numbers, by 2030, the GDP losses would be more than double the revenues raised by a 7 percent VAT as shown here:

While governments around the world love the thought of raising revenue, the ultimate benefit of implementing a VAT could be a risky proposition for Washington.  While some economists suggest that Value-Added Taxes have a stimulative effect on the economy by encouraging companies to create jobs, it is quite clear that the jury is out and that we should be just as hesitant to believe that a new VAT will benefit us any more than a drop in the corporate tax level.

Wednesday, February 27, 2013

Online Piracy - You Are Now Officially Being Watched

There is now a new system in place in the United States to prevent copyright infringements or, as it's better known, digital piracy.

A joint venture between content companies (i.e. your pals in the entertainment and music business) and internet service providers has resulted in the creation of an entity called the Copyright Alert System.  This is being administered by the Center for Copyright Information (CCI), lead by such people as Jill Lesser (formerly of AOL), Jerry Berman, Jules Polonetsky (also formerly of AOL) and Gigi Sohn.  Members include the RIAA, MPAA and five major internet service providers - AT&T, Cablevision, Comcast, Time Warner Cable and Verizon meaning that most Americans will be impacted.  CCI was created to "educate consumers about the importance of copyright protection and to offer information about online copyright infringement.".

Here's how the Copyright Alert System works:

The Copyright Alert System is also known as the "six strike" system

Copyright Alerts assist us by:

  Making accountholders aware that unlawful content sharing may have happened using their internet account.

    Educating accountholders on how they can prevent copyright infringement from happening again.

    Providing consumers information about ways to access digital content legally.

If you receive an alert and choose to ignore it, your ISP can:

    temporarily reduce your internet speed (i.e. put you in the internet penalty box).

    Redirect you to a landing page for a set period of time, until a subscriber contacts their ISP or completes an online copyright education program. (i.e. they send you back to school where you'll learn that what you did was a bad thing).

Supposedly, when a content owner identifies that their material is being illegally downloaded, the actual identity of the "pirate" is known only to the ISP, at least for the first offences.

Here is a leaked training document from AT&T showing how they will handle "pirates", particularly repeat offenders:

It's not terribly surprising but, according to TorrentFreak, the number of new subscribers from the United States signing up for VPN (Virtual Private Networks) which employ encryption to ensure non-disclosure of personal data, soared recently as users anticipated the implementation of the "six strikes" rules.  In case you care, here is a listing of VPN providers and an analysis of whether they live up to their billing of anonymity. 

While, right now, it doesn't appear that media owners have legal action against "pirates" on the front burner, the fact that AT&T will turn over personal information to assist in litigation should be of concern to those downloaders who would rather not appear in court.

In other news, revenue from music sales in 2012 were up 0.3 percent on a year-over-year basis, hitting $16.5 billion, the first time revenues have grown since their 1999 peak.