An Open Letter for Fixing the Economy, part 2

Posted by Thomas Alan Gray Jun 30, 2009

I'm still having fun poking at this suggestion. The author suggests that the money would come back to the government in various ways, and it would certainly help certain sectors of the economy. Two questions:

1. Would this suggestion really be good for the 50+ Canadian?
2. Would it really be good for the country? (Remember, it increases the national debt from $475 billion to $12 trillion!)

Is it Good for the Citizen?

Let's look at a 50 year old male who does not own a home receiving $1 million under this program.

• The highest Canadian tax rate is 29%. After 29% gross tax, our guy's got $710 000 left
• Buy a house at the average Canadian price of $274,000 plus GST leaves him $422 000 (he's glad he doesn't live in Vancouver, where the average house is $536,000!).

Note that the suggestion is that each person over 50 has to do this, so he and his wife now each own a house. Can't combine checks, here!

• Buy a new car for oh, let's say $35,000 which leaves 386,000.
• Kids to college - say 2 x $50,000 student loans. Want GST with that? That'll reduce his holdings to $281 000.
• $50/week for alcohol/tobacco/petrol is only $2600/yr, plus GST, or some $44,000 over his expected lifespan (to age 82). He's left with $235,000.
• Now, property tax on that new house is maybe $2500 a year; over 32 years, that's only $80,000 (assuming taxes don't go up, and you know how likely THAT is!) leaving him $151,000 to survive to 82.
• So, $152,000 divided by 32 = Oh,dear. Our senior has a whopping $4750 per year to live on for the rest of his life. Hey, that's less than $400/month. Double that if he's married.

Does the suggestion start to look more than just a little stupid? Is it Good for the Country?

The suggestion claims that the money will come back through taxes. Really? Will the money come back to the government to retire that $12 Trillion debt incurred by the suggestion? We know that tax collectors and bureaucrats need to be paid - probably be cheaper to give out 1/2 mil checks tax free, but what the heck... Let's assume that every cent of any and all taxes goes to retire the debt.

• Income tax would take a chunk of it right off the top. 29% of $1 million times 12 million is $3.48 trillion, and the debt's down to $8.52 trillion. Good, good.
• The GST on 12 million houses comes to $16 billion and the debt's down to $8.356 trillion.
• The GST on all those new cars is $21 billion, bringing the debt down to $8.335 (a few billion is a drop in the bucket against a trillion)
• The GST on 12 million student loans of $100 000 each comes to $60 billion. The debt's down to $8.275 trillion (and you thought a billion dollars was a lot of money, didn't you? It's .001 of a trillion.)
• Assume that 50% of that value for booze and tobacco and gasoline, plus GST, goes to the feds and the debt is down to $7.5 trillion.
• The feds don't get a share of property tax; that's municipal. No reduction on the debt there, though the cities are no doubt happy.
• The debt sits at roughly 7.5 trillion, or about fifteen times what it was before the suggestion was implemented, PLUS 32 YEARS OF ACCRUED INTEREST.

So, who's gained anything? Our 50 year old was forced out of a good job, forced to buy a new home he didn't want and a new car he didn't need, and winds up on a subsistence level for 32 years. Does he still get medicare, Canada Pension, and Old Age Security? Probably not because instead of being a mere half-trillion in debt, the country's in hock for 7.5 trillion plus interest.

Yup, brilliant suggestion!

Obviously, this is a worst-case scenario; you could pay off a $60,000 mortgage and wind up with maybe $6000 a year for food (you work it out). With a good annuity, you could increase that a little more. If a husband and wife team could combine their millions they'd come out okay, but that's not how the suggestion was worded.

People will read that stupid thing, smile and say "Damn good idea!" and not bother to think through the consequences. And they all have computers and email....