Tag Archives: Canada

Moving to Canada

People are saying they will flee to Canada if Donald Trump is elected.  Canada has already endured waves of disgruntled Americans fleeing George W. Bush, and then President Obama.  The Trump case is funny, though, because of The Donald’s position on immigration.  One Twitter wag suggested that Canada should build a wall.

To gain permanent residency in Canada, you must have a sponsor, a trade, references, a background check, and speak either English or French.  The process takes at least two years.  If you sneak in and overstay your visa, you will not be able to get a driver’s license, a health card, a job, or rent an apartment.  The RCMP will hunt you down and send you back.

So, people who are offended by Trump’s remarks about immigration plan to protest by burdening the immigration system of our northern neighbor.  Funny, eh?  The only thing funnier would be if they tried moving to Mexico.

See also: Arizona has rights, too

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Filed under Foreign Policy

Socialism Lite

We have recently returned from a tour of Canada. The Canadians have wonderful infrastructure. They have modern schools, libraries, and hospitals. The roads are broad and smooth. Even the water treatment plants are tastefully done (you do not want to go on vacation with Jeremiah).

Canada is one of those countries, along with Scandinavian Northern Europe, where a mild form of socialism is said to be successful. Strolling in Toronto’s green and pleasant parks, it is easy to agree. As the Canadians say, they may pay high taxes but they can leave their doors unlocked.

The taxes are indeed high. Income tax goes up to 50%, plus a 13% sales tax, plus surcharges and user fees. On the other hand, the government actually provides services. Here in America, “give us the money and we’ll fix the roads” is just a ransom demand.

Canadian socialism, like the Scandinavian variety, depends on a unique combination of factors. You can decide for yourself whether this magic formula is sustainable. We will try to qualify the umbrella term socialism as we go along.

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The Canadian welfare state holds up because there is not much strain on it. The culture is proud and cohesive, and includes a strong work ethic. To Canada’s credit, this does not depend on an ethnic monoculture, as it does in Scandinavia. White English Canadians were outnumbered, in the places we visited, by an amazing diversity of immigrants.

This is really the bottom line for a welfare state. They hold up only as long as there is cultural pressure to go find a job. If the culture changes – through immigration, potentially, or an outbreak of Cloward-Piven syndrome – then the welfare state collapses.

Government spending is tolerable in Canada because officials are mostly well intentioned and not corrupt. This is another cultural thing, plus – their whole economy is one-tenth the size of ours, so the temptation is smaller. Someone in Ottawa might pad his expense account, but the scale of fraud we have in America would never occur to them.

Denmark and Norway allow private firms to run public hospitals. Sweden has a universal system of school vouchers, with private for-profit schools competing with public schools.

Scandinavian countries have lately discovered that, although they are willing to spend generously on social benefits, it is better to outsource the programs to private contractors.

The thing that destroys a socialist economy is central planning, and it is possible to survive a mild case. The Soviet economy was rigidly planned, and fell hard. The Chinese are trying to adopt some free market practices. Protectionism is a popular, and mostly benign, form of central planning. It imposes a hidden sales tax, in the form of higher prices for imported goods and services.

We flew Air Canada, a wretched excuse for an airline that would never survive in a free market. Most of the population lives within easy reach of much stronger American carriers. High tariffs ran Target out of the country, and Best Buy survives by selling last year’s gadgets. For American retailers, Canada is one big outlet mall.

Finally, we have commodity exports. Depending on the strength of the private economy and the cost of the welfare state, socialist countries lean more or less heavily on pumping oil. Scandinavia has North Sea oil, Canada has Alberta tar oil, and now Russia is an oil power.

Alberta oil is a lousy investment. It’s not so much the oil revenue that matters, but the relative strength of oil in a weakened economy. This is known as the curse of oil, and it’s why Jeremiah is not a fan of America becoming an oil exporter.

Canada’s lite brand of socialism has been stable for a long time. The crash in oil prices will be salutary, in a way, and we’ll see if their welfare state holds up to tighter conditions and cultural change. Europe, from Sweden to Greece, displays the range of possible outcomes.

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Filed under Economy

Blame Canada

We did a double take when we read about Burger King’s tax inversion to Canada. Canada? Burger King is majority owned by Brazilian private equity, so they’re not exactly “corporate deserters,” to use the president’s phrase. They will also enjoy revenue synergy with Tim Horton. Plenty of financial analysis is on FT, as here. So, when did Canada become a tax haven?

Jeremiah is always coaching you to find the truth behind the news, and this is a great example. America has the world’s highest corporate tax rate, at 35%. If you know this, you also know the headline figure is contested. Many pundits say that, once you back out various credits and deductions, the rate is closer to 23%. If this were true, companies would not be leaving the country. See chart from Bloomberg, below.

inversions-update

The Brazilian capitalists will have done their own tax planning. KPMG reckons that the total tax rate in America is 40%, versus 26% in Canada. To be fair, the tax apologists may be right about certain companies which are able to enjoy the gamut of preferential tax breaks. GE famously paid no tax at all in 2010.

Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines.

The point is that if you “follow the money,” you can determine which pundits are liars, and which corporations have Washington skills.

 

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Filed under Finance, Media

First Rule of Tax Policy

Jeremiah was so pleased with the Chile post, he has us ransacking tax policy around the globe.  This nugget is from Canada:

Interest on a loan secured by your home is NOT tax deductible, UNLESS you use the money for a profit making investment.

This is one reason Canada didn’t experience the housing crash – although pundits say it could still happen.  Canadians pay tax on government bonds, but not their savings accounts.  To an American investor like Jeremiah, Canada is “through the looking glass.”  Run, don’t walk, to put your money in a Canadian bank.  They’re offering 1.1% APR.

You may have noticed that our national economy staggers from one bubble to the next.  Jeremiah is not the first to make this observation, but he is the first to coin a general rule:

If government policy favors some good or service, then the price of that good or service will become a bubble.

This simple rule explains the housing bubble, the dot com crash, the student loan crisis, municipal bankruptcy, and even the high cost of medical care.

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Filed under Finance