Aaron Wherry over at Macleans wrote a blog post about my appearance in front of the Finance Committee, summarizing some of the testimony. A link to that piece is here. And here are links to my original blog posts about this testimony (here and here). There are a few things I took away from this. First, I am reminded why I was making so many faces during the question period from the CPC members. Second, my responses are actually surprisingly articulate. Third, Joe Oliver and the CPC party does not seem to understand what a tax cut really is. Fourth, the CPC party has a real problem with evidence-based policy making. If the CPC party really wants to help Canadian families, let’s do away these nonsense tax credits, including the new income splitting tax credit, and either reduce tax rates (that is a tax cut) or direct the money into enriching the CCTB program.
At my presentation today to the Finance Committee, the CPC members seemed quite shocked that the research would indicate that their Children’s Fitness Tax credit was ineffective, after all, they each had anecdotes from constituents that the tax credit was the only reason why their kids were active in sport.
Of course, you and I know that the plural of anecdotes is not data, so I happily provided them with the data related to the ineffectiveness of the Children’s Fitness Tax Credit. I attached for the consideration of the committee the evidence, along with several popular articles written by my fellow tax policy academic colleagues Kevin Milligan, UBC, and Frances Woolley, Carleton, that provide easily consumable summaries of this research.
Here it is for your consumption:
- Uptake and effectiveness of the Children’s Fitness Tax Credit in Canada: the rich get richer
- Harper’s Boutique Tax Credits
- Using the Tax System to Promote Physical Activity: Critical Analysis of Canadian Initiatives
- Awareness and Use of Canada’s Children’s Fitness Tax Credit
Popular Summaries of the Evidence
- Kevin Milligan, Do Tax Credits Really Get Children to be More Active?
- Frances Woolley, Why Politicians Love Boutique Tax Credits
I would note carefully that neither myself nor any these attachments indicated that the goal of the CFTC, to increase sport participation, is not laudible. In addition, neither myself nor the research indicated that there are not some benefits to low and moderate income households and there is not some increase in sport participation. Rather, the majority of the benefits accrue to high income households and to parents of children who would participate in sport with or without the tax credit.
It is possible to use the funds dedicated to the CFTC to better target households to achieve the stated goals of the CFTC without the unintended consequence of subsidizing high income households (such as my own). I mentioned a few and my colleagues whose work I attach here mention other possibilities as well.
Speaking Notes for Lindsay Tedds
Associate Professor of Economics
School of Public Administration, University of Victoria
Appearance Before the House of Commons Standing Committee on Finance
In Relation to its Study of Part 1 of Bill C-43
November 17, 2014, 3:30PM-5:00PM EST
Good afternoon, my name is Dr. Lindsay Tedds and I am an Associate Professor of Economics in the School of Public Administration at the University of Victoria. My primary area of expertise is Canadian tax policy, particularly the design and implementation of tax policy. I have written a number of peer reviewed journals articles, book chapters, and technical reports, as well as two books in this field.
I would like to thank the Committee for providing me with the opportunity to share my views on two tax policy measures included in Bill C-43, namely:
- Permitting income contributed to an amateur athlete trust to qualify as earned income for Registered Retirement Savings Plan contribution limit purposes; and
- Doubling the Children’s Fitness Tax Credit to $1,000 and making it refundable.
Amateur Athlete Trust Changes
Under Canadian tax rules, Canadian athletes must claim all athletic prize money, as well an income from endorsements and other remuneration related to their athletic endeavors, as taxable earned income. Amateur athletes can defer paying tax on this earned income by placing it in an Amateur Athletic Trust. Tax on this earned income is then paid when the trust distributes the funds back to the athletes.
While the athletic money is considered to be earned income and eligible for determining RRSP contribution room, this recognition does not occur if the income is instead placed in an Amateur Athletic Trust. That is, the money is not treated as earned income, either at time of placement in the trust or upon disbursement. As a result, the athletic money never qualifies towards determining the athlete’s annual RRSP contribution limit.
Through Bill C-43, the federal government is changing the rules to ensure that the earned income placed in an Amateur Athletic trust is recognized as such and included for the purposes of determining the athlete’s annual RRSP contribution limit in the year it is earned. It is eliminating a penalty these athletes unwittingly incurred when using a government-sanctioned tax deferral vehicle and recognizing the importance for everyone to be able to garner RRSP room from the income they earn from their endeavors.
Children’s Fitness Tax Credit
The Children’s Fitness Tax Credit was introduced in 2007 with the stated goal of increasing enrolment in children’s sport. This tax credit has been shown (here, here, and here) to be ineffective at achieving this goal. Notably, only approximately 15% of parents agree that this tax credit enables them to enroll their children in a program when they would not otherwise have been able to do so. As a result, tax credit does little more than subsidize behaviour that would normally otherwise occur. It has also been shown that that subsidy disproportionately goes to high-income households: about 50% of households that claim the tax credit earn more than $100,000 annually. This regressivity will not be undone by making the tax credit refundable, and this is due to the fact that the size of the CFTC claim increases with income, meaning that high-income households obtain greater benefit from the credit.
Economists have long been calling for an end to these types of boutique tax credits as they are poorly targeted and ineffective in achieving their goals. The goal of a tax system is to: raise the most revenue, with the least distortions, in a progressive manner, and minimizes administration and compliance costs. These boutique tax credits mean that statutory tax rates are higher than they would have to be otherwise, distorting work and other effort, revenue is sacrificed that could be used more effectively, progressivity is compromised, and time and money is wasted on administering the program and complying with the rules. If you really want hard working Canadians to keep more of what they make, whether they be families or otherwise, eliminate the wasteful boutique tax credits and instead cut tax rates. Doing that respects the principles of efficiency, equity, and economic growth all while reducing administrative costs.
In closing, I want to thank you for providing me with this opportunity to provide you with my views on these two measures contained in Bill C-43. I look forward to your questions.