In this episode of The Critical Compass, Mike and James discuss the new stealth tax introduced by the Canadian government, the effects of inflation, and the new tax brackets introduced in Canada and the U.S. We also talk about the impact of the stealth tax on capital gains and inflation.
00:02:05.700We're going to talk about its tax season in Canada, and I think probably the U.S.
00:02:09.120In Canada, we've gotten some new tax burdens this year.
00:02:16.220A lot of people are unhappy with the new budget release and some of the tax changes and additions that have come with it.
00:02:25.500James is going to give us a bit of a background on some concepts here, and then we'll talk about the particulars after that.
00:02:30.540Yeah, I guess it's worth understanding just a few things about the stealth tax that exist, and inflation is one of them.
00:02:43.640But a lot of people think it's a greed-driven inflation, where prices are just increasing because of companies just wanting more and more money.
00:02:52.340But you get these ripple effects, but the primary driver is going to be the expansion of the money supply.
00:02:59.660And this is where every year our government's in more and more debt, which means it's issuing bonds, and then banks issue out debt for its lending at certain rates for mortgages or auto loans.
00:03:15.060And anything where somebody just needs financing, this is money issued through new debt.
00:03:21.380And every time new debt is created, the value of your money is decreased.
00:03:27.800And we can think of that as just a representation of our hard-earned time.
00:03:35.860We put in the hours of labor, and we try to store that value in a piece of paper or in our digital bank account so we can exchange that for somebody else's labor in the future.
00:03:47.920As the monetary, like as the supply increases, the value of our hard-earned work decreases as well.
00:03:57.240So we can't really store value right now.
00:04:02.420And that's problem number one, because there's no way of saving.
00:04:06.860So what we're forced to do is we're forced to gamble.
00:04:11.340We are forced to invest in something that may or may not have a percent return that outpaces inflation.
00:04:20.360And now when we invest and we make money, there's capital gains on that as well.
00:04:27.920We will touch on the capital gains in a second.
00:04:31.960But we have tax brackets, and the one thing that's never really talked about or hasn't been talked about as much is do our tax brackets adjust according to inflation?
00:05:03.040It's problematic because all it reflects is a basket of goods, and that basket of goods can change year to year.
00:05:10.940And what they do is they sample, for example, they'll take 10 items, and they'll compare those 10 items and see, and they'll average within those 10.
00:05:22.200But not all items change year to year.
00:05:25.660You may have something like, well, maybe you have a 30% increase in some food item, but maybe they will include in that basket of items,
00:05:38.300like a computer GPU or a CPU, that decreases is in price.
00:05:44.220So you can fudge the numbers, and it doesn't always reflect real inflation.
00:05:49.220So we've already got a skewed idea there.
00:05:52.520And right now we don't know if tax brackets, how well they match with inflation.
00:05:57.220So if anything, right now $50,000 a year, which used to be a decent amount, and within that tax bracket,
00:06:08.000it feels like people are getting taxed a little bit higher to begin with, or it's also changing the threshold of how many people are concerted in poverty.
00:06:17.280So these are very arbitrary numbers, and they keep on adjusting.
00:06:20.980So with that being said, we've got a very distorted idea of price signals.
00:07:41.120You have a farmer and a blacksmith and a baker and a candlestick maker.
00:07:45.740And each one of them goes to the other when they need something.
00:07:49.020They pay in cash and that person uses that cash to buy something else that they need to supplement whatever they don't make for themselves.
00:07:54.820That's a good example of an economy that's that would have long term stability because of because at each part of the chain,
00:08:03.640the purchasing power of the money used retains its value.
00:08:08.960When you have there is a good example of this made by somebody popular in who knows more about the economy than I do.
00:08:19.080That shows the actual percentages that you lose by, you know, to use an example of a, you know, a modern example.
00:08:28.160When you tap your credit card somewhere, the cash, the like Moneris or whoever the payment processor is takes a portion off the top.
00:08:38.820Visa or MasterCard takes a portion off the top.
00:08:41.380The money that the business that you're, you've just bought something from, they lose that to, they lose a portion to GST and the taxes that they pay as a business at the end of the year.
00:08:50.920And so it's at you, you, like I said, you devalue the dollar at every time you use it in this type of economy.
00:08:59.420Yeah. And whatever amount we start with is just less and less and less that, and there are accounts of like, well, at the end of the day, you're sitting at like, well, 60% of what you actually earned from the start is actually usable at the end of the day in even less.
00:09:21.420So like, it can be up like down to, down to 50%.
00:09:25.100So, um, I, I think it relies on the ignorance of the average person to, for this kind of, this tomfoolery to continue to exist.
00:09:39.800Well, you have, um, I watched a video recently, if I can find it, we'll link to it, of a, of a woman explaining how her, her six figure income is not enough to sustain her family of, I think they had three kids.
00:10:14.680Like it's all like high priced, you know, snacks and things like that.
00:10:18.020And not, not a lot of, you know, real food you could say, but no, this is like, this was, this was legit.
00:10:23.540You know, her, her rent and her car payment in order to get to and from work and her, uh, you know, the, the food bills for the family and all kinds of things, you know?
00:10:31.700And so it adds up to a point where on paper, she's got a, a really quite a lucrative job.
00:10:38.040Uh, but that is, that is not translating to any ability to move forward.
00:10:44.140Uh, she, she doesn't, I think she said of her, you know, 102 or $104, $104,000 salary.
00:10:51.080Um, she was left with, I think on an average month between two and $400 that, that wasn't.
00:10:56.700Yeah. And that was with kids and a stay at home father at that point.
00:11:02.160So the, the whole idea of is like a single parent income is becoming less and less attainable.
00:11:10.500Also the being able to store your wealth becomes harder and harder as you're, you're basically gambling to beat inflation.
00:11:22.160Um, the government is actively devaluing your hard-earned work and we're trying to escape that and which makes this, the capital gains tax, um, any changes in that, that's very much, it's, it's sold as a tax on the rich again, almost like, well, if somebody's earned money, it's not within, well, it's not because they did anything to earn it.
00:11:49.200It's, it's, it's feels like it's very much a class punishment at that point.
00:11:54.160But what people don't realize is that that's capital gains within a year.
00:12:01.040So maybe you have somebody with a small business who's selling part of their business off or exchanging like $600,000 in a year for somebody's decades of accumulation.
00:12:13.340Of hard-earned work, that's actually not as much as people think there are more people that might either let, let's say they bought a second home as an investment again, to try to store some of their wealth in something that they were thinking that would maintain value.
00:12:32.940Like a house is a house, no matter what, um, where other investments may or may not do well, a company may go under, but a house is still, it can still be lived in.
00:12:47.280So, um, yeah, I think you had some links on kind of explaining some of the taxes that have popped up.
00:12:55.640Yeah, and I have just an example here, um, I won't link to the tweet, I'll just read it here, um, from my phone.
00:13:02.640But, uh, this is an illustrative example on small, small dollars that people can make sense of, of what this capital gains tax change really looks like.
00:13:12.020So here's the, here's the, the simplified version.
00:13:15.620Assume a $200 income at a 50% tax rate, you can invest and make 20% in a year.
00:13:22.860So in the current system, you've got, you've got a $200 income, you get $100 of that after tax.
00:13:29.360You get $120 of that after investment and $110 after the capital gains tax, the, the old, the old capital gain tax.
00:13:38.120You've essentially turned $100 into $110.
00:13:40.520In a system where you're taxed once at the end of the year on all income and capital gains, $200 income becomes $240 after investment becomes $120 after all taxes.
00:14:46.660You just became poorer and experienced no upside.
00:14:49.040This is an effect that can impact every middle-class person saving for retirement, owning a cottage, running a small business, a startup, stock options, et cetera.
00:14:58.900I think that really shows the reality of, um, as we're seeing a, a change of like the small percentage of the world getting richer and richer and people getting poorer and poorer, um, the,
00:15:18.560the best way to look at that is that the people who are able to maintain some value in hard assets will be able to maintain the, their assets will increase in value.
00:15:31.620And then if somebody is barely able to get a few dollars in their bank account every year, they're, they're being taxed with a stealth tax and don't even realize it.
00:15:43.320Or they borrow money and now they're paying massive amounts of interest.
00:17:42.300That's a fun one because guess who gets to decide what luxury means?
00:17:45.260Uh, number four, uh, tobacco and vaping products as if they weren't taxed enough.
00:17:51.200Public debt charges, GST on carbon emissions.
00:17:54.800That's, uh, that could be, you know, a whole, a whole series of episodes unto themselves.
00:17:59.400Uh, increase in public sector wage costs.
00:18:02.220Shocking that they would continue to make the government, the, uh, the primary employer of Canadians.
00:18:08.760Uh, number eight, environmental compliance costs.
00:18:11.340That's another good one that links to number six, uh, air travel, air traveler security charge and an alcohol excise tax.
00:18:19.580So, uh, basically you've got a whole lot of, uh, of, uh, vice taxes here.
00:18:26.400You've got, uh, dubious environmental, uh, environment related taxes and, uh, and just compliance just environmentally could mean many things.
00:18:38.840So that, that's something that could be, depends on how you define it and that, that could be, it could be tricky.
00:18:46.900So those are all taxes on if it's things that are bought or sold, that's, that's one side of things.
00:18:56.860But another thing that can affect prices is like, obviously the expansion of the monetary supply is the main driver, but as you get an increasing government size and they, they brag about how many new jobs there are.
00:19:14.360And then you look at the numbers in the mostly public sector jobs, um, as you get an increased government size and you have more regulations and more red tape to go through, uh, let's say you have a building, like a development company and they're building a bunch of houses.
00:19:33.300And to get all the permits takes another two months and that's two months.
00:19:38.480They could not be finishing up that project and starting another project.
00:19:42.420And that's two months of, well, they, they haven't made money from that yet.
00:19:45.680And those delays, those costs get transferred to the consumer because at some point they got to cover their, their business expenses.
00:19:55.040They're already taxed for whatever they got to make money.
00:19:57.940Therefore, any slowdown in the process will increase costs as well.
00:20:03.400So it's, it's like additive, everything on top of everything.
00:20:09.180Like it's no surprise that you would have such changes in price year to year.
00:20:15.480And then it, it also, it also disincentivizes, um, people, um, builders, even, even getting into these projects at all.
00:20:24.200And it ensures that only the wealthiest, uh, land developers will, will be the ones that can weather that, um, administrative cost.
00:20:34.160You don't get, you know, little startup companies.
00:20:36.300You don't get little communities being built by, by small local or provincial builders.
00:20:41.280It becomes something that only, you know, nationalized, you know, two or three or four companies can do.
00:20:47.720And then what's to like, everyone knows what happens long-term for that is that you just, you end up in creating, creating a, um, you know, a triopoly or, you know, a similar type of structure as we see in our, um, uh, our telecom industry, which is, has become the same thing.
00:21:05.200It was regulated to hell, no one can enter our market and it, and it just becomes another thing that Canadians get to pay for, for no good reason.
00:21:13.020Other than, uh, we've decided that the, the red tape involved is, you know, ostensibly for the betterment of something.
00:21:35.240Doing what we, what it's supposed to, because it's hard to argue that like zero regulations would be beneficial.
00:21:43.960Like that, you'd want some, you'd want enough constraints to like make sure that a company is just not dumping raw, like raw sewage into drinking water.
00:21:57.020Like there, there's basic things like that where like, yeah, it's easy to make a case for some like basic regulations there.
00:22:05.060But if a drink, like if a water assessment took four years where like maybe in the free market, they would have all the testing itself and writing up a report would only take a month.
00:22:18.560And if the amount of hands it had, maybe got passed between three different departments and they all had to like send it off for another referral and then they needed, like, you can see how something that started in a good place could just get progressively worse and worse and worse.
00:22:38.780And there isn't the accountability to, to really adapt or improve that.
00:22:45.260And in fact, there's, there's, that's disincentivized too, because you've created this, uh, bureaucracy of administrative roles that exist solely to facilitate the red tape that was put in place to, to do the initial task.
00:23:02.120So now the people who are, are running those departments and those bureaucracies have absolutely no incentive to make themselves redundant.
00:23:11.360They would, they would increase further red tape on that to ensure that there's more people along the chain to ensure that their role becomes progressively higher and higher in the hierarchy of nonsense jobs that don't do anything.
00:23:26.520So I, um, I did have a question for you though, and we didn't talk about this before or prepare for this, but, um,
00:23:32.940what would your response be to somebody who said, referring to the, the rapid inflation of the money supply in the last four years that, well, Canada, the government of Canada needed to do that because people were losing their jobs due to COVID or some such related argument.
00:23:52.380Yeah, no, I've definitely heard of that one more than once.
00:23:56.640Um, so Canada created a problem that they solved with COVID checks and, well, the strict restrictions on, on shutting down.
00:24:12.940And I, I know it's, it wasn't just federally mandated, but you did have kind of people walking within law, like you, you had the provincial governments following the lead of federal, which followed the lead of kind of these, uh, what, what other non-government organizations were suggesting to be done.
00:24:34.940Um, despite evidence of lockdowns not being an effective tool, um, and maybe at some point we follow up on all the great Barrington declaration and some of these key, these, it was a collection of data painting the case of why lockdowns do more harm than good.
00:24:57.380So, um, given that is, you can't say that, um, um, they didn't have the information that wasn't ignored, it was more dogmatic in the sense of they believed that it was necessary.
00:25:11.920Also, you could paint the case of like, in a leadership role, um, you are almost required to do something rather than not do something.
00:25:31.440It, it either makes sense like you're not doing anything, therefore you're not doing a job, therefore you're not worthy of re-election or you'll get scorned for not doing enough.
00:25:42.060And there's a plenty of people, they were so scared, they were calling for more shutdowns while complaining that life is hard because like nobody's making money because jobs are being affected or you can't.
00:25:57.380Um, business can't survive because they can't open their doors.
00:26:01.580So it was a problem created by the government with the solution of the government, which now it's feels like it's the problem and solution all in one place.
00:26:16.160And I would say as well, um, Constantine Kissin talked about this, uh, in a recent, I think maybe, maybe a month old or so debate where they were talking about immigration, the UK.
00:26:26.620And a lot of the policy, the immigration policies in the UK mirror, uh, Canada's policy mirrors them.
00:26:34.960And what we don't talk often enough about when we talk about immigration and the rapidly increased, uh, numbers that we're seeing entering the country of, of, uh, of, uh, newcomers.
00:26:46.440Is what this serves to do is it serves to lower productivity.
00:26:52.580And the reason why it does that is because you have a group of people who are coming from such dire circumstances that any job that they could possibly get in this, in their new country, in the first world is going to be an upgrade.
00:27:06.940So there is no, so when we talk about drop in productivity, countries like Canada and the UK are very quick to, um, talk about their GDP and the growth of the GDP.
00:27:21.400What they don't talk about is GDP per capita.
00:27:24.320Uh, and the reason is because if they've reported it that way, you would see that productivity as a whole is dropping year over year as a nation, because you have so many people working low skilled jobs for low pay willingly that there is no incentive to increase, increase the job, the, the, um, the pay for those jobs or to move people into the higher earning echelons of the workforce.
00:27:50.740Uh, so when we talk about the inflated money supply, we also need to talk about in the same sentence, how much our money is being devalued by the, the, the extreme drop in productivity that we're seeing as a country.
00:28:20.740While importing more, which as more people enter Canada and Canada being a little bit more socialized when it comes to our kind of social safety net.
00:28:35.840I don't think our social safety net, these like our hospitals, education systems.
00:28:42.500We don't have any mechanism in place to really robustly grow those at the same rate of the same quality.
00:28:53.560Um, and then if you bring people in that come from dire circumstances and they're going to need some of these services.
00:29:02.720So again, we're diluting, well, this is why our wait times are so high.
00:29:07.660Um, ultimately like there's a rate of, of like actual manageable immigration and, or a demographic, which is like more sustainable than others.
00:29:19.800Um, and, and, and even if somebody like doesn't agree with this, you could, you could press them and you could find a number value of like, well, Canada has 40 million people.
00:29:36.720It's like, well, what happens if you, if tomorrow you brought in 5 million people all in one day, what about 10 million?
00:29:43.440What if we increased by 50% of the population in like, you can see how at some point the problems are going to get like, they would be more and more dire.
00:29:57.280Um, and you, you would create like a, a, a collapsing point of like the systems that you have cannot sustain with the people that coming in.
00:30:07.980Um, there's also the time for people to actually become like actually integrated and there's less and less incentives to become integrated if people are able to kind of live within their own communities and don't learn the language.
00:30:26.140And if they don't 100% reflect the values of Canada, then you're running into other issues of, well, can Canada, rather than being a melting pot, you just have a, a splatter of different cultures that at some point, and we're seeing more kind of, uh, race-based conflicts here.
00:30:46.700Like you, you, you have disparity with kind of tribalism between groups, you're going to get an increasing like number of, uh, just people being at each other's throats that way.
00:31:04.500Well, I mean, we talked about that last week with the, um, Hindu and the Kalistani protests.
00:31:09.460Um, I just bring this up here because, um, the, uh, Victoria-based Aaron Gunn, he's, I think he's running for, uh, um, for, um, parliament now as a conservative.
00:31:24.860Uh, yeah, Aaron, Aaron Gunn doing these amazing investigative, he will go around, interview, like some of the key individuals who are knowledgeable and or have good insight.
00:31:42.200Yeah, this, and this Waiting to Die documentary is curious for me to see actually this view count compared to some of the other ones, especially this, you know, this, uh, this one is about essentially the fentanyl crisis in, uh, in BC.
00:31:53.880Um, this one has the least views out of all of them, but this one arguably to me was the most poignant because people in Canada don't like to talk about, well, with, we like to think that our healthcare system is something to be envied.
00:32:07.720Uh, and actually in the Western world, it's one of the worst, uh, and we're not ready to have that conversation as a country because we've, we've based so much of our, uh, national identity on this, this notion of free healthcare.
00:32:22.120Um, without any real, um, people just don't have the, the context to understand how bad our healthcare is compared to most other civilized Western nations, specifically, uh, the Nordic countries in Europe.
00:32:38.120So when, when you hear this, this, this documentary is definitely worth watching because he interviews a lot of people from, uh, from European health agencies where they talk about how, like a lot of people don't know, but, uh, most modern Western health agencies have a mixed private public system.
00:32:56.080Uh, and this amongst other things, amongst other reasons, uh, serves to make both significantly better.
00:33:04.480And so when we talk about, you know, even the notion sometimes of having any sort of, uh, dual system in Canada is, is poo-pooed immediately.
00:33:12.820And you're, you're accused of wanting to bring, you know, American style healthcare to Canada.
00:33:17.140And there's just, the reality is there's just so much, uh, in between those two systems, the U S system has its benefits for, for certain people.
00:33:25.380If you, you know, Viva Fry talked about recently on a prod, on a podcast about how, you know, cause he lives part-time in Florida.
00:33:32.900Now he says, well, you can, you can, you pay a lot of money for private health insurance in, in the U S, uh, and you get, you get decent care,
00:33:42.000or you could pay a lot of money in taxes to fund a shitty healthcare system in Canada.
00:33:46.260So it'll, it'll end up working out about the same, but the, specifically the, the Northern European countries with their, with their mixed private public system,
00:33:55.300they are so, so superior to ours in, in almost every way that the public system functions so much better.
00:34:02.740You get a base level of guaranteed coverage and then the overflows.
00:34:11.060Um, I, I think the, the key part is that it's not, they have some restrictions on that.
00:34:18.320Like a doctor cannot dedicate a hundred percent of their time to a private clinic.
00:34:23.180They must balance out some of the hours.
00:34:25.020So it's not like they're poaching talent.
00:34:26.940They have, they're not punished for making some money in the private.
00:34:31.660Um, there's still incentives for the, like for these small clinics to, to start up.
00:34:39.160And now you have a expanded capacity because one of the restrictions in Canada right now is that you've got a certain amount of funding.
00:34:48.580And if surgery beds, if you've funded all your surgery beds, you could have two open beds.
00:35:08.440And there are people that, well, they have to wait eight months for a surgery.
00:35:13.360They would pay money to fund their own service.
00:35:17.600So you, you have a mismatch between the demand and the supply and it's kind of just being blocked in the middle.
00:35:26.520So there, there is some in between that could be approached.
00:35:30.740And the problem is you mentioned that the conversation gets, gets distorted.
00:35:37.500And again, that you mentioned that thought terminating cliche of American style healthcare or American style politics, or when you build an ethos around these terms, um, it's easy to demonize.
00:35:54.620And so now I was going to actually ask you, uh, cause you watched this right before, and this is really good, good example of the insanity that's happening in Canada right now is, uh, what are your thoughts on Diagonon and Jeremy McKenzie?
00:36:08.440And, and this whole, the, the liberals have had five days in a row, like ragging on Diagonon, which I'm sure there's people who eat that up and they think, yeah, I, they think Diagonon's this, this bad, this alt-right, like accelerationist group.
00:36:30.840They're like, uh, I, I feel like the people who, who have that image in their head, they view it as like a, like a biker gang or something like rolling through a town and causing mayhem, like as if it's anything more than a meme country made up by a shit poster online.
00:36:46.640But, uh, I got, we, um, actually our, our Twitter got, uh, blocked by a, uh, a, uh, Canadian politician who I, uh, I asked the other day if the Diagonon was in the room with us right now.
00:36:58.820And, uh, he didn't like that, uh, but, uh, yeah, it's, um, yeah, it's funny.
00:37:06.060I, I actually don't know that much about Jeremy McKenzie, but I know that he has a podcast and I know that he is a, uh, you know, a, a political commentator of a type.
00:37:16.100And, and, and I think you actually know more about the, the, the creation of it than I do.
00:37:22.320But from what I understand, this was a, uh, somebody made an observation that essentially if you, if you drew a diagonal line from Alaska to Florida, it sort of intersects all of the more conservative type provinces and states in the U S and Canada.
00:37:43.080Yeah, that was in the middle, interesting observation in the middle of the pandemic and the lockdowns are like, well, hmm, all these provinces and states seem to be like a little less restricted and a little more based in their way.
00:37:59.420So that, that, that was definitely, it was the amount of thought put into it.
00:38:04.600It was like, well, that was the, it was a brilliant thing.
00:38:07.180They made a little flag with the slash flag and, and went from there.
00:38:11.320Um, well, and I know, and I know too, that, uh, Rachel Gilmore, uh, one of our worst Canadian exports, and I'm so sorry for anyone outside of Canada who has to put up with her.
00:38:24.240Um, this is the, this is the woman, by the way, who essentially, I don't think she was the source of it, but she certainly did spread the lie during the freedom convoy that, uh, members of the freedom convoy attempted to arson an apartment building and duct tape the door shut.
00:38:40.320Of course it, it, it was, I don't even think it was an arson attempt.
00:38:44.120I think it was just some kids screwing around, but it absolutely was not related to the freedom convoy.
00:38:50.540She's never retracted it to over two years later.
00:38:54.600She references it from time to time and she has no shame about doing it.
00:38:57.900So she's, she's an awful person and she is obsessed with diagonal.
00:39:02.980She, every, every opportunity she gets to, to reference this meme flag, she does.
00:39:09.120And for whatever reason, the, uh, apparently the federal liberal party just does not fact check, uh, any of their talking points before they make them.
00:39:21.140And they've made a thing out of polyevs, uh, stopping off at a roadside, like carbon tax.
00:39:27.560There was a, there was a, some people, the little diagonal flag penciled in, like drawn on the side of a Winnebago or like a, you have a trailer door.
00:39:38.580Um, and that was enough that here's the thing.
00:39:41.900If they have legitimate things to talk about, they should, but right now this seems like it's such a stretch.
00:39:50.160They have, they are in such dire need for just some sort of guilt by association, some sort of, yeah, they, they need something and they are grasping at straws and it's amazing to see them dive this hard into it.
00:40:07.600And, um, and the funny thing is, uh, well, Jeremy McKenzie and the other people who are part of this diagonal group, they don't even like the CPC.
00:40:22.200They are very, yeah, they're not, they're not even polyev fans.
00:40:25.260Yeah, they, they are, well, they're very, they're like PPC adjacent, right?
00:40:41.840Well, like even they're pretty, like they've been, if Bernie or Maxime Bermier does something that they don't like, they'll call it out.
00:40:51.800So they're pretty, pretty good at just calling out what they don't like.
00:40:55.100Um, not to say that all their views are as savory as others.
00:40:58.640Um, but you should be able to like, well, just address their views for what they are.
00:41:06.120Don't play games of like the skilled by association.
00:41:09.720Um, it's, it's like, well, we've got clown world politics going on right now.
00:41:17.340Well, and the, and the RCMP even said, and this was, this was proven through a freedom of information.
00:41:21.800Act request that they are not even on the radar of any, any policing agency as a, uh, you know, a, a terrorist group or a, an extremist group or anything like that.
00:41:34.080Their, their group does not meet the definitions of a structured organization.