Abolish the Income Tax!
Originally published at About.com -
April 26, 2001
|Rate of Return||Rate of Withdrawal to Replace Income Tax||Year Income Tax Eliminated|
Now some may think these rates of return, even 10%, are unattainable. But consider the following: As of Dec. 31, 2000, six Canadian mutual funds had a rate of return better than 15% over 15 years. 22 returned better than 12.5% for that period. And a whopping 69 have done better than 10%
And if we look at a shorter time frame, say ten years or five years, the results are even better. The table below summarizes the number of Canadian mutual funds generating different rates of return over various time horizons. And remember that these figures are as of December 31, 2000, after a year in which many mutual funds suffered horrendous losses.
|Time Frame||20% Return||15% Return||12.5% Return||10% Return|
In fact, the shorter the time frame, the more funds there will be with higher returns. There are 87 funds returning 20% over 3 years and 237 returning better than 20% for the year 2000. Not bad for a year in which indexes crumbled and stock markets collapsed.
With a judicious method of fund allocation - setting certain performance requirements for the government to keep invested in a particular fund, it is sure to be able to generate at least a 12.5% return. And that's just looking at Canadian mutual funds. If the government invested in U.S. funds, the number of available investment choices would be that much greater, and, delicious irony, profits from American industry would pay for the Canadian government - not a penny out of Canadian taxpayers' pockets!
One last scenario: If the government, instead of plunking down $10 billion now and leaving it there opted to divide its surplus into four - a quarter for tax relief, a quarter for debt retirement, a quarter for new spending and a quarter into the income tax elimination fund, in other words, investing $2.5 billion a year into the fund, the timetable would be delayed by four years, But if it continued beyond the fourth year adding $2.5 billion to the fund - guess what?
With only a 10% return, the income tax would be eliminated in 2060 instead of 2075. At 12.5% the tax would go in 2045. At 15% - goodbye tax in 2037. And with a 20% return - no more income tax in 2029.
The government is, in fact, already invested in the stock market. It has a $1.7 billion stake in Petro-Canada and further hundreds of millions in Hibernia. Some have urged the government to divest itself of these holdings. I disagree. If the government sells off these holdings, it should be to diversify, not to get out of the market. Earmark those funds for an income tax elimination fund, and the government is already 20% of the way towards the goal I set out in this article!
These figures look at just eliminating the income tax. But each scenario allows for continued growth of the investment pot. Eventually, adopting such a plan, Canada could become - oh wonder of wonders - a tax-free nation!
Now isn't that something to strive for?
Note to Ralph Klein: Alberta is well on its way to eliminating its provincial debt in the next few years, making it Canada's only debt free province. It is already the only province without a provincial sales tax. You should grab the brass ring, Ralph, and implement the ideas in this article to make Alberta the only tax-free province. Now that would be leadership!
Contents copyright ©
Marco den Ouden All Rights reserved
Typewriter graphic courtesy Stockfreeimages.com