Sales Tax Increases Cost of Living
J. HERBERT HODGINS
from under,” as in the case of the unit manufacturer.
THIS IS YOUR BUSINESS, MR. READER
PERHAPS you think that the Sales Tax is no particular concern of yours. Perhaps you think it applies only to businesses in which you have no interest. Think again! It applies to you. It is not the manufacturer, not the wholesaler, not the retailer who pays it. It is You. Everything you eat or use or wear costs more because of it. The man of wealth cannot eat so much more than you can, so the tax bears proportionately more heavily on you. The larger your family the more heavy the tax, for it is a tax on necessities that you must use. In that much it is essentially wrong. It can and must be changed, and you—who suffer most —are the people to change it. Write your member, to-day, that the Sales Tax must be cut.
MR. JOHN CANUCK and his family will soon have sent one billion dollars, in war taxes, to Ottawa. From February, 1915, when the first of the war taxes began, until March, 1924, there was piled up in the federal treasury, $883,651,648.
The astounding anomaly of this war revenue is that it has grown steadily, each year, since the war stopped. For the fiscal year 1915, war taxes aggregated but $98,057. For the fiscal year 1923 they had swelled to $181,634,875, growing each year by leaps and bounds, as the government continued to think out new sources of revenue for itself. For 1924 they will exceed $200,000,000.
War taxes are now rolling into Ottawa in excess of $500,000 per day.
So penetrating is our war taxation system that no Canadian is exempt. Every man, woman and child in the national family pays his or her toll, somewhere along the line. There are the federal war revenue taxes. In two provinces, British Columbia and Prince Edward Island, there is a provincial income tax. Manitoba has passed an act but has not yet put its provincial income tax into effect. Its institution appears imminent, however, owing to the Provincial Treasurer’s inability to balance the provincial budget. In Saskatchewan, Ontario, Nova Scotia and New Brunswick, civic and municipal income taxes are fairly general. In some towns and cities, however, the income tax is disguised as a business tax. A few municipalities in Alberta have an income tax, Calgary, for example, deriving approximately $300,000 revenue from this source. Quebec has no general legislation for municipal income taxation, but in a number of instances business, tenant and rental taxes are in force and these are the equivalent of an income tax.
This appalling exaction upon Canada’s population cannot be made without a stunning effect upon the business fabric of the Dominion. Continued war taxation is crippling industry, halting business. When business slows down the home life of the country suffers, often collapses.
Unhealthy, unsound competition -exists to-day for almost every Canadian industry. It is virtually bolstered up by government legislation, because of too much government in business and a pyramided taxation structure that has become a menace to Canadian business.
Organized business has been compelled to pay a vast contribution to the federal treasury, in the form of war revenue taxes. But individuals who do less than a $10,000 yearly business “get from under.” In the across-Canada aggregate the loss to the Government’s income and the shock upon general business has become too costly longer to be overlooked. You cannot take $200,000,000 from the people of any country without financial set-back to individuals and to business alike.
As It Operates
T N ONE of the foetid back rooms 1 of Toronto’s Ghetto, a man bends over a fur garment, in the making.
He sews the thing himself. Completed, he sells it over the counter,
“out front” of his dilapidated little shack shop.
Mrs. Bargain Hunter secures a fur coat, cheaper, perhaps than she
could have purchased it on Yonge Street, Toronto; on St. Catherine Street, Montreal; on Portage Avenue, Winnipeg, or on Granville Street, Vancouver.
Not a stone’s throw from this individual furrier is a modern factory. Within is an expensive plant for the manufacture of fur garments of every description. It is an industrial unit of importance in commercial Canada. It
represents an investment of many thousands of dollars, backed by one hundred per cent. Canadian initiative and enterprise. It is upon the permanent operation of such business adventures that the progress of the Dominion, as a manufacturing nation, depends.
Mrs. Bargain Hunter, however, gives scant concern to the national economics involved in her purchase. Like the little furrier—and at the expense of the country—she is an individualist.
The same is true of other Canadian industries. The candy and the confectionery manufacturers feel the
1916 ........ 1,300,447
1917 ........ 1,114,023
1918 ...... . . 1,115,758
1919 ........ 1,099,764
1920 ........ 1,170,223
1921 ........ 1,257,534
1922 ........ 1,293,697
1923 ........ 1,244,437
1924 ........ 928,790
Trust and Loan Cos.
Sales Tax, Cheques, Transports 98,057 1,536,838 2,059,684 2,227,390 11,888,506 15,587,707 78,803,09» 73,656,489 106,482,718 113.408,027
War Revenue 98,067 3,620,782 16,302,238 25,379,901 56,177,508 82,079301 168,385,327 177,484,161 181,634,875 172,488,996
Total........$10,524,673 $2,508,556 $5,667,151 $192,042,081 $267,160,164 $405,749,017 $883,651,648
insidious competition of those of European extraction, who operate upon a unit scale. Responsible and established jewelery manufacturers with substantial vested interests in the country are being undermined by the individual manufacturer who plies his trade in cellar and attic.
Well, you say, what about it? Has the private individual no right to compete in business?
Shall we coax immigration but deny the immigrant the right to a livelihood?
No indeed! None will dispute sound competition. To repeat a bromide, “competition is the life of trade.”
But what of economically unsound competition?
That has become a national problem.
Taxing Efficient Methods
BIG business—reputable, organized Canadian business —is assessed to the limit of all taxation because it is big business. It is readily accessible. There is no “getting
This year, with the putting into effect on January 1, of an increased sales tax, the Canadian business man’s burden has become intolerable. Just how intolerable will be sensed from the tabulation below, which analyzes the Dominion’s war revenues over a period of ten years.
Geo. H. Ross, finance commissioner of Toronto, has defined taxation as “the art of getting the most feathers with the least squawking.”
Be it said to the lasting credit of every Canadian that taxes were borne with infinite patience—little or no squawking—when the need was vital, while the war was on.
But to start 1924—Armageddon nearly six years in the background—with fresh burdens, in the new sales tax. was the final “feather.” Canadian business men, plucketf to the pin feathers, began to squawk.
Canada’s war revenue taxes are as follows:—
Stamp tax on receipts.
Stamp tax on cheques, drafts, bills of exchange and promissory notes.
Income tax on corporation.
Income tax on individuals.
Tax on unlicensed insurance.
A formidable array continually confronting business.
Of these taxes the sales tax has perhaps proven the greatest nuisance and deterrent to business.
Jettison the Sales Tax
FROM the viewpoint of sound economics there are ten reasons, at least, for throwing the sales tax overboard. Here they are:—
1. Increases the cost of living to rich and poor alike.
2. Discourages immigration.
3. Encourages emigration.
4. Hampers Canadian export trade. 5. Discriminates against many industries.
6. Pyramids cost of manufacturing. 7. Creates business confusion.
8. Increases cost of doing business in Canada.
9. Increases costs of government. 10. Stultifies business enterprise. Now to analyze these reasons: Reason No. 1. The sales tax increases the cost of living to rich and poor alike.
Every home comes to feel the burden of taxation in some form the food we eat,the clothes we wear. All are taxed. My wife—your wife —buys a package of biscuits, a tin of salmon, a can of peas; she pays sales tax upon them all. It may not show upon her grocer’s bill. But the six per cent, sales tax is nevertheless absorbed within the final amount charged by the corner store. The wholesaler, from whom the retailer bought the goods, paid the tax when he bought from the manufacturer.
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Slash That Sales Tax to 3%
IN THE recent Speech from the Throne, the Federal Government has obligated itself to tax reductions. The terms are general, they must be made particular. There can be no equivocation, no evasion. Definite and concrete suggestions are imperative.
Immediate action is required. The sales tax—that pestiferous, clogging 6%—should be cut—and without delay. It should be at least cut in half this year, with the definite idea of abolishing this tax altogether at the next session of Parliament. The government may say: “Where shall we get the revenue?” The answer must be: “Do as any individual or business must do. Live within your income.” There should be no other alternative for the governments to-day. The people should refuse to be milked further, and demand the immediate resignation of any members of any party who do not heed the signs of the times.
If the members of this Parliament—Liberals, Conservatives, Progressives and Labor —adjourn four or five months hence, without having met these urgent demands, they will have wilfully missed the greatest opportunity a Canadian Parliament has ever had of meeting the unanimous desire of the people.
The United States tax reduction is designed to affect 1923 payments! This reduction will make living conditions in that country the easier, by just that much. It is obvious what effect such a change will have on a population whose eyes naturally turn in that direction. A cut in our 6% sales tax would do an immense amount to reduce the cost of living, restore business confidence, and encourage industrial prosperity, and stop the appalling exodus to the United States.
No more political or financial philandering or procrastination. Canadian taxpayers are in no mood to see with equanimity the present super-taxation maintained.
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When mother buys her new suit for Easter Sunday, or father a Spring overcoat, they both pay taxes upon the garments purchased. Six per cent, will have been paid, upon the fabrics, upon the linings, upon the trimmings, upon the very thread and buttons—a pyramided taxation, which has the effect of greatly increasing the cost of the final buyer, the consumer.
During the war period every conceivable effort was made by the Government to instil thrift and economy. The effort was chiefly successful by means of Victory loans. Let us see what happens to those thrifty souls who continue to bank their savings. There comes a day when a needed purchase must be made for the family. Before the money may be withdrawn a stamp tax, two cents for every fifty dollars, must be paid to the Government. This is the toll which the Government continues to exact upon thrift, six years after war.
The cost of building, manufacturing, farming, transportation, trading and the equipping of homes has been vastly in-
creased by taxation. Take the case of any ambitious man who would build a home for himself and family. That man would acquire a real stake in the country, become one of the nation’s greatest assets, a home owner. He is defeated in his purpose by the pyramided costs of buildings. He cannot afford to build. He becomes a renter—a transient in his native land.
REASON NO. 2. The sales lax discourages immigration.
Our taxes at present are staggering to individual and to business alike. Why? Chiefly because of the smallness of our population. Our overhead, as the business • term goes, is too great. We have sufficient machinery in Dominion, provincial and municipal government to govern fifty millions of people instead of nine. We have railways to serve three times our present population. Our system of manufacturing, banking, retailing and wholesaling could provide for the needs of many millions more people than we have.
But with our present population our taxation system is intolerable, and, in the
opinion of sound business'men, “must be reduced.” _
So we proceed to secure new settlers. What does our Taxation system do to them? i
The immigrant arrives in Canada and takes up farm land. He can derive no monetary return until his first crop is marketed. One full year must elapse. In the meantime he must build a home, a barn, an implement shed, a granary. The sales tax pyramids into a distressing affair for the newcomer. He must pay six per cent, tax on lumber; six per cent, tax on cement; six per cent, on bricks; six per cent, on lime; six per cent, on all building materials; six per cent, upon the implements with which to till the soil; six per cent, upon his household needs.
The accumulated effect is equivalent to an abnormal, a never-ending head tax.
REASON No. 3. The sales tax encourages emigration.
There is much quibbling at Ottawa, in attaching political blame for the current exodus from Canada. The other day the Hon. Arthur Meighen quoted figures obtained fromthe United States’government to show how many Canadians settled in the United States during the last few years. These official figures showed that an average of 4,400 Canadians per month, during 1921, settled in the United States. In 1922 the exodus from Canada averaged 5,200 persons monthly. In 1923 tlje monthly average had grown to 17,595— approximately 211,000 Canadians “lost” t o Canada in one year.
Canada has lost in one hundred per cent. Canadian-born men and women, possibly as many as she has gained in new immigration. There are two prime reasons: lessened employment, induced by_ the stunning effect of taxation upon business enterprise, and the increased cost of living in Canada under present taxation.
REASON NO. A. The sales tax hampers Canadian export trade.
Due to taxation, as applied to business, the Canadian manufacturer has lately encountered new difficulties in developing markets abroad for Canada’s surplus output.
For example: the Secretary of the Treasury of the United States since the first of the year, has instructed all United States’ appraisers to include the sales tax in the appraisement of merchandise received from Canada. In other words, Canadian goods sold to American buyers are appraised for United States duty, not upon their actual value, as set forth in the sale price, but upon a price six per cent, higher. The aggregate effect is certain to be enormous, because America is Canada’s second best customer.
REASON NO. 5. The sales tax discriminates against certain industries. The sales tax is held by an increasing number of business men to discriminate unfairly between businesses.
For instance: If stone is imported or quarried in Canada, shipped to the building site, and cut and fitted there, it pays sales tax upon its value only as rough stone. If the same stone is cut and fitted in a Canadian stone factory, it pays tax on the value of the finished article. Normally keen competition exists between a contractor who buys rough stone and employs cutters, temporarily, to cut and fit it on a job, and the manufacturer who works in his factory. The sales tax thus discriminates against Canadian stone factories.
Take the fur industry. The organized fur manufacturer cannot escape the sales tax upon the selling price of his output, whereas the individual furrier whose annual turn-over is under $10,000 is unlicensed and dodges the tax.
There is no tax upon raw furs. Therefore up to the point of purchase of their raw products fur manufacturers, large and small, are equal. Both types of manufacturers have their furs tanned and dressed upon a toll basis. The unlicensed furrier pays six per cent, sales tax upon the toll charge—obviously a mere bagatelle. He also pays sales tax upon linings used in manufacture. This is another trifling sum where the ultimate price of the manufactured garment is concerned. But the small furrier is liable to no further tax.
On the other hand the organized manufacturer, an important cog in the Dominion’s industrial machine, a man with vested interests, and an organization of wage-earners dependent upon the con-
tinued profitable operation of his factory, must pay the Government a six per cent, tax based on the selling price of his entire production.
This is stifling to industry. Important manufacturers are being smothered by small firms who have no more stake in the country than a “back shop.”
Organized manufacturers of jewelry, for another example, are “up against” the six per cent, tax on thgir finished output. Their competitors, the individual manufacturers, the piece workers, in cellars and attics, slide from under the taxation.
Printers who manufacture to the extent of $10,000 or more, yearly, must secure a license and pay the sales tax. But the competing “jobber” whose turn-over is less than $10,000 escapes. The iniquities are more patent when applied to the “toll work” printer. In reality he may be doing a $30,000 or $40,000 yearly business, but because he prints on papers supplied by his customers his annual turn-over is cut to less than $10,000. The printer who supplies his own paper stocks may often be doing a smaller business, in reality.
American magazines enter Canada duty free and tax free. If a Toronto magazine were published in Buffalo, N. Y., it would enter the Dominion without duty and without tax. The penalty which the Canadian publisher pays for maintaining a Canadian plant, employing Canadian citizens, and publishing a Canadian magazine is a three per cent, tax on his paper supplies and a six per cent, tax on all other raw materials of his production. Subsection four of the Sales Tax Act gives a long list of goods which may be imported free of the sales tax. But when these goods are produced in Canada the producers must pay six per cent, tax upon most of the materials required in their production.
REASON No. 6. The sales tax pyramids the cost of Canadian manufacturing. The sales tax pyramids the costs to Canadian manufacturers and handicaps them in competing with importers. All machinery, supplies, catalogues and other advertising matter, and the equipment used in operating a Canadian factory pay the six per cent, sales tax. This must be absorbed in the cost of finished goods on which a sales tax is paid when the finished goods are sold to the consumer. The result is that not six per cent, but, as political economists have agreed, as much as nine per cent, is often absorbed in the ultimate cost price of a manufactured article.
Who pays these additional costs? You and I, as taxpayers of course.
The Government may not have contemplated this “pyramiding” when the original taxation structure was built. But it is the old, old story of a fine theory not always working out in actual practise.
The founders and metals’ trade has encountered extreme pyramiding. According to a recent ruling from the Department of Customs and Excise, foundry chaplets,ferro silicon and ferromanganese, limestone and cupola flux, when sold by the manufacturers to the foundry are exempt from sales tax, when used in manufacturing castings. On the other hand, plumbago, parting, core paste, core oil, moulding sand, core sand, core compound, silica wash, soapstone, core wash, vent wax, to be used in manufacturing castings are taxable when sold by the manufacturers to the foundry. The cost of every one of these materials is definitely included in the foundry burden—or overhead cost. This burden must be included in the final cost of the casting, upon which sales tax is paid, and the payment of sales tax, on any of the materials specified at time of purchase, represents a double taxation. Logically these materials should be free of sales tax when purchased for use in the manufacture of castings.
This double taxation constitutes a further tariff reduction, in addition to the tariff reduction represented, in practise, by the normal application of the new sales tax. Manufacturers of castings in the United States are not required to pay sales tax on any raw materials entering into production of castings.
In 1923 Canadian banks paid $1,244,437 in war taxes to the federal government; the trust and loan companies were taxed $312,391; the insurance companies, $852,328; $13,031,461 was derived from business profits; $38,000,000 of the $59,711,538 income tax revenue came from business; $91,262,254 was derived from sales tax. These taxes, unquestionably,
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j are passed on to the consumer of manu1 factured goods. The corporation income : tax has become no more and no less than an item of cost in the ultimate production j of manufactured goods in Canada. Just j as much an item of production costs as I any “overhead” cost.
The sales tax will be another “cost” to be absorbed before setting selling prices— j the prices which you and I will be compelled to pay, when we enter the market.
The sales tax is taking from business what otherwise might be put back into business, for the further strengthening of j the country’s industrial fabric.
Employers have been compelled to pay higher wages, bigger salaries, to enable their employees to meet the increasing costs of living. But higher wages and bigger salaries can only come out of business when revenues permit and business revenues are primarily increased by higher selling prices.
Again, it all comes back to you and to me.
The business man pays the tax directly. But you and I pay the tax in the final analysis.
REASON No. 7. The sales tax has created business confusion.
Howard C. Smith, president of the Canadian Manufacturers’ Association, says no other tax has presented such administrative difficulties as the sales tax. “It has been and always must be a storm centre,” he says. “It has added greatly to the difficulty of carrying on business.” Constant confusion exists between buyers and sellers as to whether the tax has been “absorbed” or whether it must be reckoned as an extra to the quoted price.
Ottawa’s dilatory check upon sales tax charges and payments causes endless irritations. Frequently business mistakes of two years ago must be rectified. One concern discovered it had overlooked collecting taxes from some smaller concerns, which had been thought licensed. The amount involved was $1,003. Fortunately the erring concern collected $800 of this amount but the remaining $203 had to be paid overto the Government because of impossible collection after the lapse of time. Irritation has also arisen because some firms delay, after a tax change has been made by the government, in entering the change upon their invoices. One firm has a concrete example. A motor car was
purchased on May 14,1921. On May 9, 1921, the sales tax was raised from two to three per cent. The manufacturer of the motor car charged two per cent, instead of three per cent. The Government caught the error—but months afterwards.
REASON No. 8. The sales tax increases the cost of doing business.
Additional clerical staff has been required for the offiees of many large concerns, since the new sales tax went into force. One metal manufacturer was compelled to add eight persons to his administration to keep the sales records complete.
One of the irritations of the new system was the Government’s insistence upon complete new inventories, on January 1. 1924, whether or not inventories had been taken as early as one month prior.
REASON NO. 9. The sales tax increases the cost of government.
We have seen the astounding things which happen in Ottawa, by which the personnel of our civil service grows enormously year after year. In the sales tax will be found fresh excuse for more servants of the government. An increasing staff will be necessary to operate the sales tax machinery and increasing cost for an already expensive federal structure appears inevitable.
More of expense; more of taxes!
REASON NO. IO. The sales tax stultifies business enterprise.
“The misfortune of the present is that we have lost much of the spirit of adventure in enterprise,” Sir Joseph Flavelle said the other day when discussing the problems arising out of our present taxation. He pointed out that in Canada we are to a remarkable degree dependent for increased industrial activity and consequent employment upon the courage, resource, capability and spirit of a comparatively small number of men who have the gift and powers of initiative, and who set new enterprise in motion.
Taxation, such as the Canadian manufacturer has come to know it, creates a state of mind where men say: “Why should I go into that enterprise? If it does well, over half of what I receive from it will go to the Government in super-tax; if it goes ill, I alone shall lose. I will not go into it. I will rather buy low interestbearing securities—and play safe.”
Taxation—and the spirit it induces in Canadian business men—is sapping the virility out of Canadian business.