Beyond The Commons

 Beyond The Commons

Aaron Wherry covers all the goings-on in and around Parliament Hill. Follow Aaron on Twitter: @aaronwherry

Categories: Beyond The Commons, Capital Read

The social disconnect

by Aaron Wherry on Tuesday, January 25, 2011 2:27pm - 29 Comments

Tasha Kheiriddin considers apathy.

According to Ilona Dougherty, executive director and co-founder of Apathy is Boring, a group dedicated to instilling personal political responsibility in Canada’s next generation, “a TV ad will get you to change your mind about who you’re voting for, but it won’t get you to vote. Before the advent of television (and now, the Internet), politicians would go shake people’s hands. That connection is what will cause a person – particularly a young person – to get involved.”

It may seem counter-intuitive in the age of MySpace and Facebook, but social media may not increase voters’ actual political involvement. Instead, Dougherty’s group holds regular “Calls to Action” – the next is scheduled for Feb. 11 in Montreal – which put hundreds of young people and politicians in the same space. “If you don’t create the habit of getting involved when you’re young, you won’t have it in later life,” cautions Dougherty. “This risks disengagement by an entire generation; today’s low voter turnout by young people will be the general population’s rate in 20 to 30 years.”

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  • Tceh

    Yeah I'm first!

    In my case my political awakening came about by an act of complete absurdity and stupidity by Stephen Harper who I voted for less than a year earlier. His decision to reverse himself on Income Trusts then lie about the reasons behind his flip-flop leads me to believe his government is corporately driven to the point there is no room for the working stiff in his version of Canada. In Harper's Canada Joe six-pack should to continue to pay taxes so he can fund arenas in Conservative hinterlands like Quebec.

    My point is I've been an apolitical Conservative up until the point it became blantantly obvious this clown Harper is not a Conservative but a corporate toady interested in power at all costs.

    • Orson Bean

      I'd be fascinated to hear specifically why you think the Harper government's decision to end the tax-advantaged status of income trusts — which are business organizations — means that they are "corporately driven" and that Harper is a "corporate toady". The effect of this decision was to effectively increase the tax burden on these (mostly quite large) business organizations, many of which, by the way, were headquartered in Calgary (e.g., virtually all of the oil and gas-related income trusts). Harper ends a tax break that was enticing corporations to convert to trusts, and you conclude that that makes him a toady of corporations? Please explain.

      • Tceh

        Tax advantaged Income Trusts? Bean you just haven't 'bean' paying attention because right out of the gate you are wrong.

        Income Trust distributions were taxed in the hands of the investor, normally at higher tax rates than the equivalent Corporation would pay. Because Income Trusts yields were higher, their market valuations were higher. If your a CEO of a corporation, lets call it BCE, the last thing you want is an Income Trust, lets call it Telus to use their higher market valuation to finance a takeover of your company. That was the scenario unfolding in the summer of 2006.

        So you're a Conservative government who is seriously lobbied by CEOs who like to retain cash for their corporate adventures rather than distribute the cash to owners of the business as Income Trusts do, the chances are that Income Trust model is dead and chief financial clown Jim Flaherty is the guy to do it.

        But how to sell it to Canadians?
        –First, don't consult because that would lead to factual arguments against the move.

        –Second, entice the NDP to vote for it because they are hostile to anything corporate and with Finance Critics like Judy Wasylycia-Leis they really don't understand what they are voting for anyway.

        –Third, add a sweetener to divert attention, call it 'pension splitting' (which doesn't benefit most Canadians, because most Canadians don't have pensions).

        The consequence of Harper's Income Trust betrayal is it is much cheaper for foreign entities to pick up Canadian assets because they are valued cheaper as Corporations than they would be as IT's. A foreign entity can structure a takeover of a Canadian company so no Canadian Tax is paid. We've gone from a situation where phantom tax leakage is replaced by real tax leakage.

        Lie. Conceal. Fabricate. its the Conservative way.

        • Orson Bean

          While there are kernels of factuality in your post, your overall argument reeks of conspiratorial paranoia. Look, the main incentive for converting from a corporation was the so-called valuation "bump", i.e., the fact that, as you allude to, the converted entity was given a higher valuation because the distributions were taxed in the hands of the investor but not at the entity level. Do you know who did most spectacularly well under that scenario? Think about it — it was the insiders of those large corporations, who saw their former shareholdings in the former corporation become instantly more valuable as a result of said conversion. The CEOs, CFOs, directors, etc etc.

        • Orson Bean

          The other policy issue which you completely ignore is whether or not it made, or makes, sense for huge swaths of any country's business organizations to be converted to trusts. Consider the history. Income trusts were entirely creatures of the free market. They were created by very clever lawyers, tax advisors and the like. The point is, we never had a white paper, or a royal commission, or even a significant number of corporate law academics saying it would be a good idea to have a whole bunch of our corporations converted to trusts. It just started happening, en masse, because a lot of people got rich doing trust conversions — most significantly, the investment bankers who sold the deals, and those aforementioned insiders of the corporations which were being converted. You don't address the million dollar question in your post: why is it that our tax system should give such an obvious preference to one form of business organization over another? People who krap all over the Harper government's decision on income trusts never seem to want to address this question in any principled way.

        • Orson Bean

          As for this: "The consequence of Harper's Income Trust betrayal is it is much cheaper for foreign entities to pick up Canadian assets because they are valued cheaper as Corporations than they would be as IT's."

          The implication of what you say is that we should convert all of our business organizations to income trusts for the sole purpose of making foreign buyers pay more if and when they purchase Canadian businesses. In terms of public policy, that's just plain nuts. I'm not going to go into all of the reasons why it's nuts, but for starters, we have this thing called the Investment Canada Act which is entrusted with the task of determining whether acquisitions of Canadian businesses are reviewable, and if so, of net benefit to Canada.

        • Orson Bean

          And finally, this: "A foreign entity can structure a takeover of a Canadian company so no Canadian Tax is paid." Huh? What do you mean? Tax paid by whom? In any takeover, whether it be by takeover bid or merger/plan of arrangement, it's the people selling the business who pay tax (or don't). That'd be the shareholders in the case of a corporation, or the unitholders, in the case of an income trust. For a Canadian shareholder or unitholder, while there are lots of nuances and complexities, the general situation is and always has been that if it's a cash bid, you the shareholder/unitholder pay tax on any capital gain realized when you tender your shares/units. If it's a share or unit exchange bid, it's usually structured so that Canadian shareholders/unitholders have a chance to do a rollover, so that any gain is deferred until the shares or units received in exchange are ultimately sold. Whether we are talking about an income trust or a corporation is irrelevant. So what are you talking about?

          • Tceh

            If Harper's argument for his Income Trust policy is so persuasive why does he hide it behind a blacked out document?

            This is a copy of a DoF document released because of an access to information request: http://www.caiti.info/resources/fla_docs.pdf

            Notice the cowardice in the Conservative actions. Notice the unwillingness to let their policy be scrutinized by the Canadian public.
            Where is the strong argument in this? Why do the Conservative hide rather than explain? Where is the justification for trashing an estimated $35 billion in market value for the investors that were caught off guard by these absurd Conservative fools?

            Bean you think this can be brushed under the table and forgotten and I am telling you it won't be. The arrogance of these CONs will be their end and it cannot come too soon.

          • Island Man

            It's quite obvious from the blacked out 'proof' issued by Flaherty that he chose to ignore the taxes he would recieve from RRSPs when they are cashed. If this tax revenue had been included, as it should have been, then there would a tax benefit rather than leakage for the government…slight of hand.
            The real reason the Income Trust Betrayal happened was Harper being lobbied by large corporate entities that could not compete for investment capital due to their pitiful dividend payments versus trust payouts. Strange how Manulife introduced it's 'Income Plus' product days after it's CEO testified for Flaherty. But in the end, the real damage was done to investors that hold Income Trusts withinh their registered accounts where the DTC does not apply. The real issue is double taxation within Registered accounts….with Income Trusts this double taxation was avoided. Something should be done to fix this double taxation within registered accounts.

          • Orson Bean

            Tceh, first of all, I noticed that you didn't address any of the points I raised, when I refuted every single point you raised.

            Res ipsa loquitur.

            And then you falsely claim "Bean you think this can be brushed under the table and forgotten." Where the hell did I say, or even imply, that?

            If you and others want to punish the Conservatives at the ballot box for the income trust decision, fine, fill your pants. But are the Liberals, NDP or any other party on record as saying they would restore things to the status quo ante?

          • Orson Bean

            The other elephant-in-the room point that you and your acolytes strangely don't ever address is this: if having huge swaths of your corporate sector convert to income trusts is such a fabulous idea from a public policy perspective, why haven't any other major industrialized countries embraced the idea?

          • Teroth

            In focusing on the capital gain the sale of an enterprise you are missing the point. I`ll give you a real, concrete example of how the foreign takeover of an income trust resulted in a substantial loss of taxes by Canada.

            In its last year as an income trust, Prime West Energy generated somewhere north of $100million in tax revenue for Canada. It was bought by a company based in Abu Dhabi (I don`t recall the name, but it doesn't matter) for $5 billion. However, the buyer didn't pay the unitholders directly; they loaned the money to Prime West who used it to pay them. In brief, a typical leveraged buy-out (LBO). The enterprise that was Prime West continues to operate in Canada, pretty much the same as it always did. However, there is now a $5 billion loan on its balance sheet and the interest paid on it is expensed on its income statement. I`d bet that interest expense means there is no profit and therefore no tax to pay – only Revenue Canada would know and they won't tell you or me. And since the interest is being paid to a non-resident Canada collects no tax on that either. They used to collect a 15% tax on such interest payments, but fiscal genius that he is Flaherty did away with that too.

            Of course LBOs are not confined to income trusts. In fact, the impact I've just described was cited by Sask. Premier Brad Wall recently when he opposed the takeover of Potash Corp. However, you can bet your bottom dollar Prime West would not have gone for $5 billion if the supposi Tories hadn't enacted the tax on income trusts. In fact I doubt it would have gone for any amount a rational buyer would have been willing to pay. And that, as simply as I can state it, is why far from preventing $500million in annual tax losses, the destruction (no other word for it) of the income trusts is causing billions of dollars in tax losses. Every year.

            Regards

            Teroth

          • Orson Bean

            There are so many suppositions and assumptions in there that it's pretty much impossible to give a meaningful response. As you yourself admit, we have no way of knowing what a private entity does or does not pay in taxes. So it's pointless to even debate based on a blind supposition like that.

            I just spoke with a tax expert about this issue. One of the major forms of tax leakage in the income trust structure was the fact that the only Canadian tax imposed on foreign unitholders at all was a meagre 15% withholding tax. All the rest flew out of Canada completely tax-free, as it was not taxed at the entity level.

            I find it rather ironic that Tory-haters, who otherwise claim that the CPC is out to destroy Canada by shrinking our tax base and starving government, object to the fact that the CPC actually moved to preserve our tax base.

          • Orson Bean

            Further on your Prime West example — first of all, you seem to automatically assume that the LBO of Prime West was a bad thing, period. Yet you ignore the fact that the unitholders of Prime West were bought out for a premium, which was presumably a happy event for them. You also ignore the fact that those unitholders would have paid tax on the capital gain realized from the sale.

            Anyway, if you want to claim that we are losing billions of dollars a year in tax revenue as a result of the income trust decision, then I presume that you can actually prove it by citing a reliable, respected, objective, non-partisan third-party source to back up that assertion. Can you?

          • Orson Bean

            (sound of crickets chirping)

          • Tceh

            Another presumption: You would assume the cowards that are the conservative government would be more than willing to explain their position using reliable, respected, objective, non-partisan third-party source to back up the assertion of tax leakage, wouldn't you?

            Instead we get this: http://www.caiti.info/resources/fla_docs.pdf

            Sounds of crickets chirping for 4+ years now

          • Orson Bean

            So in other words, you can't substantiate your claim that we are losing billions of dollars a year as a result of the Harper government's income trust decision. So, basically, you were lying.

            Thanks for comin' out.

          • Teroth

            Òrson Bean:
            "So in other words, you can't substantiate your claim that we are losing billions of dollars a year as a result of the Harper government's income trust decision. So, basically, you were lying. "

            And you, sir, are putting a completely unwarranted and hostile interpretation on my argument. If a farmer is suffering a drought, knows roughly the extent of that drought, has determined as best he can what it has cost him and then extrapolates the total loss to the farming community as "billions of dollars" would you call him a liar? If I go through a similar exercise, comparing Revenue Canada's loss from the degradation of my portfolio to the total capital of all income trusts I come up with $1.8billion. Maybe the true figure half a billion more or less than that, but unless you can challenge my argument on the merits I have substantiated my claim to any reasonable person.

            Here's another post by Professor Stanbury confirming "huge reductions in tax revenues when the crippled income trusts were acquired by sovereign entities, and by foreign private equity firms" have occurred. http://www.investorvillage.com/Groups.asp?mb=4992…

            At this point, maybe you should disclose what you really think the situation is. Do you believe there have been losses in tax revenue because of the income trust tax? How much do you think they were? How about you providing some substantiation? Or should we dismiss you as a liar?

  • Emily

    Social media will simply lead to voting online…so why we worry about it affecting voter turn-out, I don't know.

    Perhaps more people would vote, by any means, if there was something to vote FOR.

  • Mike T.

    When will you stop being a shill for the conservative party and its hacks, you biased lamestream "journalist"!! :)

    • Jan

      Are you referring to Eron Wheiry?

  • Richard_S_Argent

    "Today’s low voter turnout by young people will be the general population’s rate in 20 to 30 years"

    I don't know how true that is. I had a similar conversation with "hosertohoosier" a few months back and he linked to a graph that showed voter engagement by age groups for the last 50 years or so. Now it's entirely possible that I was reading the graph wrong but it seemed like young voters always had low turnout numbers but those numbers grew as they got older.

    I think the real issue is trying to convince young voters that they are stakeholders, that elections matter to them, right now.

    (Wish I could find that graph….)

    • LdKitchenersOwn

      That line struck me as false as well. Young people tend to vote less frequently than older people, it's true, but what the author seems to fail to take in to account is that as young people get older, they're no longer young people.

      • Richard_S_Argent
      • Jan

        Yes, it's not a particular generation that votes less frequently, it's an age demographic.

        • FWR

          Although it's true that people become more likely to vote as they get older, the 18-year-olds of today are less likely to vote than their parents were at the same age. Each generation is starting at a lower turnout rate, which is causing turnout to decline overall: http://www.elections.ca/res/rec/part/youeng/youth…

          • LdKitchenersOwn

            That's certainly true, but the article suggested that today's youth turnout will be tomorrow's general turnout, and I think that's an exaggeration.

  • madeyoulook

    If it truly takes a politician's personal handshake to get the lazy slob all fired up to go and vote, maybe it's just as well that he or she stay home.

    • Mike T.

      I used to think that, but now that internet commenting has become the norm I am convinced the "engaged" vote is no better than the "unengaged" vote.

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