I occupy the unenviable position of being both a Canadian and an American citizen which means that I must file and pay taxes to each country.
The Americans, and now the Australians, are the only nations that tax people on the basis of citizenship irrespective of residency. So whatever taxes I pay in Canada on Canadian earnings is disclosed to the IRS and, if tax rates would have been higher there than here, I send them the difference. And vice versa.
Americans pay lower income taxes than Canadians, but some taxes are lower here than there. After this week, many Americans will pay higher taxes on dividends than Canadians as well as higher corporate taxes, estate taxes and gift taxes. Then Congress will begin to slash spending so expenditures don't exceed their new income tax revenue ceiling.
My expensive perch provides a unique perspective on what has been going on in Washington: the American process may be nasty and noisy but frankly I'm more than a little jealous that the taxpayer is the focus of their attention. That's not the case in Canada where politicians have carte blanche, put everything on the tab and easily hike taxes. Here, the best one can hope for is to find oneself under the control of a fairly enlightened regime occupying all three levels of government.
Of course, the U.S. is not a paragon of virtue and has gotten itself into a big fiscal mess, due to panic over 9/11, the 2008 debacle and unjustifiable tax cuts and wars paid for with a national credit card. But this week, after two years of haggling, illustrated that a system of checks and balances eventually imposes discipline by forcing the public and politicians to engage fully in financial decisions.
Thus the bipartisan deal this week which has raised taxes on wealthy Americans but which will also mean a trade-off of severe caps on spending and future debts.
By the way, the Social Security and Medicare debates are separate because they are self-insured pay-as-you-go programs like Canada's Employment Insurance. Administered by governments, they can be fixed by lowering benefits and raising premiums paid by future recipients. It's controversial, but both can be actuarially repaired if retirement/Medicare ages rise to 70 by 2015 and 72 by 2025 while medical coverage is chopped to 75 per cent from 80 per cent.
But the U.S. system has kept taxes lower than in other countries. Despite the bleating, federal income taxes will go up to about 39 per cent at $400,000 a year. (State income taxes are another 9 per cent if in California or New York but zero if you move residence to Florida).
To compare, a Toronto taxpayer pays federal/provincial incomes tax of 40.16 per cent at $132,406 level, without mortgage interest or property tax deductions and a monstrous 13 per cent sales tax on everything.
In Europe income taxes in are 52 per cent (for those who pay); 57 per cent in Sweden, 55.2 per cent in Denmark, nearly 60 per cent in Germany, 45 per cent in Australia, 47 per cent in Norway and 50 per cent in Japan, Belgium and Austria. Some sales taxes are 26 per cent or higher.
Here's the point. Imagine what their taxes would be if they had militaries even half the size proportionately of America's? By the way, the difference is not medical coverage. American governments pay half of all medical costs in U.S. or 7 per cent of GDP, the same 7 per cent as Canada and the others spend on healthcare for their citizens.
We all pay higher taxes because there are no checks and balances. In Canada, governments have been hijacked with as little as 37.6% of the vote (Bob Rae in Ontario in 1990). Once in, politicians rack up bills, debts and taxes as much as they wish. Worse than that, they invoke the incumbents' advantage by calling the election when they think the other guys are so divided that nobody can get the requisite 37.6 per cent plus to topple them.
This is why Canada nearly went bust in 1995 but was averted when international lending agencies threatened to cut off its credit. More recently, a crisis looms without anyone applying brakes. Ontario and Quebec have combined debt levels approaching the size of our federal government's debt, a trajectory that is unsustainable.
What if there had been checks and balances? What if, like American states, provinces were not allowed to borrow as much money as they wanted for as long as they wanted?
Ontario Premier Dalton McGuinty would not have been able to hand out all-day kindergarten, costing more than $1 billion a year forever, just as his province was losing its credit rating. He would have been called to task on signing an expensive confidential contract with Samsung and he might not have been around to spend up to $1 billion in penalties last fall canceling two power projects in order to win re-election.
He would have had to come to a compromise about his overspending with other parties, as would Quebec. Instead, McGuinty spent twice as much as economic growth then when pilloried at long last simply quit and prorogued the government. He shut down debates, bridled press freedoms and halted opposition probes in the hopes that the public will forget and Liberals can find an electable replacement.
Speaking as a hapless Ontario taxpayer, I can hardly wait for a new unelected Liberal Premier to take office and launch a raft of spending initiatives, thus harming the provincial debt rating even more, in order to get elected.
Or how about Quebec taxpayers, with a new government in charge and $3-a-day nursery school privileges and spoiled university students who don't want to pay any tuition.
Canada, since Trudeau Sr., has been afflicted with spendthrifts and taxation levels that are simply too high. But that's rarely an issue here because it doesn't have to be and because it's more fun and easier to lampoon the Americans.
Instead, those of us with governments run by ostriches should be jealous. Without checks and balances, we will forever be bribed with our own money until the IMF, or testy bondholders, roll into town.
The Americans, by contrast, will eventually live almost within their means, keep taxes reasonable and fix their self-insurance programs after a lot of bruising and bashing.