The Low Wages Tax or LWT

 

 The proposed Low Wages Tax or LWT is designed on two simple principles.


Principle One.

Like the old Canadian Federal Sales Tax (FST), which was replaced by the GST, the LWT would be charged by a Canadian government on the producer or manufacturer of the good or service thereby making the LWT a ‘hidden’ tax.

BUT a government would also allow that producer of the good or service the option to not pay this ‘hidden’ tax.

That producer would be granted the option to pass the LWT onwards down the supply chain towards perhaps reaching the final customer - the person who buys the product - thereby making the LWT a more ‘open’ tax.

This feature in the LWT would give the manufacturer or producer of the good or service more flexibility in how they deal with the LWT which would thus not be a mandatory tax upon them.


Principle Two.

As to the LWT rates which would be charged to the producer or manufacturer, the simple principle would be that the lower the wages that a manufacturer or producer of the good or service pays to his employees then the higher will be the LWT rate and, conversely, the higher the wages that a manufacturer or producer pays to her employees then the lower will be the LWT.

Thus if manufacturer Y and Z both make X but Y pays his employees $30.00 per hour while Z pays her employees $25.00 per hour then Z’s LWT on its X would be higher than Y’s LWT on its X.

What might happen then - assuming for the moment, that both Y and Z choose option two and pass the LWT on X onto the final consumer? While this could be quite flexible, the government might want to then order both Y and Z to post their respective LWTs alongside their price of their X so that the consumer would see the respective LWTs on each X by both Y and Z.


These are the proposed two core principles of the LWT.


There are other options which a LWT might embrace. Since a LWT on $30.00 per hour might be considerably lower than a LWT on $3.00 per hour, other dimensions beside the wage and salary rate dimension could be used by a government in order to dampen such tax rate extremes.

Here are a few such other dimensions that could be combined with the wage-salary rate dimension.

(1) A LWT could also be lower on those manufacturers or producers of a good or service should that manufacturer employ proportionately more fulltime employees than a competing manufacturer who employed proportionately less fulltime employees.

(2) A LWT could also be lower on those producers of a good or service should their proportion of manufacturer’s total expenditures spent on wages and salaries be higher then on a competitor’s wages and salaries costs; in short, the LWT would lower on the producer whose total costs were made up of 40% in the form of wages and salaries versus that competitor producer whose total costs were only 20% in the form of wages and salaries.

(3) A LWT could also be lower on those producers should they employ proportionately more women, or more youth, or more seniors, or more aboriginals, or more disabled or any other social disadvantage which a government might deem important, than the LWT that might be charged on any other producer who chose to not embrace such disadvantages.


It is the view here that a LWT has numerous advantages.

(1) The LWT  taxpayer will find that the LWT’s two principles are easy to understand.

(2) The LWT is a far more flexible tax than most sales taxes which the LWT is designed to replace. The manufacturer or producer can treat the LWT either like the old ‘hidden’ FST or the newer ‘open’ GST. The taxpayer is now given the choice of LWT rates to pay - that rate depending on the wages or salaries paid by the manufacturer in question.

(3) The LWT actually encourages manufacturers of goods and services to pay higher wages or salaries in order to reduce tax burdens - when was the last time you saw a tax do that!

(4) The final taxpayer is given a wider range of tax options from which to pay.

(5) The final taxpayer can actually set or even dictate employer behaviour by the purchase options that they make.

(6) The LWT could be either a within-legal jurisdiction-only or a global-wide tax.

(7) If a government might implement a global-wide LWT, then that government would become a trail blazer in international tax reform.

(8) If a Canadian based government might implement a global-wide LWT, imagine - if you will - how suddenly ‘Made in Canada’ goods and services become competitive with goods and services with the ‘Made in China’ label from a country where wages are lower.

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