Tfsa Wtf?

[danmand]

Here, it appears everybody in the whole world is trying to get consumers to
buy again, and the canadian budget is promising taxcuts of $150 to get
consumers to flock back to the stores and buy buy buy.

At the same time, the government is advertising ad nausium about the
TFSA, which will put money away in tax shelters.

 

[wetnose]

The TFSA is one of the most awesome devices for saving ever invented.

It's impact is not seen immediately, but over 20 years, the federal government will regret that it was ever invented.

Think about it - everything you earn in the TFSA is tax free. If your tax rate is 30%, then earning $7 in the TFSA is effectively equal to earning $10 in your normal brokerage account. If you double down on a penny stock, then you don't pay a single dollar on the gains.

 

[MixedNuts]

The TFSA is one of the most awesome devices for saving ever invented.

It's impact is not seen immediately, but over 20 years, the federal government will regret that it was ever invented.

Think about it - everything you earn in the TFSA is tax free. If your tax rate is 30%, then earning $7 in the TFSA is effectively equal to earning $10 in your normal brokerage account. If you double down on a penny stock, then you don't pay a single dollar on the gains.

The gov't will regret the TFSA in just 10 years.

But if you haven't maxed out your RRSP, then the TFSA isn't for you.

 

[Barca]

Here, it appears everybody in the whole world is trying to get consumers to
buy again, and the canadian budget is promising taxcuts of $150 to get
consumers to flock back to the stores and buy buy buy.

At the same time, the government is advertising ad nausium about the
TFSA, which will put money away in tax shelters.

The TFSA was put into development a long time before anyone knew this recession was going to hit us. It's not like the TFSA program came about at the same time that the government decided massive defecit spending was going to be required.

But yeah...it's horrible timing for the government.

But not for us, North Americans have become horrible savers. Hopefully this will reverse that trend. Regardless of how you invest it, even in a high interest rate savings account...every eligible Canadian should open one of these for themselves.

 

[21pro]

I agree. North Americans are horrible savers and like debt.

the TFSA is probably much better for us in the long run. glad to see the Conservatives looking long term and still going ahead with it.

 

[JohnLarue]

The TFSA is one of the most awesome devices for saving ever invented.

It's impact is not seen immediately, but over 20 years, the federal government will regret that it was ever invented.

I disagree the govt will regret it was ever invented

1. The govt wants / needs Canadians to save more. (less pressure on social programs)
Perhaps this is not the ideal vehicle to use for retirement savings (RRSPs is better), however those that have maxed out the RRSPs will use them.

2. The number of people who actually use these to the max may not be huge
(Maybe a million accounts- its a guess). Only those with an extra $5 K per year

3. Its a $5K max contribution / year
Assuming an average equity 8% return = $400 (which will not be taxable until sold
Assume an average 3 % return on a GIC = $150
So taxes on $150 to $400 at maybe .35% marginal tax rate (thats high) =
$52 to $140 in loss tax revenue for a years contribution.

Even if there is a million of these accounts its chump change (Sponsorship Scandal, Gun Registry, two hours worth of gasoline tax revenues etc)

The compounding effect over 25 years will be significant, however most of these plans will be collapsed long before then to pay for

1. Retirement
2. House purchase / renovation
3. Education (Child's)
4. Vacation Property
5. Job distress

Most people can save for about 3- 5 years then they will want / need something

The government is happy to see the general public take a more active role in saving for any of these expenditures.

The ones who will benefit the most are the uber rich who will take advantage of the plan, just because $5K a year is not going to be missed & they feel they are taxed enough & will contibute to the plan for 35 years tax free

 

[someone]

Here, it appears everybody in the whole world is trying to get consumers to
buy again, and the canadian budget is promising taxcuts of $150 to get
consumers to flock back to the stores and buy buy buy.

At the same time, the government is advertising ad nausium about the
TFSA, which will put money away in tax shelters.

That’s a conflict between the long run policies and short run policies. In the long run, more savings mean more investment which means more capital stock for future generations to work with. I.e. it increases GDP when the economy is at full employment. In other words, it increases long run aggregate supply. However, the short run problem is that the economy is below the full employment level of GDP. Keynesians argue that this means that the government should try to increase aggregate demand by getting people to spend more. In other words, the get people to save more effect of the TFSA is good for the long run but is arguably bad for the short run. The get people to spend more policies are good for the short run (if you buy the Keynesian argument) but bad for the long run (unless, you feel the savings or not get translated into investment because the recession has people scared to invest).
Personally, I am a long run kind of guy. Thus, I am very supportive of the new TFSA. However, I agree that the timing of the introduction could have been better. That being said, the government announced the TFSA before anyone knew how bad the recession might be and before, they got forced to introduce such expansionary fiscal policy.

The ones who will benefit the most are the uber rich who will take advantage of the plan, just because $5K a year is not going to be missed & they feel they are taxed enough & will contibute to the plan for 35 years tax free

Compared to RRSPs, the TFSA is much better for low income people as what they have in the TFSA does not count against their old age security and other federal government programs that are effectively means tested. It often makes no sense for low income people to invest in RRSPs as it counts against their old age security payments.

 

[danmand]

That’s a conflict between the long run policies and short run policies. In the long run, more savings mean more investment which means more capital stock for future generations to work with. I.e. it increases GDP when the economy is at full employment. In other words, it increases long run aggregate supply. However, the short run problem is that the economy is below the full employment level of GDP. Keynesians argue that this means that the government should try to increase aggregate demand by getting people to spend more. In other words, the get people to save more effect of the TFSA is good for the long run but is arguably bad for the short run. The get people to spend more policies are good for the short run (if you buy the Keynesian argument) but bad for the long run (unless, you feel the savings or not get translated into investment because the recession has scared to invest).
Personally, I am a long run kind of guy. Thus, I am very supportive of the new TFSA. However, I agree that the timing of the introduction could have been better. That being said, the government announced the TFSA before anyone knew how bad the recession might be and before, they got forced to introduce such expansionary fiscal policy.

As always (except on proportional representation) I completely agree with you.
I was just pointing out the fact that the government is heavily ADVERTISING
the TFSA, while in the budget 2009 trying to encourage spending with tax
cuts etc.

Actually, I am not persuaded that an econmy based upon excessive consumer
spending is healthy.