The case for tax reform

TheStar.com – opinion/editorials
Published On Tue Jan 03 2012.

As we brace for those New Year credit card bills to roll in and eye the Lotto 649 results, it’s easy to feel a twinge of envy at the high rollers in our midst. Few of Canada’s 100 best-paid chief executive officers need to worry about the letter carrier’s next delivery. They took home an average $8.4 million in 2010, a 27 per cent hike over 2009.

Canadians averaged $44,000 last year, up just 1 per cent.

As a new report from the Canadian Centre for Policy Alternatives points out, “Canada’s CEO elite have left the rest of us behind in their gold dust.” Certainly, that sentiment helped fuel the “Occupy” protesters last autumn, and the sympathy they enjoyed. And it is compounded by a sense that the very affluent are not paying their fair share.

Apart from their hefty pay packets, the top-earning CEOs are sitting on $2 billion in stock options that are treated as dividend income, and taxed at half the value. That’s a tax break worth $475 million, the centre calculates. Arguably, for those who need it least.

These numbers aren’t just about whipping up raw envy. They reflect public policy choices at a time when Prime Minister Stephen Harper’s government is looking to chop federal spending to erase Ottawa’s $31-billion annual deficit in the next few years. It’s hard to make a compelling case that the affluent need tax breaks that ordinary workers will never see when Ottawa is short on cash. And when 3.5 million Canadians live in poverty.

Granted, it’s easy to overstate the case that taxing the rich can solve Ottawa’s cash crunch, or materially ease society’s inequities. While top CEO pay has soared, taxing away every last cent from the top 100 would generate less than $1 billion. Against federal spending of $278 billion, it’s a rounding error. And in fairness, CEOs are hardly the enemy.

The question such numbers do raise, however, is one of basic tax fairness, and whether Canada’s personal and corporate tax systems need change to ensure that the burden is shared more progressively and equitably. In the long run, ever-growing inequality undermines prosperity and well-being for everyone – including the super rich. This is not a debate the Conservatives are eager to hold, for ideological reasons. But it will gain urgency as the Harper government rolls out its austerity budget and Ontario, too, faces tough choices.

The Canadian Centre for Policy Alternatives report, for example, urges Ottawa to eliminate the tax break for executive stock options. Roger Martin, dean of the University of Toronto’s Rotman School of Management and no soft-headed leftist, would go further. To spur the creation of real corporate value he argues that stock-based compensation should be eliminated and that executive pay should be tied to real-market measures including revenues and profits.

Others argue, additionally, that Canada’s top federal tax rate of 29 per cent should be increased for high earners, or that corporate taxes should be hiked.

Brian Topp, a contender for the federal New Democratic party leadership, has proposed reforms that would include a new 35-per-cent tax rate for those making more than $250,000 a year, which would generate $3 billion in revenue. Raising the corporate tax rate to just over 22 per cent from 15 per cent would bring in $11 billion.

While tax policy is a proverbial minefield, far more complicated than the broad numbers suggest, the Conservatives do have options for dealing with the deficit beyond thinning out the public service and cutting transfers or services. As Finance Minister Jim Flaherty draws up the budget, tax reform ought to be up for discussion. If there’s one message the Occupy activists managed to get across, it’s that not all of us are contributing our fair share.

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