With proposed Liberal reforms impacting less than 10% of small businesses, this tax revolt will fail

NationalPost.com – When more details emerge on the income bracket occupied by those who are sheltering their money, it will be hard for the Conservatives to paint them as victims
September 21, 2017.   JOHN IVISON

The great national tax revolt will fizzle by Christmas.

That may sound a bold prediction, given the way the Liberal small-business tax reforms are dominating the political conversation — but hear me out.

The Liberals are intent on changing the rules that allow small-business owners to defer taxation by using private corporations to make passive investments. The Conservatives have leapt on the issue, suggesting all small businesses will be hit including mom-and-pop firms and farmers.

But, as will become clear when the government releases its refined proposal later this fall, very few individuals in these categories will be affected.

Of the 1.8 million private corporations used to save on personal income taxes, just 36,000 hold 80 per cent of the taxable income. The numbers suggest a massive concentration of wealth in just 2 per cent of these vehicles.

According to the Department of Finance, only 300,000 private corporations report some kind of passive investment, and half of those don’t make enough income to be impacted by the reforms.

When more details emerge on the income bracket occupied by those who are sheltering their money from the Liberal tax storm, it will be hard for the Conservatives to paint them as victims.

Indeed, when it becomes clear that conscientious mechanics and sons of agricultural toil are exempt from the changes, the opposition may well regret having expended so much political capital on the issue. If Justin Trudeau really can demonstrate he is taxing the rich to give to the poor, one suspects public sentiment will turn on a dime.

That is the calculation the Liberals are making.

They may even be drawing the Conservatives into a trap, where the opposition is forced to defend “small business owners” even after it becomes clear those affected are high net-worth individuals.

The government’s proposal is that owners of private corporations should pay the same tax on their income as other taxpayers.

Liberal sources say that, once the public consultation period ends in early October, the government will release a more detailed proposal that will make clear that only those private corporations at the very top of the asset ladder will be impacted.

If 1.76 million private corporations are not going to be affected by the government’s proposals, it suggests much ado about nothing — but raises the question of why the Liberals were not more specific in the first place.

Smug strategists will likely claim it was planned this way all along, that putting out such a vague proposal caused the Conservatives to overplay their hand, and allowed the Prime Minister to indulge in some energetic (if hypocritical) affluence-bashing.

But smart political parties do not deliberately solicit weeks of negative publicity, or court sedition in their own caucus.

A finance minister already disillusioned by politics, according to people close to him, has been wounded by the affair. In particular, he appears agitated at suggestions that he engineered the changes so that his pensions consulting firm, Morneau Shepell, could benefit from increased sales of individual pension plans, as business owners shift their retirement savings from private corporations.

For the record, this was not Morneau’s brainchild; the finance department had previously tried to sell the idea to the late former finance minister Jim Flaherty, at least twice.

Still, Morneau has looked unsettled, and it would be no surprise if he did not run again in 2019.

This was a blunder — but one from which the governing party will likely be able to extricate itself because of the complexity of the issue and the limits of its impact.

People are interested in local business issues, specifically the business local to them. Human nature being as hoggish as it is, the issue will fade from the headlines once it becomes apparent that someone else is paying for the Liberal Party’s class war.

http://nationalpost.com/opinion/john-ivison-with-proposed-liberal-reforms-impacting-less-than-one-in-10-small-businesses-this-tax-revolt-will-fail

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