Taxes: the third rail of Canadian politics

Posted on March 4, 2016 in Governance Debates

TheStar.com – Opinion/Commentary – Policy experts know, but rarely mention, that shifting the tax burden is essential to a more equitable society.
Mar 04 2016.   By: Carol Goar, Star Columnist

There is a conspicuous gap in most of the reports, studies and books on income inequality in Canada. They don’t talk about taxes.

The authors invariably cite Canada’s tax-and-transfer system as one of its most effective tools to offset market forces. They offer comprehensive strategies to improve income transfers (social programs). But they are silent about where to get the money.

“The institutionalization of anti-tax sentiment is well-advanced in Canada,” say Keith Banting of Queen’s University and John Myles in the concluding chapter of Income Inequality: The Canadian Story, published this week by the Institute for Research on Public Policy. “Tax phobia has infected all Canadian political parties to varying degrees.”

It also appears to have infected academe. Fourteen of the chapters of the book featuring their essay dissect the causes of income polarization or propose remedies. Three chapters look at taxes.

This imbalance, Banting and Myles suggest, reflects the difficulty of changing anti-tax sentiment. It is rooted in the decline of trust in government, the erosion of household incomes and the 20-year drumbeat of election promises to “give back your hard-earned money.”

They do see a few promising glimmers. Seven of the provinces have introduced new tax brackets for higher-income earners since 2010. Prime Minister Justin Trudeau made it national in January by adding a 33 per cent tax rate for the richest 1 per cent of the population. And a thought-provoking book, Tax is Not a Four-Letter Word, by Alex and Jordan Himelfarb, has sold more than 2,000 copies (not a bestseller by commercial standards, but well above average for a book on a public policy).

But they are dubious there is enough momentum to go further.

Both professors rule out raising the GST, which former prime minister Stephen Harper cut by two percentage points a decade ago. The backlash would be too great, they argue. If they’re right, Ottawa will never recoup the $14 billion in annual revenue the Conservatives sacrificed.

Nor do they see much more scope for taxing the rich. Magnates and financiers will either stash their earnings in foreign tax havens or move to friendlier climes.  The best hope, they submit, is that Trudeau will retain enough support to inch ahead.

Regrettably neither they nor any of the other 25 “leading experts” who contributed to the book offer any advice about how to accomplish that. Picking up where they left off, here are three ways the Liberal government could start:

– Close tax loopholes. Canada’s 3,200-page income tax is riddled with deductions, exemptions, credits targeted at specific sectors of the population. Harper added approximately 70 tax breaks – covering everything from kids’ piano lessons to long-haul truckers’ lunches – but he did not start the process. Every prime minister since Lester Pearson has added to the build-up.

By systematically eliminating these preferences, Trudeau could recoup tens of billions of dollars to strengthen the nation’s frayed social safety nets and restore fairness to the employment insurance system. No doubt there would be opposition from groups affected by the clean-up. But most of them are too small or too privileged to pose much political risk.

– Make the tax system more progressive. Brian Mulroney reduced Canada’s 10 tax brackets – which ranged from 6 per cent at the bottom to 34 per at the top – to three brackets: 17 per cent, 26 per cent and 29 per cent.

Twenty-eight years later, Trudeau added a fourth bracket affecting upper-income Canadians. But he could do more to restructure the system.

– Extend this year’s middle-class tax cut to those with incomes below $45,000. This would put hundreds of dollars a year into the hands of those who need it most.

It would be expensive – $3.7 billion a year according to the Parliamentary Budget Office. But it would fundamentally shift the tax burden. This will probably have to wait until commodity prices recover or manufacturing picks up.

None of these prescriptions would produce overnight change. As Harper reflected early in his tenure, it takes time to turn the ship of state around.

But Trudeau has a four-year mandate. He has already moved Canada from a standstill to a rolling start. His challenge is to stay the course.

Writer’s note: Jordan Himelfarb, co-editor of Tax is Not a Four-Letter Word, is the editor of the Star’s opinion page. He had no role in the choice of topic or formulation of this column.

< http://www.thestar.com/opinion/commentary/2016/03/04/taxes-the-third-rail-of-canadian-politics-goar.html >

Tags: , , , , ,

This entry was posted on Friday, March 4th, 2016 at 10:51 am and is filed under Governance Debates. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

Leave a Reply