Why the rich should re­volt

For decades, Canada’s tax sys­tem has op­er­ated like a BAD HOL­LY­WOOD MOVIE — TAK­ING FROM THE RICH to give to the ‘poor’. Cor­co­ran, A7 Ig­nore the clap­trap about fair­ness, these re­forms will be A DIS­AS­TER. Black,

National Post (Latest Edition) - - FRONT PAGE - Con­rad Black

Ihave done my best for this fed­eral gov­ern­ment and have tried hard to find merit in the re­cently pro­posed changes to the tax sys­tem. My rec­om­men­da­tion to read­ers in the last fed­eral elec­tion was to vote for Justin Trudeau, whom I like per­son­ally and did a splen­did job re­build­ing the fed­eral Lib­eral party from its sta­tus as the un­of­fi­cial op­po­si­tion with fewer than 20 per cent of the vote in the 2011 elec­tion to a ma­jor­ity gov­ern­ment, an achieve­ment un­prece­dented in Cana­dian fed­eral elec­tions. Stephen Harper had pro­vided pretty good gov­ern­ment but had be­come a Frankens t ei n mon­ster who ter­ror­ized his cab­i­net and cau­cus, in­sulted the coun­try with an ab­surd cam­paign, and would not lis­ten to any­one about any­thing. Justin Trudeau was and re­mains a most ami­able man — what you see is what you get and it is im­pos­si­ble not to like him. Claims that he was an air­head with a pretty face and a fa­mous name were shown by him to be non­sense and the coun­try was right to re­ject that ar­gu­ment.

It re­mains my view that my rec­om­mended vote al­most two years ago was the cor­rect one, as it was in the two pre­vi­ous elec­tions to vote Con­ser­va­tive. It need hardly be added that the New Democrats, de­spite an en­gag­ing ef­fort by Jack Lay­ton and a solid pro­fes­sional per­for­mance as leader of the op­po­si­tion by Thomas Mul­cair (who de­served bet­ter than the vir­tual as­sas­sina- tion he has re­ceived from the Ne­an­derthal left of his hastily adopted party), can­not pos­si­bly be en­trusted with the gov­ern­ment of the coun­try. They can’t get more than a term at a time at the head of a pros­per­ous prov­ince, and could not, al­to­gether, run a two-car funeral, which is what this coun­try would re­ceive if the NDP were in charge of it for long.

Seen from this per­spec­tive, the strong­est ar­gu­ment to be made for the pro­posed tax changes, and pre­sum­ably one of the mo­tives for them, is that they should slice the NDP off at the an­kles in the eyes of all those who op­pose com­merce in gen­eral as grubby, and those who re­gard wealth ac­cu­mu­la­tion, the trans­fer of what wealth peo­ple have made to their heirs, and any plan­ning to mod­er­ate taxes as greedy and un­civil. I don’t doubt that those re­spon­si­ble for this ini­tia­tive have an­a­lyzed it care­fully from a tac­ti­cal po­lit­i­cal stand­point and be­lieve that the gov­ern­ment will pick up more votes than it loses. I have no stand­ing to con­tra­dict them, and learned many decades ago not to un­der­es­ti­mate the envy and mal­ice of vast sec­tions of the public, but I am not so sure.

Like all peo­ple in this coun­try, I have been wait­ing for this gov­ern­ment to do some­thing im­por­tant, apart from the par­tial le­gal­iza­tion of mar­i­juana, af­ter tak­ing of­fice from a regime that had be­come so dys­pep­tic and scle­rotic and cranky that it could not even fill va­can­cies in al­most a quar­ter of the Se­nate. The pro­posed tax changes are im­por­tant and ground­break­ing, but af­ter care­ful study, I must con­clude that they are al­most en­tirely bad for the coun­try. They con­sti­tute a vi­o­lent as­sault on small busi­ness, the self- em­ployed, pri­vate com­pa­nies, and tax- pay­ing, high- in­come peo­ple such as lawyers, as well as on fi­nan- cial con­ti­nu­ity in fam­i­lies. In a word, it is an as­sault on a whole range of tra­di­tional val­ues, though it is, like all tax in­creases, dressed up in the thread­bare rai­ment of fair­ness and elim­i­na­tion of “loop­holes,” which have come to mean any abate­ment of taxes on all cat­e­gories of in­come be­low about 90 per cent.

If I be­lieved that the prime min­is­ter’s strate­gists had re­ally got over their in­tel­lec­tual life-sup­port con­nec­tion to for­mer Dal­ton McGuinty and Barack Obama po­lit­i­cal strate­gist David Ax­el­rod, I could be­lieve this seis­mic lurch to the left was be­cause they saw that U.S. Pres­i­dent Don­ald Trump was go­ing to bring in his tax changes and achieve 3.5 per cent eco­nomic growth, rais­ing the North Amer­i­can tide no mat­ter what crown of thorns was im­pressed on the per­spir­ing and hoary heads of Cana­dian in­come tax­pay­ers. Such a stretch and act of faith is now be­yond my al­ways lim­ited ath­letic tal­ents and hard­pressed ac­cess to spon­ta­neous up­lifted op­ti­mism. And Trump’s tax re­duc­tions are also likely to drain in­vest­ment, and some peo­ple, from Canada.

There is noth­ing for it but to sketch out the ma­jor prob­lems of this pro­posed dawn raid on our ma­te­rial lives. Div­i­dends to fam­ily mem­bers will be sub­ject to an unimag­in­ably in­tru­sive and costly anal­y­sis by tax col­lec­tors of whether the re­cip­i­ents have earned these div­i­dends, and of whether in­tra- fam­ily as­set sales or sales of busi­nesses are at fair prices. Taxes on es­tates, where own­er­ship of busi­nesses is in­volved, be­comes very com­pli­cated and costly, and any uti­liza­tion of trusts, no mat­ter how tra­di­tional, be­come a tene­brous jun­gle full of hos­tile beasts and ser­pents em­ployed by the fed­eral gov­ern­ment to im­pov­er­ish you and your heirs. An arm’s length sale of such a busi­ness will at­tract a tax of up to 26 per cent, while an in­trafam­ily sale could be taxed at up to 45 per cent. Com­bined with pro­posed vote- buy­ing (and job-los­ing) in­creases in the min­i­mum wage in On­tario, this will cut deeply into small busi­ness prof­itabil­ity, the per­ma­nent prin­ci­pal source of any coun­try’s eco­nomic strength and growth.

In the last fed­eral bud­get, t he min­is­ter of f i nance promised to fa­cil­i­tate the con­ti­nu­ity of fam­ily busi­nesses; the pro­posed meas- ures are a 180- de­gree turn from that de­clared ob­jec­tive. He also promised tax sim­pli­fi­ca­tion; what is now pro­posed is a night­mar­ish labyrinth that in­vites tax in­spec­tors to ran­sack the en­tire pri­vate cor­po­rate sec­tor de­mand­ing pay­ments ag­gres­sively be­fore the new rules have been ju­di­cially in­ter­preted, with, no doubt, their cus­tom­ary cour­tesy and dis­cre­tion (which could put much of the pop­u­la­tion un­used to such of­fi­cial ha­rass­ment on sui­cide watch).

The pro­posed treat­ment of pas­sive in­come will dis­cour­age sav­ings and re­ten­tion of earn­ings in small and medium busi­nesses, and as­sert pres­sure to avoid pru­dent re­serves for con­tin­gen­cies or un­fore­seen op­por­tu­ni­ties and prob­lems and re­strict the abil­ity of man­age­ment in small and medium busi­nesses to man­age sen­si­bly.

The ad­min­is­tra­tion of these changes and their in­ter­pre­ta­tion by the courts ( and any ex­pe­ri­enced tax­payer knows to f ear the worst in these ar­eas) will take many years to ad­ju­di­cate and clar­ify, even in the ab­sence of fur­ther changes, which can­not be as­sumed. It re­quired 17 years for the Supreme Court of Canada to set­tle the im­pact of the orig­i­nal gen­eral avoid­ance rules, and there is no rea­son to be­lieve that mea­sures as com­plex, med­dle­some and au­thor­i­tar­ian as these will be less time con­sum­ing for the es­tab­lish­ment of a com­pre­hen­si­ble frame­work. Such un­cer­tainty will cre­ate very dif­fi­cult con­di­tions for cor­po­rate plan­ning as it will be im­pos­si­ble to be con­fi­dent what rate of tax will be ap­plied to dif­fer­ent cat­e­gories of in­come and as­sets.

It is en­tirely likely that the cost of im­pos­ing and col­lect­ing and ad­ju­di­cat­ing these taxes will ex­ceed the rev­enue to the fed­eral gov­ern­ment. This ap­proaches the salt tax in the last days of the Bour­bon monar­chy in 18th- cen­tury France, which re­quired 250,000 agents to col­lect and helped bring on the French Revo­lu­tion. Cana­dian tax­pay­ers are un­likely to have the sat­is­fac­tion that the French had then of send­ing those re­spon­si­ble for this tax to the guil­lo­tine, or of be­ing ex­alted by the glo­ri­ous vic­to­ries of Napoleon ( un­ac­cept­ably costly in all re­spects though they ul­ti­mately were).

Lawyers and some doc­tors will be sin­gled out for par­tic­u­lar op­pres­sion, which to op­po­nents of this nasty and dan­ger­ous leg­is­la­tion is wel- come, given their po­lit­i­cal in­flu­ence and the bar’s skill at lob­by­ing. If im­ple­mented, these rules could drive large num­bers of doc­tors out of the coun­try, and Canada is al­ready the 27th out of 35 ad­vanced economies in its per capita num­ber of doc­tors. About half the de­fi­ciency of 25,000 doc­tors just to get to the 35 coun­try- aver­age was caused by Pierre Trudeau and Monique Bé­gin’s abo­li­tion of pri­vate medicine (“over- billing”) in 1983. The im­po­si­tion of these mea­sures would ag­gra­vate this short­com­ing and cause even the most com­pla­cent Cana­di­ans, who imag­ine they have a bril­liant health- care sys­tem, to see and feel its de­fi­cien­cies, which would be­come starkly more ob­vi­ous, es­pe­cially from the l ong wait­ing lists for many ser­vices and the out­right (though un­ad­mit­ted) ra­tioning of health care to lower in­come groups.

These are bad mea­sures, pro­posed by a fis­cally in­con­ti­nent gov­ern­ment in mid-sum­mer and with a con­densed 75- day con­sul­ta­tion process. If adopted as they are, it may en­able the regime to squig­gle through the next elec­tion, greas­ing its way with slip­pery clap­trap about egal­i­tar­ian fair­ness, but it will be a na­tional dis­as­ter of slow eco­nomic growth and a reac­cel­er­ated brain drain that will take a gen­er­a­tion to re­dress. This beastly set of pro­pos­als should be stran­gled in its cra­dle, but the will­ing hands to give it what the Supreme Court could ea­gerly rec­og­nize as death with dig­nity are not now vis­i­ble.

Note: I would l i ke to thank many peo­ple for mak­ing re­search avail­able to me, es­pe­cially Eddy Burello and John Hughes of MNP, and the for­mer min­is­ter of fi­nance, my friend of many years, the Honourable Joe Oliver.




Prime Min­is­ter Justin Trudeau makes his way through a crowd of stu­dents from McGill Uni­ver­sity on Fri­day in Mon­treal.


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