THE BEDROCK PRINCIPLE ... IS NEUTRALITY.

cent but 42 per cent. So you can see how the income tax is viewed as a deterrent to investment. But that’s true no matter how the money is invested, or in what particular way the return on that investment is paid out. So it’s hard to see why Bernier wants to exempt only one particular form of return — capital gains — from tax, as opposed to dividends and interest. Far better to simply exempt all savings from tax, as we do under the current level. Right now that’s addressed by attempts to integrate the two tax systems, recognizing the tax that has already been paid via the tax credit on dividends and the partial inclusion of capital gains. But you could just as easily forego the corporate tax and collect the whole tax at the personal level, since in the end all taxes are paid by people anyway. (Among other benefits, that way you could ensure more of the tax was paid by those higher up the income scale, since the personal income tax is progressive in a way that the corporate tax is not.)

You could, that is, if you didn’t have to be concerned about people converting personal income into corporate income, for example by incorporating themselves. No doubt the corporate income tax adds needless complexity to the system, but that’s mostly because of what it taxes — income — rather than where it’s collected. Taxing income is insanely difficult, since so much of it involves comparisons of variables between years: not only capital gains, but inflation, and depreciation. So a better reform, since some form of corporate tax will always be necessary, is to convert the current tax on income into a tax on cash-flow: all cash in during a given year is taxable, all cash out is deductible.

A personal consumption tax, and a corporate cashflow tax, are essentially mirror images of each other. Together they would make a fine pair of reforms, addressing critical weaknesses in the present system without adding their own.