National Post (National Edition)
Terence Corcoran’s guide to the morals involved in a good tax policy.
Herewith a proposal for a new Guide to the Principles of Good Tax Policy: there are no principles.
And here’s a list of The Ten Primary Moral Objectives of a Good Tax System:
collect as much tax revenue as possible from any source using any method that’s politically acceptable and that polls well.
there are no other moral objectives.
The validity of the above proposals can be verified and tested via reference to the daily media coverage of tax issues, the regular pronouncements of economists on tax matters, and the declarations of politicians. Existing taxes and most new tax measures break all the rules that allegedly exist.
The words fairness, neutrality, integrity, equity, efficiency, and non-distortionary appear throughout tax literature and in the words of tax-policy experts. But in fact, Canadian tax law is loaded with tax gimmicks, tax expenditures, multiple tax incentives and credits, deductions, preferential rates and unfair measures.
It’s a recipe for a tax revolt, or at least a few mini-revolts, of which Canada has at least two underway.
In coming weeks, for example, all Canadians will continue to follow the escalating debate over Finance Minister Bill Morneau’s proposals to bring “fairness and neutrality” to the income tax system by changing rules governing private corporations.
What does “fairness” mean? The government says the tax system must work fairly for everyone. In the case of the private-corporation crackdown, “fair” essentially means Ottawa must continue to tax “rich” people more than others. Morneau laid out the Liberal principle of fairness in the opening words announcing the reform plan, when he recalled his government’s first budget action: “cut taxes for the middle class, and raise them on the richest one per cent.”
That’s the equity principle at work. Doctors, farmers and small-business owners who are not the richest one per cent are up in arms over Morneau’s private-corporation reforms. So far they have received no sympathy from Morneau, who is also leaning on the alleged principle of neutrality. As he put it this week on Twitter, “The rules are designed to help businesses grow — not shelter personal income from tax.” Under this version of neutrality, the tax system apparently only encourages businesses to grow if the government collects the highest possible tax rates on personal incomes.
Another fake principle of tax policy not unrelated to the private-corporation reforms is the idea that the tax system should not favour one form of economic activity over another. A very nice principle, but one that is totally foreign to the existing tax system. Canadian tax law is loaded with tax gimmicks, tax expenditures, multiple tax incentives and credits, deductions and measures designed to favour (or punish) a particular set of economic actors.
The other rumblings of a tax revolt are happening inside Ontario. As in some other provinces, Ontario’s property-tax regime breaks all the alleged principles of fairness, equity and neutrality. The recent experience of Toronto retailers on Yonge Street, the city’s main drag, highlights the plundering nature of the province’s market-value property-assessment system.
More than 100-per-cent property tax increases of $5,000 a month were to be imposed on part of the Yonge strip’s small retailers after Ontario’s Municipal Property Assessment Corp. (MPAC) determined that their properties would be worth millions more money if they were sold to real estate developers for condo development. Under marketvalue assessment, properties should be valued for tax purposes based on the highest-possible current use of the land. Since other properties along the Yonge strip have been sold to condo developers at high prices, MPAC’s number crunchers concluded that all properties along the strip should be assessed at condo-developer prices.
The owner of a two-storey, 20-foot-wide retail property was therefore being assessed taxes based on the hypothetical value of the property as a condo site. In other words, the owner is being taxed on or the unrealized capital gain on his property. The same assessment process is applied to all property in Ontario, including residential.
Does market-value assessment that taxes on the basis of paper gains (that may not be realized in future) seem fair and neutral — or is it a front for another tax grab? Yonge Street small-business owners staged a mini-revolt, and now the government is reviewing the assessments. It is worth recalling that California’s 1970s tax revolt was triggered by an almost identical property-tax regime.
For ideological tax grabbers, none of this is a problem; anything is fair and neutral and equitable and efficient if it brings in more money for redistribution. In Britain and Scotland, taxing land separately from buildings has been a hot idea in recent years, supported by Greens and leftists.
British commentators supported such “London Land Taxes” as a fresh new source of revenues for cashstrapped governments. As land values rise, huge pools of what they called “unearned wealth” accumulate. Said one proponent: “It is precisely this unearned wealth a modern society should take its share of in order to fund the institutions we want to build.” The objective, it was said, should be to shift the tax burden from earned income to unearned land values, a more effective way of capturing the wealth of the rich.
But replacing income tax with land taxes will never happen. The principle that a land tax is better than an income tax is a fake principle. Under our Principles of Good Tax Policy and the Ten Primary Moral Objectives of a Good Tax System, Ontario and other jurisdictions will continue to have both. It’s only fair.