Two cheers for Trudeau’s tax proposals

Real ‘fairness’ will require a lot more examination, writes Mischa Kaplan.

As a business owner, I have watched with some satisfaction as the Liberals uncomfortably try to justify their proposal to close certain tax advantages available to small business owners.

Now fully on the defensive, Prime Minister Justin Trudeau and Finance Minister Bill Morneau have countered criticism of their plan with a response typical of what many now expect from the Liberals: speeches perfectly designed to play to the government’s self-celebrating image as a crusader for the rights of the downtrodden (in this case, the unfortunate middle-class working stiff who lacks access to the “loopholes” Canada’s crafty small business owners stubbornly protect), while being sure to completely alienate and offend everyone else who doesn’t fall within that downtrodden group. (Never mind that the vast majority of Canadian smallbusiness owners are in fact middle class themselves).

But as much as it pains me to admit, Morneau and the Liberals are right to frame the issue as one of “fairness.” Even among the small business lobby (of which I would consider myself a proud member), there are very few who would suggest that taxation policies favouring one group over another are “fair” in any sense of the word.

They might be rational, and they might be appreciated, and they might help encourage entrepreneurs to open businesses, but they are not at all fair in the exact sense of the word. So when Morneau calls such policies “unfair loopholes” he’s essentially correct, even if he’s completely oblivious to his accusatory tone.

From a strictly objective perspective, a tax policy that favours married couples is also unfair, as is a similar policy that favours income earners with dependent children. In each of these cases, the government is telling people what they value and what they don’t value, or what they want to encourage and what they don’t want to encourage. From a tax perspective, our government likes married families with children, and students, and seniors, and volunteer firefighters, and people who reside in Quebec, and members of the clergy, and people who live in remote northern areas.

And, until recently, smallbusiness owners. In fact, according to the Fraser Institute, the value of such tax favouritism can in some years exceed the total of federal personal income tax collected. Not that I’m advocating a world in which the government has access to even more of our money, but that looks to me like a lot of tax unfairness.

In his endless wisdom and capacity for collaboration, Trudeau recently reminded voters that he would be “happy to have discussions and feedback from interested Canadians who want to make our tax code fairer.” Working toward a more equitable tax code is in fact one of the few good ideas on the Liberals’ economic agenda, and anyone who values a simple and efficient tax system should support Trudeau in his efforts at reform.

But tax “fairness” is only a relevant flag to wave if it’s pursued in a manner that is fair, and I fail to see how simply removing one entitlement really contributes to this goal. Is a policy that allows a high salary earner (say, for instance, a member of Parliament making $173,000 per year) to put as much as $26,000 into an RSP any fairer than the regulations that allow a smallbusiness owner to own an investment portfolio within her corporation? I’ll accept that the latter “loophole” probably doesn’t do a heck of a lot to help the middle class, but does the former?

Morneau and Trudeau are correct to want to reform our tax system. Now if only they were serious about it.