TAXING OUR TOL­ER­ANCE

Ottawa Citizen - - EDITORIAL -

Next week’s re­turn of Par­lia­ment will bring fresh op­po­si­tion at­tacks on Fi­nance Min­is­ter’s Bill Morneau’s pro­posed tax changes for cor­po­ra­tions. So let’s be clear about how the govern­ment should NOT pitch its plan to Cana­di­ans.

First, please stop us­ing the loaded term “loop­holes.” When gov­ern­ments de­lib­er­ately cre­ate poli­cies that per­mit tax­pay­ers to shield parts of their in­come, it’s in the ex­pec­ta­tion that peo­ple will, in fact, use these tools. The mea­sures are per­fectly le­gal; they aren’t tax “loop­holes,” a word that con­notes sneak­i­ness, as if cit­i­zens were laun­der­ing their money through the mafia into some il­licit off­shore ac­count.

Sec­ond, and linked to the “loop­hole” mi­rage, stop im­ply­ing that only “rich” Cana­di­ans are tak­ing ad­van­tage of the rules around in­cor­po­ra­tion. Cit­i­zens and busi­nesses that choose to in­cor­po­rate can in­clude not only doc­tors and lawyers, but your neigh­bour run­ning a free­lance writ­ing ser­vice from her home, or the guy down the block try­ing to start a con­sign­ment cloth­ing op­er­a­tion.

Third, stop cam­paign­ing against the rich, pe­riod. Yes, lots of high-priced pro­fes­sion­als have used the cur­rent tax rules to keep more of their money, and yes, some earn en­vi­able in­comes. But “rich” should not be a four-let­ter word in a free econ­omy; im­ply­ing that suc­cess­ful en­trepreneurs are en­e­mies of the peo­ple is play­ing the same low, pop­ulist, iden­tity-pol­i­tics game we frown on other coun­tries’ lead­ers for do­ing.

Fourth, stop the drivel about these par­tic­u­lar re­forms be­ing aimed at tax “fair­ness.” In Canada, there are more spe­cial-in­ter­est tax ben­e­fits and bou­tique cred­its than you can shake a cal­cu­la­tor at, each aimed at a dif­fer­ent slice of vot­ers, er, in­come earn­ers. One small ex­am­ple, in the Lib­er­als’ 2016 bud­get: an ed­u­ca­tional tax credit for teach­ers who buy class­room sup­plies.

Sell your am­bi­tious tax changes on their ac­tual mer­its, rather than play­ing di­vide-and con­quer among sub­sets of Cana­di­ans. And to the op­po­si­tion, don’t you fan class-war­fare flames ei­ther. We’ve seen, south of our bor­der, what pit­ting groups of peo­ple against each other can do.

Let’s not pit one class of tax­payer against an­other.

Well then, what are the rea­sons a govern­ment might le­git­i­mately want to mop up the tax struc­ture for cor­po­ra­tions? Some econ­o­mists ar­gue that govern­ment has, for too long, played the role of risk mit­i­ga­tor, buffer­ing small busi­nesses from eco­nomic re­al­ity. Maybe this should stop. As McGill Univer­sity econ­o­mist Wil­liam Wat­son ar­gues, those in­clined to take more risks in business also hope to reap more re­wards. Why should govern­ment hold their hands with spe­cial tax breaks while they do so?

Like­wise, per­haps Mr. Morneau’s lengthy stud­ies con­vince him that spe­cial poli­cies on in­come-sprin­kling, pas­sive in­vest­ments and cap­i­tal gains just aren’t needed as in­cen­tives to en­trepreneur­ship. If so, make that clearer.

An­other po­ten­tial merit, pre­sum­ably, is that the plan will raise needed money. A govern­ment that pre­dicted a $28.5-bil­lion deficit for 20172018 may sim­ply think it has no choice. Well, say so.

A fur­ther po­ten­tial plus is that mak­ing these changes may move us a bit closer to “tax neu­tral­ity,” a con­cept whereby ev­ery­one’s in­come even­tu­ally is taxed at the same rate, and the tax sys­tem it­self is no longer the rea­son peo­ple make their eco­nomic de­ci­sions. This would ac­tu­ally be a sound ra­tio­nale.

Cer­tain classes of tax­pay­ers are not in­her­ently more evil or pure than oth­ers, and craven im­pli­ca­tions to the con­trary aren’t wor­thy of Canada. Tax pol­icy is com­pli­cated; rev­enues are strained — we get that. But pit­ting us against each other is no way to deal with it.

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