HACKING AWAY AT TAXES.

If there’s such a thing as a tax- policy mantra, that’s it. The U. S. is thinking about a 1986 Reagan- style tax reform and wondering if the guy now in the White House is capable of that kind of leadership. The hundredth anniversary of Canada’s income tax, which the Fraser Institute is observing with a collection of short essays its vice- president, Jason Clemens, and I have edited, may get people thinking that a centenary is a good time for a tax tune-up or maybe even a new tax engine.

The key to broadening the base and lowering the rates is, of course, to make more things subject to the income tax. There’s no shortage of candidates. The federal Department of Finance produces a compendium of these “tax expenditures” every year.

Finance defines a tax expenditure as “any departure from the ‘ benchmark’ tax structure, which is characterized by only the most fundamental aspects of the tax system.” In 2025, by this necessarily somewhat vague definition, there were fully 182 tax expenditures: 85 in the personal income tax, 61 in the corporate income tax and 36 in the GST. Looking only at the PIT tax expenditures, they were up from 61 in 1991. Our tax-makers have been busy.

Deciding what a tax expenditure is worth is also tricky. How would taxpayers really respond if it were eliminated? And what if several were eliminated at the same time? How would they interact? But under the simplest possible assumptions, the biggest tax expenditures in the personal income tax are shown in the table.

It’s obvious from the getgo that one person’s tax expenditure is another’s bread and butter, or if not their personal meal ticket, at least a crucial component of their concept of what constitutes an ideal tax system.

The favourable tax treatment of registered pension plans cost $ 24 billion in 2015. And RRSPs cost another $15.6 billion. Together that was over 13 per cent of federal revenue. But a lot of people think the problem with income taxation is that it penalizes savings: You pay tax on any income twice, first when you earn it but then again if you invest it and make money on your investment. ( Yes, Virginia, there was a time when investments made money.) By contrast, if you blow it all, you pay less total tax. What seems to be special treatment for saving may simply offset this tax bias toward profligacy.

Less than full inclusion of capital gains cost $ 11.6 billion, though that’s for both personal and corporate income taxes. “A buck is a buck is a buck” was the mantra of the 1960s Carter Commission on taxation, which led to Ottawa’s first use of capital gains tax. Advocates of exclusions for capital gains argue both that gains aren’t indexed to inflation and that there’s a lock- in effect with taxation only when the asset is sold. But it’s 50 years past Carter now and we all have computers. Indexing should be easier than it was. And we could at least begin to think about real- time assessment.

Likewise the exemption of capital gains on a principal residence. Making sure you tax only real increases in value is a problem. But is there really a social purpose in persuading people to buy homes rather than rent? Most economists want consumers to make their own choices without government assistance, or insistence. Should your fellow citizens really take a position on how you shelter yourself ?

The chart only shows the top 10 tax expenditures. That leaves 51 others in the personal tax system alone. Unfortunately, many aren’t very big-ticket items. But deciding things aren’t big enough to bother cutting is a way to pile up trouble fast. If you hack away at them all, you can still make back decent money that you can plow into rate reductions that will pay off in higher incomes down the road.

And broadening the base isn’t the only way to lower the rates. It’s not just tax expenditure that has dubious effects. Real expenditure does, too. And there’s plenty more of that than there is of tax spending.

‘A BUCK IS A BUCK IS A BUCK’ WAS THE MANTRA OF THE 1960s CARTER COMMISSION ON TAXATION.