TAXING OUR TOLERANCE

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.