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Flat tax

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Flat tax

The rapid and steep decline in Jean Charest’s popularity in Quebec shows that we Canadians cannot handle the truth. We prefer that our politicians lie to us and tell us that everything is fine, and that we will be able to get everything we want from our governments without having to bear the cost directly. Someone else will pick up the tab – the provincial governments for municipalities; the federal government for the provinces; and the rich for everyone.

I am a believer in transparency. Most of the electorate are adults, more or less, and as such we should be able to decide, when the facts and options are set out clearly, whether or not we want to support and pay for a particular government program. Instead, our politicians prefer to obfuscate what they are doing and buy us off with our money. Don’t be forthright and honest because you become a target seems to be the first rule of politics.

I also have been an ardent fan of a flat tax system. At tax time, we all have had to go through the ordeal of filling out our income tax returns and trying to make sense of the countless schedules and rules. I am sure all of us would prefer simplicity.

A flat tax system would have a tax return consisting of at most four lines – total family income, a fixed deduction per family, net taxable income and tax payable. However, I doubt that we would be willing to trade off simplicity for the numerous tax benefits incorporated into the current system.

Governments have become used to and very adept at using the tax system to fund many different programs, and in the process hide the full costs of these programs from the electorate. These so-called tax expenditures are just as much a claim on taxpayers as direct spending, but these values rarely appear in budgets and budget debates. You can fool the electorate by being opaque.

I should note that in my ideal world, we would only have personal income taxes. There would be no property taxes or sales taxes, and corporate income taxes would be replaced by withholding taxes on all income paid to non-residents. But I will leave this discussion to another day.

To move to a flat tax personal income tax system would require sacrificing the following: deductions for charitable contributions, political contributions, pension contributions, union dues, child care expenses, medical expenses, tuition, public transit, children’s fitness, interest on student loans, interest on loans for investments, adoption expenses, CPP, EI, investments in labour sponsored venture funds, eligible dependents, etc. Do I hear the screaming yet about sacred cows?

Further, there would no longer be a preferential capital gains tax rate. All capital gains would be included in the year in which the gains are realized. (I would not allow capital losses to be deducted for tax purposes. This would discourage some of the gambling behavior in financial markets.) Capital gains on primary residences also would be included in income and be subject to taxation. How long before we crucified a politician who dared to just whisper such heresy?

If any of the policy initiatives, which are funded surreptitiously through preferential tax treatment, are important, then they should be funded openly and directly. This way we could see how much each program costs, and then we  would be better able to decide whether we wanted to continue funding the program at that level.

A flat tax system does not preclude other taxes; for example, road tolls, carbon taxes, user fees for medical services, excise taxes on alcohol and tobacco. Special taxes could and should be used to discourage certain types of activities; namely those that create negative externalities. But all the revenues collected via these taxes should be used to reduce the personal income tax rate. They should not be used to generate revenues for government.

Are we likely to move towards a much simpler tax structure. Unlikely in my lifetime because we do not want to give up our favorite entitlements.

“Fool me once, shame on you. Fool me twice, shame on me.”

The opinions expressed in this blog are personal and do not reflect the view of either Global Brief or the Glendon School of Public and International Affairs.


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