Canada’s current tax system is a direct result of our desire for democracy and deductions
The federal government has finally moved into a surplus position after years of recession-induced (and stimulus-increased) deficits. Thus it has been able to fulfill some of its 2011 surplus-contingent promises, namely in the form of modified income splitting for families with children. Along with this, the feds announced a suite of other tax and spending initiatives in late 2014 aimed at shoring up support from “middle class” Canadian families. The merits and demerits of the policies have been debated at length since, and I won’t repeat them here. But the policies present the opportunity to examine another, oft-ignored, aspect of our tax system: its byzantine complexity.
Like the layers of sediment that preserve fossils from hundreds of millions of years ago, successive governments of all parties have introduced credits and deductions for activities and investments at the personal and corporate levels that have resulted in what we have today — an income tax act that is about as penetrable as hardened lava from the Triassic period.
Your columnist spent part of his career at a Big-Four accounting firm, where dog-eared copies of the The Act were kept at each desk. The document is enormous. Printed on Bible-thin paper (and worshipped accordingly by the accountants and lawyers it enriches), anyone with less than 20/20 vision is best advised to read it with a magnifying glass. Despite being composed of near-weightless pages, the brick weighs in at close to 20 pounds. To call it verbose would be like calling the cosmos pretty big.
And what end does this infinitely complex law serve, apart from providing a permanent high-end meal ticket to the counter sages who’ve spent careers divining its hidden and ever-changing messages?
EVERYBODY TAKES, EVERYBODY GIVES
In the final accounting, it means Canadians have built for themselves a tax system which takes from everybody and gives to everybody simultaneously. The salaried person may not see 40 per cent of their pay every two weeks, but come tax time, they can claim and deduct for every little thing they’ve done all year and send Ottawa a bill for it. If a salaried worker can remember it all. And if not, they can hire someone to remember it all for them. Everyone wins!
Except they don’t. Hidden from the annual springtime ritual of everyone giving money to everyone else by way of Ottawa is a great deal of what economists would call “deadweight loss:” money, wealth and value, have essentially gone up in smoke due to the mere logistics and paperwork of it all.
Imagine for a moment if we as a nation could devote even half the time we spend on personal and corporate accounting to something else. The mind reels at the thought of it. We could be playing hockey on the moon but we’re stuck in our offices ironing year-old receipts from our backside pockets.
While the law is complex, the reasons for the complexity are simple. In a democracy we get to change governments all the time. Each one wants to make its stamp on The Act, and each one comes to power beholden to a different set of electoral clients. While collectively, years of accumulating credits and deductions has resulted in the mess we have to deal with today, individually it is hard to argue against most measures that have been introduced.
CAN IT BE SIMPLIFIED?
Who’s going to stand in front of the cameras and argue against the Volunteer Firefighters Tax Credit, or the Family Caregivers Tax Credit, or the National Plan to Encourage and Recognize (insert warm and fuzzy activity here?) No one, that’s who. Any party running an election campaign on “tax simplification” is likely to see even its supporters fall asleep at the boredom of it rather than show up at the polls with enthusiasm. And the opposition from powerful and well-funded lawyer and accountant groups, roused into action at the threat of a downgrade to their meal tickets, would be fierce. It all adds up to a near-immovable status quo, a vast ship of tax complexity that has accumulated so many barnacles it is impossible to turn around.
In place of the complex income tax act with which we are now saddled, my modest proposal would be a gradual reduction and elimination of the hundreds of pages of credits and deductions that have been added to it in the past 50 years. Opposition to the elimination of each one would be vocal by the tiny groups they target. But their removal will serve to simplify our tax system and to reduce the deadweight loss associated with its current complexity. Once enough credits and deductions are eliminated, revenues will be raised enough to lower personal tax rates for everyone, and to devote more of our resources to those truly in need — most of whom are not tax lawyers or accountants.
