There’s a lot that parties and candidates could do to make the tax system fairer but based on the early days of the election campaign, it’s not clear if those options will get the attention they deserve.
“I think the NDP are running on them,” said Toby Sanger, the director of Canadians for Tax Fairness. “The Liberals will make some commitments. They did in the last election.”
Leaders of the Conservative Party and Green Party have begun to outline a few ideas, and all the parties have said they’ll have more to offer when they release their full platforms in the coming weeks.
Sanger said making the tax system work better for everybody should be a campaign focus.
“There’s a real fundamental unfairness to so many parts of the tax system,” he said. “Tax fairness is important, because you want people to pay their taxes somewhat gladly.”
While people sometimes see taxes as “boring” or arcane, they make a fundamental difference to people’s lives, he said. The long-term trend in Canada has been to reduce taxes on top incomes, he noted, which has contributed to rising economic inequality.
“Our supporters see it as a top issue. Your readers did too.”
When The Tyee asked readers to help direct our election coverage, you asked for a deep look at issues of tax loopholes, fairness and inequality.
For many people, making Canada’s tax system fairer means making it more progressive so people with higher incomes contribute a greater portion of what they earn.
Alex Hemingway, an economist and public finance policy analyst in the British Columbia office of the Canadian Centre for Policy Alternatives, says Canada has room to increase tax rates on high earners.
“A very important route to tax fairness would be moving that top marginal rate and the evidence, the economics, tells us there is room to do that in Canada,” he says. The top marginal federal tax rate is currently 33 per cent, which applies to income above $210,371. Provincial income taxes are also levied; in B.C. the combined rate is about 50 per cent.
In the United States, there is talk of raising the top marginal rate to 75 per cent. Dalhousie University economist Lars Osberg did an analysis for Canada that found the top rate could be raised to 65 per cent on incomes above $205,000 without sacrificing revenue.
“We’re still a long way off,” Hemingway said. “There is room for moving on the top income tax rate if you look at what the literature seems to say about what’s the revenue-maximizing top rate.”
Sanger also argues for higher tax rates on corporations and high earners. But the change has to be combined with moves to close loopholes, he said, or “there’s going to be more leakage” as high-income earners avoid taxes.
“Closing loopholes is an integral part of making the tax system fair.”
Hemingway recently wrote a piece arguing for the need to widen the debate on taxation, much as we’ve seen happening during the Democratic primary debates in the U.S.
“In Canada we have fallen behind the U.S. in terms of the debate on taxes,” he said.
Proposals he highlighted included introducing a financial transactions tax and an inheritance or wealth tax, and increases to the tax on capital gains, as well as measures to increase workers’ ownership stakes in companies they work for.
Canada is the only G7 country without a proper inheritance tax, Hemingway said, noting that in the rest of the group, a tax of 45 per cent on the portion of estates over $5 million is typical. Under such a system, people would be able to keep the first $5 million of an inheritance tax-free but would pay a significant rate on amounts above that.
Canadians for Tax Fairness produced a 14-page platform ahead of the election that includes calls to close several regressive tax loopholes, as well as other steps to make the tax system fairer.
The government should be dealing with tax havens and closing loopholes, but also making the system more progressive by raising rates on high-income earners, Sanger said.
“Clearly closing loopholes is a big priority and that does help to simplify the tax system which is a positive thing,” he said. “We also need to make it more progressive by raising rates.”
The Liberals made some positive changes, including making the Canada Child Benefit more progressive, but fell short in other areas including the “bungled” review of how some individuals use personal corporations to limit the tax they owe, he said. “Some progress was made, but certainly less than expected, than they should have.”
Taxes on business income should be closer to the rate on individuals, he said, which would reduce the incentive to shelter income in a company. The corporate income tax rate has been cut in half over the past 20 years, he added.
Hedy Fry, the Liberal incumbent in Vancouver Centre who was first elected to Parliament in 1993, said making the tax system fairer was a major part of the party’s platform four years ago.
The government cut taxes on middle incomes and raised them on income over $200,000 a year, she said, adding it also reduced the tax rate on small businesses and introduced measures to encourage investment and create jobs.
It made the child tax benefit more progressive and increased the Guaranteed Income Supplement for seniors, raising 350,000 children and 900,000 seniors out of poverty, she said. At the same time there were measures to make homes more affordable, she said, and the federal carbon tax will leave eight out of 10 Canadians with more money in their pockets.
“Year after year, we’ve added these things,” Fry said. “We’re building blocks that will get us to fairness.... I think we’re getting there.”
There are more measures to come as the platform is released throughout the campaign period, she said, arguing that the Liberals are on the right track and would use more time in office to continue undoing the damage the former Conservative government did.
“You can’t suddenly do everything,” she said. “You don’t do 10 years of damage and fix it in four.”
In budget documents the government has also argued the system was becoming more fair. “By keeping taxes low for small businesses and ensuring that everyone pays their fair share of tax, the government’s actions are helping to create greater opportunities, including jobs, for all Canadians, and delivering on its fundamental promise: that hard work will be rewarded, and that every Canadian can have a real and fair chance at success.”
Compared with other countries in the Organization for Economic Cooperation and Development, a group of the world’s economically developed countries, Canada has been in the middle of the pack for the progressivity of its tax system.
The Conservative party failed to respond to interview requests. Leader Andrew Scheer has said, on Twitter, “We’re going to make maternity benefits tax-free, cancel the Trudeau carbon tax, and take the GST off home heating costs.”
The same commitments were highlighted in a press release on the first official day of the campaign. The party has not yet released its full election platform.
During the Sept. 12 leaders’ debate, Scheer said he would eliminate the federal carbon tax and introduce a “green-home renovation tax credit” that will give people a tax receipt for projects that lower their energy costs.
He also mentioned removing income tax from maternity leave benefits and eliminating the sales tax on home heating and energy bills. There’s more to come, he said. “Throughout this campaign, we will be unveiling more ideas, more policies, more proposals that will put more money back in your pocket for you, for your kids, or for your retirement.”
On the weekend Scheer announced a Conservative government would cut the income tax rate on the lowest tax bracket, for those with annual income under $47,630, from 15 per cent to 13.75 per cent over the next four years. The party said it would save an average family with two income earners $850 per year.
Tammy Schirle, an economics professor at Wilfrid Laurier University in Ontario tweeted, “This doesn’t touch anyone earning less than the basic amount, but for the rest in the lowest tax bracket, this would be welcome news.”
Speaking a few days before the campaign launch, Sanger said the Conservative promises are poorly designed and will make the system less coherent.
“Unfortunately, it looks like Andrew Scheer is following the same path that Stephen Harper did in promising a lot of tax reductions and tax measures,” he said.
The party still favours policies like the child fitness tax credit that complicate the system and won’t achieve their stated goal, Sanger said. “It looks like Scheer is going the same way of promising all these boutique tax credits.”
The NDP platform, released earlier in the summer, includes various measures aimed at making the tax system fairer.
“We want to ask the very, very rich, the people at the very, very top, to pay a little more to be able to fund the programs that we need,” said NDP Leader Jagmeet Singh in an interview during an August visit to Victoria.
Priorities include raising taxes on top earners, stopping the use of offshore tax havens and taxing the stock options used to pay CEOs.
“With stock options CEOs get paid vast sums and none of it is taxable, so we want to close that loophole,” Singh said. Closing it would only affect a few hundred people, he said, but would raise as much as $1 billion.
“It’s a very significant sum off not very many people, but that’s exactly what happens when you have massive inequality,” he said.
Offshore tax havens are completely legal, but the NDP would change the rules so that a company sending money offshore would have to demonstrate that the place they are sending it is somewhere they actually have employees.
“What happens often is money is sent to offshore shell companies and the shell company has no employees, it’s just a corporation on paper, so we could easily stop those offshore tax havens by saying, ‘Well, is there actually an employee there, are there actual people being paid, is it an actual company or is it just a shell?’”
The policy change could bring in revenue of as much as $50 billion, he said.
The NDP would also introduce a wealth tax, charging one per cent of the value of assets worth more than $20 million. “It’s a wealth tax on those who are very, very, very wealthy,” he said, adding that it would apply to fewer than 2,000 people but would raise around $9 billion.
“It’s a thing that people are very ready for,” Singh said. “A lot of folks are saying we need to ask the very ultra-rich, the people at the very, very top, to contribute a bit more, and here’s a concrete way of doing it.
“The general idea is that everyday families that are working, they pay their fair share, but the people at the very top don’t. That’s what we’re looking to address, that the people at the very top need to pay their fair share.”
Asked about the possibility that some people would move their assets or their homes outside of the country, Singh said he believes there’s no risk of that.
“There are many reasons people stay in Canada,” he said. “Canada has a lot of benefits and a lot of reasons why people call it home, and I’m confident that asking a little more is not going to make people leave. It’s a reasonable amount.”
The NDP also plans to raise the top marginal income tax rate by a “reasonable amount that works” but won’t announce details until later in the campaign.
The Green Party platform released Monday said the growing gap between rich and poor shows something is wrong with the tax system.
“The burden of taxation is not fairly distributed,” it said. “A Green government will undertake root-and-branch tax reform.”
Promises included establishing a commission to analyze the tax system for fairness, closing loopholes that currently benefit the wealthy through low tax rates on stock options and capital gains, taxing funds held in offshore tax havens and taxing companies based on where their product or service is consumed,
The Green party also said it would introduce a financial transactions tax of 0.2 per cent and eliminate fossil fuel subsidies.
The party would also add a surtax of five per cent on bank profits, eliminate the 50-per-cent deduction for meals and entertainment expenses for corporations, and increase the tax credit for volunteer firefighters and search and rescue volunteers.
During the Sept. 12 leaders’ debate May said the Parliamentary Budget Office is costing the party’s platform.
There are many ways to find revenue, May said. “We don’t tax Google or Facebook. They take billions out of this economy. We could raise the corporate tax rate [to] 21 per cent.” That would bring it in line with the federal rate in the U.S., the party said.
All the parties have five more weeks before the Oct. 21 election to tell voters what they will do and how they plan to make the tax system fairer.
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