Killing Business Adventure in Canada
IT IS no mere coincidence that Sir Joseph Flavelle and Henry Ford disclosed, almost simultaneously, the iniquities of the income tax excesses.
These two men are outstanding in their own countries. Henry Ford in the United States and Sir Joseph Flavelle in Canada represent, broadly, creative and compelling power behind national enterprise.
Sir Joseph says the federal income tax is killing business adventure in Canada. Mr. Ford says that thé mammoth industrial Ford structure would never have been possible if the present scale of income taxes had applied to his company from its start. Which is to say that Mr. Ford agrees with Sir Joseph Flavelle. And no matter how widely we may differ from the personal views of these two men upon other topics, at least we must concede their qualifications for the problems of every-day business.
They hold the pulse of business and this is their economic diagnose.
In Canada, taxation is not only hamstringing business. It is stifling industry.
It is driving thousands of virile men and women workers from the country. It is having the effect of making timid capital more apprehensive of its reception in the Dominion.
Canada, because of vastly smaller population, suffers more immediately, more acutely than the United States.
In ten years Canadians have contributed one billion dollars in war taxes; Ottawa got a per capita average of $110. Canada’s federal income tax alone has collected $270,000,000. In 1923 Canada’s federal income tax payers numbered two hundred and eighty-one thousand, one hundred and eighty-two. Of these, two hundred and eight thousand, three hundred and sixty were “employees,” men and women of the middle class, wage earners. These employees contributed a grand total of $15,529,949 to the federal tax. In 1923 only two thousand, five hundred and forty-six persons in Canada had an annual income of $30,000 or more. They paid Ottawa $15,020,132 federal income tax. Three hundred and eighty Canadians had an income exceeding $50,000. These paid a total of $8,212,112 federal income tax. Prince Edward Island, alone among the provinces, -had no citizen whose income exceeded $50,000. Fifty-two per cent, of our federal income tax payers disclosed incomes under $6,000 per annum.
Ottawa Must Stop Spending
TN DISCUSSING Canada’s taxation problems with 1 men of affairs, I have found none ill disposed to accept their full share of the tax burden, great as it is. They are convinced that they are doing their patriotic duty. They recognize that Canada has a gigantic debt, which arose from participation in the Great War. Ten years ago such a debt would have staggered. To-day it is accepted with unselfish loyalty.
Business and individuals combine in a gigantic annual contribution. They want the Dominion’s wartime obligations wiped out. They want Canada purged of monstrous debt.
Meanwhile what is Ottawa doing?
The increase in .the net federal debt from $336,000,000 in 1914 to $2,415,538,100 in 1924 is an appalling contemplation. In ten years $2,080,000,000 was added to the nation’s obligations.
On March 31, 1923, Canada’s federal net debt reached a peak of $2,453,776,868. According to the statement of Hon. James Robb, acting minister of finance, in Parliament, that debt had been reduced on March 15, 1924, by $43,614,694. To this extent Ottawa has rehabilitated the federal purse.
But a vaster, mightier effort remains to be put forward. Forty-three million dollars is less than the sum total of one year’s federal income tax revenue.
Economy Must be Far-Reaching
HPAXATION may best be eliminA ated by government economy.
This is sound economics. Moreover, it is good business. If thrift is necessary to the individual Canadian, it is vitally more so to the Government. Picayune economy would be farcical; government thrift must be penetrating, far-reaching.
Only by merciless economy may Ottawa hope to lower this per-
nicious taxation, and, thus lighten the burden now imposed upon factory and home. The federal government must get down to the sources of the country’s troubles, face the facts and cut expenditures in all departments. .
This is the tenor of business to-day. It must also be the trend of government.
What classes pay these federal war taxes? The following tables will tell you:
Distribution of Federal income Taxes
1919 1920 1921 1922 1923
$ $ ‘ $ $ $
Farmers .... 350,759 525,836 611,736 1,299,104 473,049
Professionals. 596,100 1,093,401 2,642,585 2,526,544 2,663,900
Mechanics .. 41,337 ................................
Business .... 6,077,282 ................................
Corporation . 1,376,829 ................................
Employees.......... 4,786,520 11,301,805 17,123,446 15,529,949
Merchants.......... 4,450,375 7,689,521 7,140,101 5,474,256
Manufac’rs.......... 2,551,503 8,217,730 2,472,485 870,261
All Others.. 901,109 6,856,782 11,823,563 9,084,549 6,855,950
Not Classified ................ 4,094,864 824,778 490,046
Distribution of Federal Income Taxes by Provinces
Provinces 1919 1920 1921 1922 1923
$ $ $ $ $
&P.E. Island 249,093 506,993 1,194,345 973,660 737,924
New Brunsw’k 193,028 333,370 701,463 715,255 596,164
Quebec..... 2,543,896 7,246,246 15,657,074 12,359,321 10,807,601
Ontario..... 4,459,939 8,182,736 20,013,796 17,237,995 13,525,825
Manitoba... 740,610 1,871,387 3,962,734 3,227,530 2,568,182
Saskatchewan 171,836 478,244 1,193,536 1,931,347 1,159,232
Alberta..... 457,960 636,248 1,398,998 1,407,994 1,021,237
British Col. . 520,617 995,433 2,237,711 2,585,195 1,906,564
Yukon...... 6,434 13,757 21,246 32,711 34,680
fits war tax. 32,970,061 44,145,184 48,841,401 22,815,666 28,022,149 42,313,480 64,409,603 87,223,207 62,736,263 59,711,562
Super-taxes are taking capital out of productive business, into non-tax^ble ways, and so defeating their own objects. And the burden-that, under reasonable taxation, capital would gladly bear is passed on to you and me.
Arresting National Progress
AR proved that we Canadians under strain and for a time, could assume a tax burden that was ■ undreamed of in 1913. But taxation can go too far. History tells us that taxation has upset nations. To-day in Canada continued and extreme taxation—pyramided taxation—is arresting the country’s development. It menaces national well-being. It threatens home life.
Politicians told us they would “soak the rich.” But how has the federal income tax worked out? Like many another pretty theory it has not been as pretty in practice. The political promise was a promise to make water run up-hill. Economic laws are fundamental v.nd not to be interfered with. Water can be dammed. But damming water does not destroy water. It continues to pile up behind the dam. Sooner or later it will overflow. Politicians, out to “soak the
rich” encountered the same basic law of economics— and failed.
In the United States the rich avoid the full measure of their income tax by buying tax-exempt bonds. They often do the same thing in Canada. Why not, when the Government itself issues tax-free expedients?
The rich man who acquires tax-exempt bonds gets a lower gross income. But he is relieved of tax worries. He has less business responsibility. It is the community that suffers. The effect of the rich man’s decision is greater than the immediate loss to the federal income tax collectors. It is a shock to the entire Dominion. You and I, the workers of the country suffer the consequences of the slow-down of industry. We feel the pinch of business in our own pockets.
You and I suffer the higher cost of living or the loss of a job by reason of growing unemployment, and the indisposition to start new, competitive enterprises.
Few persons, not in touch with industry, realize how many men in the prime of life and in the fullness of their powers havefollowed the example of a certain successful manufacturer. He liquidated his working capital and put the proceeds into tax-exempt bonds. He divides his time, now, between Muskoka and Florida. “I have no desire to make money,” he tells his friends. “What is the use? Why should I keep factory hours, subject my capital to the risks of business, wear myself out in the daily grind, and, then, hand over a great slice of my profits, if there are any, to the federal government—and another large slice to provincial and municipal tax agents? My tax-free bonds yield me more dollars, that I can really call my own than my business did. The government that penalized me, when I was a useful and productive citizen, now puts a premium upon my idleness.”
This man is typical of business men. As Sir Joseph Flavelle maintains, taxation is taking the enterprise out of business. To quote Sir Joseph:
“A reform in Canada of national importance lies incutting the income - tax in half at the earliest datepossible. I do not say this from the standpoint of a rich man who has to pay a great deal. If a man is rich enough to pay a great dealjt only means he has a largeincome and should pay. I am considering the matteron national lines. If I am right, we are to a remarkabledegree dependent for increased industrial activity and consequent employment upon the courage, resource, capability and spirit of a comparatively small number of men who have the gift and powers of initiative and who set new enterprises in motion.
“When taxation creates a state of mind where such men say: ‘Why should I go into that enterprise? If it does well, over half which I receive from it will go to the Government in super-tax; if it does ill, I lose. I will not go into it. I will rather buy low-interest bearing securities and play safe.
“The misfortune of the present is that we have lost much of the spirit of adventure in enterprise.”
Henry Ford has made a similarly clear-cut contribution to the tax-reduction agitation in the United States, where Secretary of the Treasury Mellon would reduce the super-tax.
It is just possible the Mellon plan may not pass the United States Congress, in spite of President Coolidge’s urging—at least not in its entirety. It is almost certain, however, that the United States will succeed in reducing super-taxes to some extent this year. Two alternatives to the Mellon plan have been advanced. The Longworth bill runs surtax rates up to 37per cent., instead of the 25 per 'cent, of the Mellon plan, the 44 per cent, of the Garner plan, or the 50 per cent, of the existing law.
If Washington prunes its war taxes, Canada will be put to further disadvantage in competition with the neighbor republic. Once rid of extreme surtaxes, Americans will be stimulated to fresh adventuring in business. Industry will take a spurt forward. Jobs will open up. Living costs in the United States will surely drop. Canada, unfortunately, is likely to be further depopulated. Men and women go where incentive lies.
Mr. Ford’s View on Taxation
MR. FORD, in an interview with Samuel Crowther, says:
“It is hard for a man who earns a.
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great deal of money to talk about taxes, for it always seems as though he were asking to be allowed to keep his money. There should be nothing political about taxes. The bread we eat is not partisan, and neither should be the taxes we pay. It is time we started to think of taxes in terms of the cost of living. Every cent the Government spènds, just like every cent we, as citizens, spend, has to come from somewhere. Any set of legislators who advocate high taxes ought to be run out of office, because they are really advocating the high cost of living. We have to pay some taxes, but the greater part of which we pay ought to go for productive purposes—for good roads, for schools, for better health.
“From a purely selfish standpoint, it does not make the least difference to me whether the Government taxes me one per cent, or ninety-nine per cent. I could live just as I now live on one per cent, of my income. I do not care for money as money. I am in business not to make money as money, but to do things which I believe are of public benefit, and I believe I can put my money to better public use than the Government can.
“Take the Ford car, as an illustration. We had very little money when we began to build that car. We took out small wages for ourselves and put back the
profits into better machinery—which enabled us to reduce prices. We made more money and we put that back. If the present income tax had been In force we should have had to pay most of what we earned to the Government. We did not have to do that and so we were able to put that money into more and more machinery—which not only enabled us to bring the price of the car down but also to raise our wages. We were able still further to spread in the way of going back to the source of materials, in employing more people, and in making things cheaper and cheaper. I have what is said to be a large fortune, but only in a very small sense is it mine. It has gone to the support of two million people.
“With the high surtaxes, I doubt if we ever should have reached a point where we could have produced a car under fifteen hundred dollars and that only by paying low wages. We should have had to pay low wages, for the back of men and not the back of machines would have had to bear the weight of production. Our past earnings — our wealth—are in those machines.
“As far as our company is concerned we can go on about as we now are whether the surtax be twenty-five per cent, or fifty per cent. We can make some improve-
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ments but we cannot do the great things we should do had we more money. We cannot make as much progress in the next fifteen years as we have in the last fifteen, and all forward-looking companies will be in exactly the same boat.”
Few will deny that Mr. Ford knows industry. When, then, he asserts that the present status of the Ford company would not have been possible had industry, at its inception, been hampered by taxation, as industry is hampered to-day few will successfully combat his contentions.
Draining Our Population
CANADA is confronted with an appalling drain upon population.
We are opening our front doors to incoming foreign-born, expending thousands of dollars upon immigration. All the while thousands of Canadians, our own sons and daughters, are slipping out of our back doors into the United States, to work there and to make their homes there. The trek has assumed serious proportions. The United States’ immigration records show a monthly average of 17,000 Canadians. In June, July, August and September of last.year the figures ran from 16,000 to 18,000 per month. This movement, if maintained, would mean a loss exceeding 200,000 a year, which will scarcely be replaced by immigration and natural increase. Immigration, in fact, for the 1923 fiscal year was only 72,887. Immigration for the 1924 fiscal year will not exceed 150,000. Thus we lost, in one year, as many as we gained in two years.
Young men and young business women are leaving Canada. Married men are taking their families. They are pulling up stakes in their native country, because they can no longer find a decent living here—taxation has hampered business, checked industry, choked enterprise.
What is there to bring back to Canada, now, men and women who left for want of employment? They are getting work and good wages in the neighboring states. Canadian industrial conditions, unfortunately, are as uninviting as when they joined the exodus.
Taxes in Relation to Capital
THEN there is the problem of capital for national development. The Dominion can only make productive progress to the extent that investment capital may be attracted for investment here. Canada is chiefly dependent upon capital from abroad. Canada, whose resources, while vast, are nevertheless potential, needs capital above all else. In the wake of capital will come people.
That discerning Canadian, the_ late Sir Edmund Walker, recently reminded us that extreme taxation frightens capital. Nothing, indeed, chills capital quicker than taxation, except it be definite confiscation. Therefore if Ottawa continues to scare capital which would come to us from abroad, we cannot expect industrial and productive progress.
Taxation may even drive the accumulating funds in Canadian banks to seek freer outlet. “We cannot tax savings in Canada more heavily in Canada than they are taxed in the United States, without driving a good deal of capital out of Canada,” the late president of the Canadian Bank of Commerce warned. In the exodus of Canadians to the United States, Canada has.already lost a very considerable amount of capital.
Sir Vincent Meredith, Bart., vitalizes the imperativeness of more moderate taxation. Sir Herbert Holt stresses the vital need of tax reduction, “if Canada is to go forward.” These are two of our eminent bankers, qualified by reason of long banking and business experience to direct the economic course of the country.
But when will the Government at Ottawa undertake seriously to untangle our economic tangles? It is not a pleasant mission to contemplate. Spending money is vastly more fun than saving money. But the most irresponsible spendthrift comes at last to the turn of the road, and that is where the Government at Ottawa finds itself to-day.
It will require courage, unlimited courage. The task is stupendous, but the Government should be amply convinced by this time that sound public opinion will be solidly behind any concerted move for national thrift and economy.