Although the annual income tax ritual may be out of the way for another year, in reality the taxes never stop. The average Canadian taxpayer pays in income tax the amount equivalent to his gross salary for the months of January, February, March and part of April. But the taxing does not stop there. It takes another several weeks—until the beginning of Junebefore taxpayers start working “for themselves.” The income taxes paid by Canadians, estimated to run to about $43 billion this year, are not sufficient to satisfy the appetites of avaricious governments. Thus we have sales tax, property tax, water tax, excise tax, entertainment tax and what-have-you taxes—in fact, so much tax that Statistics Canada takes 66 pages of fine type to list the principal taxes imposed by Canadian authorities. Random samples of families across the country invariably reveal that fully 40 per cent, and in some cases 50 per cent, of people’s gross incomes goes to taxes.
If we did not have to pay all the direct and indirect taxes that are levied on just about everything we see, smell, touch, hear or taste, we would get our full wages and salaries without deductions. We would also be able to buy gas for half of what it now costs anywhere in the country and liquor for approximately a third of the current price. What would we have to do without? The Canada Pension Plan and the Canada Assistance Plan, just to name two things. Elderly, poor Canadians would not have the guaranteed income supplement to the old-age pension. We would not have medicare and hospitalization in the form we now have them. Nor would we have some of the most generous unemployment benefits in the world. In fact, there is probably not a single person in the country who would deny that many Canadians are better off today because of those programs.
Still, the outrages that successive finance ministers have inflicted upon an already incomprehensible tax system have solidified my view that the costs of our present tax system now outweigh the benefits. Taxation without representation—which is how I define an incomprehensible system—fosters contempt for government. That contempt prompts action: the underground economy, consisting of services performed for cash, bartering and people holding down more than one job—almost un-
heard of in Canada 10 years ago—is now estimated to have siphoned between $12 billion and $15 billion out of the economy. Not only does the present tax system make criminals out of an ever-growing segment of the population but it decreases involvement in productive economic activity and increases the amount of time, talent and energy devoted to the avoidance of taxes. Productivity has become a buzz word, yet nowhere is it related to the fact that more and more honest Canadians are simply opting out of the visible economy.
Given the present tax system, which enterprising Canadians find increasingly discouraging, a simple, straightforward and flat rate of tax on personal income is well worth considering. As a substitute for the mess of deductions, deferrals, exemptions and shelters that now confounds us, a uniform tax of between 17 and 20 per cent would raise as much money as the present system puts
The present convoluted taxation system makes criminals out of an increasingly big segment of the population ’
into government coffers. The specific percentage is not really crucial (although all studies indicate that it would be relatively low); what is important are the principles. In the first place, for those who are convinced that a flat tax is regressive (they say that the poor will pay more, the rich less), it should be clearly stated that the poorest will pay nothing: a personal nontaxable allowance would solve that problem. Second, income would be taxed only once, no matter what its source. Third, whether income is derived from interest, dividends, rents, farms or salaries, it would be taxed at the same flat rate. For instance, in 1979 federal statistics showed total personal income in Canada at $220 billion, from which, based on the present convoluted tax system, Ottawa collected $27 billion in income tax. However, under a flat tax rate, assuming a personal allowance deduction of $62 billion, 17 per cent of the remaining taxable personal income of $158 billion would have yielded the same $27 billion.
The concept of a single flat tax rate can be extended to business. Instead of
the present complex system of deductions for depreciation, interest, fast writeoff investment tax credits and other “incentives,” the base for a business tax would be gross revenue minus the purchases of goods and services and compensation paid to employees. Even allowing for a straightforward firstyear writeoff of all business investment, a single tax rate of 17 per cent would yield as much corporation tax as the present system. But it would have the advantage of being understandable to the vast majority of Canadians.
Indeed, far from being regressive, a simplified flat tax rate would favorably affect the poor, for it would eliminate all taxes, not just income taxes, for the poorest segment of society. Furthermore, it is reasonable to assume that the low marginal tax rate would bring back a lot of economic activity that has been driven underground. Brought back into the system, it would once again be recorded in the gross national product, and there is little doubt that productivity would rise dramatically.
It is also reasonable to assume that both individuals and businesses would spend less time figuring out how to avoid paying taxes and more time working productively to earn more money. And if people had higher incomes, governments would have more money to redistribute, even if they do choose to spend it on frivilous studies that show that men average 41 seconds in the washroom per visit and women 75 seconds, as a study cited in one auditorgeneral’s report revealed. It would not even be unseemly to think that Canadians would be more inclined to buy more Canadian goods and services. (To date, a few governments—the Isle of Man, the Channel Islands and Hong Kong—have adopted a version of the flat-rate tax, and it is working very well for them.)
Canadians are not the only people to recognize that the benefits of real, honest tax reform are more than economic in nature. Studies conducted in the United States confirm that a flat tax would not only raise an equivalent amount of money to that now being raised, or more, but, in the words of Robert Hall and Alvin Rabushka, two researchers at Stanford University’s Hoover Institute in California, the flatrate tax system “would help restore confidence in government and would support the basic honesty of people.”
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