And with those words I suspect that about 80 per cent of you are tempted to flip the page or hit the back button on your browser. But bear with me because people should really be paying a little more attention to what they are being sold under the ambiguous, euphemistic label of “reform.”
Maxime Bernier, currently a leading favourite to be leader of the federal Conservative Party, is calling for substantial tax reform as part of his platform. I think it is worth the effort for each of us to wrap our minds around what tax reformers are proposing.
In its most general formulation, tax reform — as the phrase is typically used by its proponents — means eliminating various credits and deductions to fund a general reduction in rates. These proposals may or may not be revenue neutral. Bernier’s tax reform policy, for example, calls for reducing rates to 15 per cent on all income between $15,000 and $100,000, and 25 per cent on income above $100,000. He would eliminate certain unspecified boutique tax credits.
The best part of selling tax reform to the public is its superficial appeal.
Canada’s main tax laws — the Income Tax Act and the Excise Tax Act — are thousands of pages long and only understood in any depth by highly paid tax accountants and lawyers working in glass skyscrapers in Toronto and Calgary. The tax returns we have to work our way through every year are lengthy and convoluted in their own right. Tax season a real pain for a lot of Canadians even when the end result is a refund of some sort. Tax returns are so complicated that a whole industry exists just to help people fill them out.
Many of the tax deductions and credits that are available to taxpayers were created for political purposes to appeal to a certain subset of voters that some politician needed to woo to win an election.
Sure sounds like a system in need of reform. Tax reform, its proponents claim, would result in “fairer” and “simpler” system than the status quo.
But let’s unpack some of this. We’ll dispense with the simplest arguments first. Odds are that you’ve never had to read the Income Tax Act just to do your taxes so its page count isn’t a terribly great argument in favour of reform. Moreover, the portion of that act that actually relates to the various credits and deductions that reformers typically want to do away with make up only a small part of the statute.
Don’t like doing your taxes? There are a plethora of services that will do it for you at a cost that is far less than what you could potentially lose in credits and deductions if you fall for a nebulous program of tax reform. (Disclosure: I like doing my taxes.)
Moving on.
The most problematic part of so called tax reform is the unchallenged claim that there is something unfair about the various deductions and credits. In proposing that we eliminate credits and deductions to pay for reduced rates, advocates are implicitly asserting that only income level ought to be used to determine the “fair” amount of tax we ought to pay.
It assumes that any other life circumstances that might affect some of us ought not weigh into our tax bills. It assumes that a single parent with two kids in daycare who is residing in a Northern jurisdiction with a high cost of living and caring for an ailing parent or a student making her way through college ought to be taxed the same as someone who does not have these obligations.
Sounds debatable.
Proponents of reform like to disparage so-called boutique tax credits. But we ought to ask specifically what credits they regard as boutique. This is not a term with any precise definition. Perhaps those credits and deductions might serve some useful purpose as a form of social policy.
And many do. There are credits for tuition fees, caring for infirm family members, and a deduction for child care just to name a few. Even Stephen Harper’s gimmicky child fitness tax credit was aimed at the laudable goal of encouraging parents to get their children active.
If we assume that some of the social policy that we do through our income tax return is worthwhile, some of the arguments about inconvenience and inefficiency begin to look less persuasive.
After all, let’s say that — in lieu of the current family caregiver amount — we wanted to set up a program to help people offset the cost of caring for infirm parents. To do so we would need to establish a new bureaucracy with management, staff, physical space, and a budget. If you wanted to access the program you would need to fill out a form (or forms) and provide much of the same information that is already included on your tax returns and within the records of the Canada Revenue Agency.
We debate whether a particular credit or deduction is “fair” and directed at a legitimate social objective as we do with every government program. We can call them into question when they seem to have been politically motivated.
But we ought to have these discussions credit by credit, and deduction by deduction. Lumping them all together under the disparaging moniker of “boutique tax credits” and proposing to do away with them en masse under the guise of reform reduces complex policy considerations to very simplistic terms.
We need to ask politicians campaigning on tax reform which specific credits they want to eliminate — not just the low hanging fruit but a comprehensive list — and evaluate how that will affect the people who benefit from them.
But to do so we have to take an interest in the boring subject of tax reform.
Kyle Carruthers is a born-and-raised Yukoner who lives and practises law in Whitehorse.