The Canadian Imagination

What it means to be Canadian; examining and reworking Canada as a nation.

Sunday, July 11, 2004

Toward a just system of taxation

It has been said many, many times about this country, by those of every political and social orientation, that we seem to want for ourselves European-style social programmes while financed by American-style taxation: the inevitable result of which is Canadian-style deficit. (That Canada currently looks to be the only one of the G-7 countries not running a current deficit is the result only of a very creative use of federal-provincial-municipal abrogated transfer payments and belayed responsibility.) Examine first, then, the fundamental question of what might constitute just taxation: what Canadians are willing to pay, who pays, and how -- even before we can determine what we can and cannot afford and under what jurisdiction it ought to fall. We might wish to do it the other way around -- know what we want, then determine to pay for it -- but past practice has demonstrated:
  1. a growing individualism increasingly determined to pay only for what is personally used, regardless of where the most immediate needs might fall (another variant of this is the NIMBY approach to structures needed [but not here]);
  2. a media-fuelled public perception leaping from one short-term highly visible need to another, while ignoring long-term, at least equally necessary but "invisible" infrastructure needs (this can lead to politically popular "pet" projects);
  3. determination to retain control over a particular programme or department while attempting to belay its funding to a different level of government;
  4. and
  5. a willingness of any given administration to axe the projects of the previous one, whether or not this is desirable against the larger picture --
all of which have a tendency to continually increase governmental spending -- politically responsive to the wayward, media-driven winds of public opinion -- without any overarching roadmap.

Yet we like to see ourselves as still valuing some degree of social justice over and above market forces. Quite bluntly, we are not really sure what we do want, only how we wish to see ourselves. Begin, then, with what we are willing to pay to the government (in other words, what we are willing to sustain as public goods, publicly operated and publicly accessible) to sustain that self-image.

In this, we cannot ignore the massive country to the south of us. Perhaps the only other nation in the world at all in a comparable situation to us with respect to its geographical and social position relative to a superpower is Finland: and Canada is further constrained into the domineering N. American mould through its sharing a language and a major fraction of a continent, as well as receiving a numerically overpowering number of television signals from its neighbour to the south. Further, the vast, vast majority of the Canadian population lives within 200 kilometres of the United States border: giving rise to a de facto two-tier public-private system of, among other things, health care -- which may have allowed us to abrogate necessary and sweeping policy decisions for as long as we have (and very nearly to crisis point). What is not obtainable or rationed locally can always be obtained by those with the money to pay for it, from a place in close geographical proximity and with the same language and similar culture.

Every single aspect of our national choices is thus driven, at least in part, by some measure of awareness (accurate or faulty) of how things are done south of the border. This cannot change while Canada happens to have only one country -- and that the major one in the world -- as its immediate neighbour. The best we can do is to choose to make our decisions based on our values, without investing them with any inherent moral superiority or inferiority to those of other countries, and especially those of the elephant in the room.

At this point in time, I think (at least for a few decades or so to come) we have by and large generally accepted the existence of taxation as necessary. The question then becomes what level and manner of taxation is most appropriate/acceptable to most Canadians, to fund those social goods most Canadians feel are best served by the public sector, while retaining (creating?) personal incentive to work to the best of one's capacity and while simultaneously remaining socially fair to all.

After that long introduction, the proposal itself is fairly short, mostly because I have not crunched the specific numbers involved. Rather, I sketch it out in the outline: hold it out for thought, consideration, feedback, possible foundation for future, perhaps more specific, proposals. Taxes are of two general types: income and consumption. Both, I suggest, require serious overhauling.

No other G-7 country gains as high a proportion of its tax base from income tax as Canada does. We have already experienced that this situation creates -- well, somewhat debateable whether it creates a specific disincentive to work, but certainly the nature of the labour market has been shaped by the tolerance of the system for seasonal layoff; and there does seem to be a low/middle income plateau where working more does not increase one's real income proportional to one's expenses. Additionally, given the constant awareness of and comparison to our neighbour to the south, even the existing income tax levels are very nearly at -- in Alberta and parts of Ontario perhaps past -- the level of personal tolerance.

Thus the first recommendation is to replace the current tiered sytem of income taxation with a single-digit (say 8%) flat tax, to be paid on a proportion of income equal to one's base income, less:
  1. Canada Pension Plan payments*
  2. Employment Insurance payments*
  3. a base income level set at equal to the poverty line (which, although determined nationally, will vary from region to region)
  4. a flat discount per child equal to half that assessed poverty line
  5. alimony payments, not to exceed the child discount
. Everyone claims individually, including married couples. Married couples may, however, each claim the child discount; and may additionally claim any unused portion of the allowable deductions (all listed above). Any other payments -- I suspect the most common will be some form of private medical insurance to supplement public medicare -- is not deductable. Disability payments and exceptional medical expenses make a special case, and will be treated in a later, separate entry.

The second general recommendation is to increase, narrow, and standardise (federal-provincial) the existing consumption tax: to a suggested joint maximum of 20%. Services would now be non-taxable. All non-processed foods (eg. fresh/frozen/canned vegetables/fruits/meats and herbs/spices) would be non-taxable: but any food which contains a processed component, even something as basic as applesauce, would be taxable. Raw resources and utilities would be non-taxable. Prescription medicines would be non-taxable, but not shelf or over-the-counter, including herbal products. Publications and general-use computers would be non-taxable (as opposed, say, to game-specific computers such as PlayStations). Other items come to mind -- but not "educational" or "hygenic" supplies in the abstract: some of this is already covered by the allowable child deduction listed in the previous paragraph, and some needs to be dealt with on a case-by-case basis (eg. women's sanitary products). Much of the rest is already covered by the abolition of all consumption tax on services.

Business, corporate, and investment income (among others) remain to be treated: call it the subject of a future entry. This one is long enough as is!


* These are the two federal programmes I would retain in the current payment-proportional-to-income format (only make them more so). They would also be revised in their structure, among other things restoring eligible age to 65. As part of the overall vision, provincial medical insurance payments would be abolished, which is why such co-payments are not mentioned here. Again, the details will be the subject of a future entry.

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