Newsgroups: can.general
Path: utzoo!lsuc!dave
From: dave@lsuc.on.ca (David Sherman)
Subject: Re: Tax Revolt Now!!
Date: Mon, 14-Aug-89 23:10:23 EDT
Summary: the tax system isn't all that bad
Message-ID: <1989Aug14.231027.11461@lsuc.on.ca>
References: <2713.24E6443D@isishq.FIDONET.ORG>
Organization: Law Society of Upper Canada, Toronto

Steve.Kannon@f71.n221.z1.FIDONET.ORG (Steve Kannon) writes:
>Ignoring the "will" of the people is precisely what every government 
>does. Because the general public is a diverse group with no possibility 
>of cohesive action, the political agenda is set by high-powered lobby 
>groups, most notably the big business community. 

There is some truth to that.  From the rest of your posting, however,
I gather you've been reading Linda McQuaig's _Behind Closed Doors_.
That's an interesting book which makes a number of good points,
but it's also highly biased and misleading in places.
> 
>If the government was really interested in tackling the deficit, it 
>could easily do so by adjusting its spending priorities slightly (ie. 
>without cutting back basic social services) and by taxing business and 
>the rich to the same extent they tax the average Canadian. In fact, if 

"Taxing the rich" is something of a red herring.  It depends a
bit on how you define "rich", but basically, raising the tax
rates to very high levels for the "rich" would not raise enough
funds to make any noticeable difference.  It would also encourage
the "rich", who are generally financially mobile, to move their
income and/or themselves out of the country.  There is some truth
to the argument that Canada needs to remain competitive with other
industrialized countries, notably the U.S.

>the government collected even those taxes which have been "deferred" 
>(read "no intention of ever paying") by business, the public coffers 
>would be richer by some $50 billion (yes BILLION). 

This figure is misleading.  "Deferred taxes" arise due to
the timing differences between income for tax purposes and
income for accounting purposes.  Income for tax purposes is
typically lower because of high CCA (capital cost allowance)
rates relative to accounting depreciation.  These rates, and
other timing differences, are a deliberate incentive to
investment in capital equipment.

Yes, high CCA rates distort the tax system (and to some extent
they have been reduced with Tax Reform).  One can argue about
the best way of delivering incentives, and there are problems
with using the tax system.  But that doesn't mean you could
simply abolish high rates of CCA and suddenly collect $50 billion
in lost tax revenues.

>Of course, the feds have no intention of doing things logically. Their 
>aim is to make life easier for the very wealthy (whose taxes have 
>actually decreased dramatically since BM the PM came to Ottawa) and for 
>large corporations. The powerful elite have said "we don't want to pay 
>taxes and we don't want to pay for social services which make us 
>uncompetitive at the business level" (can you say "harmonization" in 
>preparation for Free Trade). To this Brian and Michael, who both belong 
>to this class of people, have told their friends, "don't worry, you 
>won't have to pay a cent; the other slobs [read you and me] will pay to 
>keep things the way we want them to be." 

That's your perception.  I think the truth is rather different.
Yes, tax professionals, who generally represent business and
investors, have an influence on tax legislation.  But I've seen
a lot of tax legislation come through over the past five years
which what you call the "business lobby" objects strenuously
to, but which has still been passed.  (The Alternative Minimum
Tax and the general anti-avoidance rule are obvious examples.)

I see a lot of proposals for tax changes, and they come from
the Department of Finance, not from "big business".  I also
read the background material in detail.  The officials at
Finance, and the politicians above them, are genuinely trying
to grapple with problems in the tax system.  I don't agree with
everything they have done, but I do not subscribe to your simplistic
view that "the powerful elite say 'we don't want to pay taxes'"
and the poiiticians simply give them what they want.

Just take a look at the latest budget, for example.  The new
rules regarding leasing arrangements and the new Large Corporations
Tax are both "anti-big-business" provisions.

Where McQuaig likely is correct is that the business view of
the tax system gets more notice because there is an
organized group of people who bring that point of view to
government's attention.  That's very different from saying
that Finance always does what business asks for, which is
definitely not the case.

>For example, during their first term in office, the Tories' tax "reform" 
> 
>Income tax: up 180% (on low income earners) 
>Fed sales tax: up 140% 
>Corporate tax: up 4.5% 

What figures are you basing this on?  You can show anything
you like with "statistics".  I do not suggest the system is
perfect, but the above numbers are misleading, in my view.
For example, I could just as easily show that tax on low-income
families has been reduced, taking into account the Federal Sales
Tax Credit and the Child Tax Credit.

>As you can see, the government was quick to jump all over the lower 
>ranks, but spared the "poor, hard-pressed" business community, with most 
>of the breaks going to the wealthiest companies (eg. a $500 million tax 
>concession to the Reichmanns -- one of the world's wealthiest families 
>-- to help them buy Gulf in 1985). 

This is COMPLETELY misleading.  First of all, the "tax concession"
took the form of deferring tax on a corporate reorganization.
Without the Gulf takeover, that $500 million tax would not have
arisen; after the takeover, the accrued gains are still there, for
tax purposes, to be realized eventually.
	Secondly, and most importantly, the Reichmanns made use of
an EXISTING provision in the Income Tax Act, one which allows deferral
of tax on certain kinds of reorganizations.  The government's "concession"
was to have Revenue Canada grant an advance ruling on the transaction.
Other taxpayers had engaged in this transaction before, and it likely
would have stood up in court anyway; the advance ruling simply
confirmed that the government would not attempt to reassess adversely.

>With the proposed GST, the Tories are hoping to use their favorite tax 
>weapon: sales tax, which hits the low and middle class the hardest.  
>While they publicly decry the current manufacturers' sales tax as 
>harmful to business, they didn't hesitate to raise it dramatically. 
> 
>Sales taxes are, of course, the most regressive forms of taxes. Using 
>the word "reform" to describe what Wilson is doing would make Orwell 
>spin in his grave. The inane prattling about job creation and fairness 
>in the system would be laughable if it wasn't coming from a majority 
>government with a history of screwing over the bulk of its citizens. As 
>things stand, the situation is simply scary. 

I agree that sales taxes are regressive.  On the other hand,
most industrialized countries rely on a form of VAT, which is
what the GST is.  One of the goals of the change is to reduce
the extent to which the tax system distorts business and investment
decisions, and the GST should result in less distortion.

>From a purely economic standpoint, the GST is stupid, as even the most 
>passing knowledge of economics will reveal.  Wilson's plans, however, 
>have little to do with economics and much to do with power politics; 
>fairness, equity and public interest have nothing to do with his 
>measures, he only wishes us to believe such is the case. 

Before you begin foaming at the mouth, phone the Dept. of
Finance (they have an 800 number) and ask for a copy of the
overview and technical paper which describe the GST.  Then
read them.  You may choose to disagree with the decisions,
but do so after understanding the rationale which is explained
in the documentation.

>The deficit must be cut, that much is certain. However, the way to 
>achieve that is to cut extraneous government services, and, more 
>importantly, to eliminate holes in the tax system that allow the 
>powerful to pay little or no taxes at the rest of the population's 
>expense. If the tax system ever became truly equitable -- where 
>everybody and every corporation was subject to the same rules of the 
>game without preference -- then the budget would be balanced. 

Those so-called "holes in the tax system" do not really exist.
Believe me, I have a pretty thorough knowledge of Canadian income
tax law.  There are indeed provisions which result in some
corporations paying little or no tax, but they are deliberate
incentives, not "holes".  Yes, the justification for the
incentives can be questioned.

Note also that the April 1989 budget included a "Large Corporations
Tax" which will result in all large corporations effectively paying
a minimum tax.  (It is a tax on capital, offsettable against the
federal corporate surtax.)

>A vibrant economy under real tax reform would provide greater 
>employment, lower inflation, and less government bureaucracy. The 
>hard-pressed middle class would actually see a reduction in income tax 
>and a marked increase in disposable income (which in turn keeps the 
>economy growing and the tax revenues rolling in). 

Quite possibly.

I don't suggest our tax system is anywhere near perfect.  It's
a result of thousands of compromises in hundreds of different
directions.  But those who suggest simplistic solutions should
bear in mind all of the viewpoints, each of which may individually
be valid, which justify those compromises.

David Sherman
(not speaking for) The Law Society of Upper Canada
Toronto
-- 
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