Tax reform for the Canadian Left: balancing ideology and efficiency
In recent weeks, the debate about toll roads in the Greater Toronto Area has captured a good deal of attention among the broader Left. For some, the implementation of tolls not only helps to fund infrastructure, but also incentivizes the use of public transit, therefore lowering aggregate carbon footprints. But for others, tolls are symptomatic of a failure to adequately tax other forms of income, as well as levying a disproportionate burden on low income people, who often lack adequate transit systems that give them functional alternatives to personal vehicles.
And while these conversations are vital—especially since it has demonstrated divisions within the Ontario NDP — it is more important to discuss broader taxation policies and philosophies for the Left. Tolls are relevant because they raise questions about revenue generation, as well the regressive/progressive tax dichotomy. When some on the Left decry things like tolls, they do so in part because the effect is regressive or flat, meaning that a millionaire or someone on social assistance pay the same cost. Despite this, pro-toll voices might well suggest that regardless of “regressiveness,” there needs to be efficiently collected funds for vital social services.
My view is that the Left has to combine the general philosophy of economic redistribution with the practical needs of getting the money to preserve existing social programs and build new ones. We have to make greater peace with forms of taxation that are currently deemed regressive, because they can offer efficient paths to revenue collection. This doesn’t mean, however, that we can’t also explore means to make existing tax models more progressive. Let’s look at one example from each camp.
Raise Sales Taxes, but increase the value of, access to, and frequency of GST/HST rebate payments
Sales taxes are largely flat: if a person spends $1, they pay the same tax regardless of the general income or wealth. This in and of itself is unconducive to redistributive taxation. But we already have mechanisms that help introduce progressiveness into sales taxes, like the GST/HST benefit to help offset the effects of sales taxes upon low-income people. This is important, because while sales taxes are considered an efficient way to raise revenue, they are a blunt instrument from a progressive’s perspective.
My suggestion is that we could consider raising sales taxes by a few percentage points, but increasing the maximum income at which one can access a GST/HST rebate. And to ensure that very low-income Canadians are not unduly shocked by increased sales taxes, you can make the payouts larger and more frequent than the quarterly payments we have now.
All this would increase the people benefitting from a rebate, while raising revenue from people who can shoulder an increased tax load. These taxes are also harder to evade, and are less susceptible to tax loopholes that disproportionately benefit professionals, capitalists and those with generally high incomes. Put another way, while the rich might stash their cash and investments in off-shore tax havens, and while they might hire experts to slash their tax obligations, they still live and spend money in Canada. Canada’s elite might love the profit-making opportunities that come with exploiting developing nations (along with the people and resources within those countries), but they prefer to live in a G7 country with physical security, quality services, and high standards of living.
While others can nail down the specific metrics of a sales tax increase — and how to lift burdens off lower-income Canadians — the general principle is that we have to stop branding sales taxes as unambiguously regressive: after all, when Stephen Harper cut the GST from 7 to 5 per cent, he wasn’t striking a blow against regressive taxes: he was making a conscious effort to increase deficits and hamstring a consistent and effective method of raising revenue. It may not be popular, but a federal NDP government can raise revenue for much-needed social spending by at least reversing the Harper-era GST cuts.
‘A buck is a buck’: a lesson in tax progressiveness from the past
Seldom discussed today is the 1966 Carter Report on Taxation, which concluded that the government did not tax all forms of income equally; that you paid more tax on income earned through labour than income earned through capital gains. Carter’s suggestions—which were strongly supported by labour and the NDP at the time, and mused about by Brian Topp in recent years — was that all income be taxed on a buck-is-a-buck basis, meaning that if you made $50,000 selling stocks, you would pay the same tax as you would making $50,000 working. But despite the importance of this report, the buck-is-a-buck principle never became reality. As it stands, income made from investments and capital gains has an exemption level and, even after this, is taxed at only half the rate of labour-based income.
The Left should commit to the buck-is-a-buck principle, both ideologically, and because it is an effective tactic to shift a tax burden onto the sorts of people who typically make more than negligible incomes on investments and capital gains. Of course, some exemptions could still persist which protect selling a family home or dealing with small inheritances. And some potential pitfalls exist with this suggestion in our current tax code, as do some complications when we consider things like RRSP, RESP and TFSA accounts. Still, a system where flipping stocks for $100,000 nets you significantly lower taxes than working isn’t one conducive to progressive taxation, and could be addressed via a tax policy that has an effective populist edge that seeks a fair deal for Canadians who earn the vast majority of their income through work, unlike the “boys on Bay Street.” The buck-is-a-buck principle could likewise be combined to a general drive to simplify Canadian tax codes by getting rid of many or most preferential tax credits, which often benefit those with higher incomes.
This is just a basic overview of two options the Canadian Left could explore to make our tax system more just, while still keeping in mind the need for efficiency. Other things, like increasing business and property taxes — as well as good old-fashion income tax increases — are equally part of the conversation.
But what must always be at the forefront for Canadian socialists is the balance of vision and action; of philosophy and practicality. We can make some taxes that seem regressive on the outset less so with mechanisms to dull their effects, and we can still explore grander schemes to change — perhaps looking towards future policies of standing wealth taxation — how we collect revenue and strive towards a society of equality of opportunity and condition.
Christo Aivalis, a member of the CD web committee, is an adjunct professor of history at Queen’s University. His dissertation examined Pierre Trudeau’s relationship with organized labour and the CCF-NDP, and has been accepted for publication with UBC Press. His work has appeared in the Canadian Historical Review, Labour/le Travail, Our Times Magazine, Ricochet and Rankandfile.ca. He has also served as a contributor to the Canadian Press, Toronto Star, CTV and CBC. His current project is a biography of Canadian labour leader A.R. Mosher.