Since Tom Mulcair has become leader of the NDP, the party has fervently opposed the concept of tax increases on the wealthy, which Mulcair deemed confiscatory. As an alternative, the NDP put forward modest increases to the corporate taxes, along with closing some loopholes that have given tax relief to executives.
All this meant that Justin Trudeau and the Liberals were able to position themselves as the only party raising taxes on the rich to offer tax breaks to the middle class. And while the Liberal tax increases have given not helped the vast majority of Canadian tax filers, the perception was that the Liberals took the NDP's left flank on taxation.
The purpose of this piece isn't about if the NDP was to the left or right of the Liberals on taxation. Rather, the goal is to explore the limitations of corporate taxes, as well as the benefit of increases to other taxes. The two we're going to focus on here--given that income tax is more of a topic on its own--are capital gains and sales taxes.
The Problem with Corporate Taxes
The issue with corporate taxes isn't a total one; such taxes have value, and shouldn't be slashed without consideration. The corporate tax rate is likely in a good position right now. But as a mechanism to promote a stable and equal tax base, it is far from ideal.
This is largely because they are among the easiest taxes to evade, given that corporations can move much more easily than individuals bound by matters of citizenship and the desire to live in a nation like Canada.
Many studies have indicated that a hike in the corporate tax rate is among the least efficient to raise revenue, because corporations are adept at artificially lowering their tax burden through the employ of accountants and lawyers.
The issue of corporate taxes in Canada is also fraught with arbitrary definitions, with many people arguing that the rate should be set, not on some universal standard, but on the nebulous concept of what a 'small' or 'large' business is. Ultimately, the very definition of corporation is more political than technical.
The evidence that high corporate taxes are not required for strong social programs and redistribution is how many Scandinavian countries--known for high levels of social security and equality--don't have high tax rates on businesses, instead choosing to tax individual incomes and habits.
Sales or Value Added Taxes
Under the recent Conservative government, the federal sales tax was cut from 7 to 5%, meaning that in provinces like Ontario, the sales tax is 12%. Many people argue--correctly--that sales taxes in and of themselves are regressive, meaning that the burden of this taxation is higher on those with less ability to pay. From this perspective, a sales tax has the appearance of an inegalitarian flat tax.
But it doesn't need to be this way. Already today we offer low-income Canadians GST/HST rebates to help offset sales taxes, and there is no reason that should these sales tax rates rise, that the rebate won't rise as well. And while rebates come quarterly, meaning that low income people have to up-front the little money they have, an increased tax base can improve social services, which may well make lives easier for poorer Canadians
A final point on this: we currently have a arbitrary sales tax distinction between goods that are necessities and those that are not. In recent years, this has been a matter of political debate, with the Ontario NDP demanding that home heating be deemed a necessity, and many women successfully making the case that products like tampons were as well.
I feel that excessive energy is wasted on the classification of goods in terms of their essentiality. Why buying a hot pizza from a restaurant carries a tax, but an identical cold pizza carries does not offers no meaningful distinction. Its just an exercise in hair splitting.
We should end necessity exemptions. All purchases--whether diapers or diamonds--should be taxed. Again, concerns about effects on lower-income people can be offset by changes to the GST/HST rebate.
If the purpose of a sales tax is to tax consumption, then all consumption needs to be factored in. Sales taxes are not a directly progressive form of taxation, but they are an efficient way of raising funds.
Capital gains Taxes
In basic terms, a capital gain is the profit made from the sale of an asset, usually applied to things like businesses, stocks, bonds, or property. If you buy a stock at 100 dollars, and sell at 200 dollars, you've obtained a capital gain of 100 dollars.
Capital gains are currently taxed in Canada, but at a significantly lower rate than income tax. In other words, making 50,000 dollars a year working as a teacher or electrician constitutes a higher tax burden than an investor selling a portion of her stocks for a profit of 50,000 dollars.
I would propose--in agreement with the 1968 Carter Report--that capital gains income not be given a 50% reduction in taxation vis-a-vis income. That, in the words of the report, 'a buck is a buck' and capital gains be taxed at the full rate. This means that 100,000 dollars of income would be taxed identically, regardless of if one made it as a nurse or as a real-estate flipper.
An increase to capital gains tax rates also wouldn't hit the average person too hard. For most Canadians, they see capital gains primarily through the sale of their family home, which is already exempt from taxation.
In short, a capital gains tax which doesn't reward investment more than labour, but would also help address part of the concern with corporate profits. Because as investors sell stocks in profitable corporations derive their capital gains, they will be taxed at a much higher level.
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With increases to these two tax rates, we can raise additional money, continue to protect the poor's standard of living, and hopefully move on to productive discussions around increasing income taxes for all those but the poorest Canadians. For what makes Scandinavia Scandinavia isn't corporate taxes, but higher sales taxes along with higher taxes across the wealth spectrum.
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