Tuesday, February 7, 2023
No Result
View All Result
  • Media
Support Us
Macdonald-Laurier Institute
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Energy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Energy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
No Result
View All Result
Macdonald-Laurier Institute

iPolitics: Tax reform needed in upcoming budget

March 20, 2012
in Domestic Policy Program, Economic policy, In the Media, Latest News
Reading Time: 4 mins read
A A

In iPolitics today, MLI’s Jason Clemens writes about the need for tax reform in the upcoming federal budget. The op-ed is based on his recently released briefing paper on the same topic.

 

Tax reform needed in upcoming budget

By Jason Clemens, iPolitics, March 20, 2012

The focus to-date on the Conservatives’ first majority budget has been on spending cuts needed to balance the budget and the more recent frenzy on suggested changes to Old Age Security (OAS). What has been lost in the discussion thus far are the enormous benefits available to the Canadian economy from tax reform, which should be a top priority in the coming budget.

There are two aspects of tax reform to consider. The first relates to the costs and benefits of complicating the tax system through the introduction of special tax credits, exemptions, and deductions.

Nearly all economists agree that the best tax system is the one that imposes the lowest possible costs on society while providing sufficient revenues to finance government programs and services. The result of such principles is that the tax system should have the broadest base possible allowing for the lowest tax rates possible. The introduction of tax credits, deductions, and other allowances narrows the tax base, which means a higher tax rate to raise the same amount of revenues.

The key question regarding such tax credits and allowances is whether they improve the economy or at the very least achieve their stated purpose. The worst outcome is when these credits and deductions simply lower the tax burden for certain individuals, businesses, or activities without necessarily improving incentives or behaviour. Indeed, in many cases they simply benefit individuals and businesses for what they were already doing, which implies a cost but no net benefit.

Governments publish the cost of these programs, which are referred to as tax expenditures, on an annual basis. There are a number of expenditures that enhance the Canadian economy by improving the incentives for work effort, savings, investment, and entrepreneurship. For example, the reduction in the capital gains tax is counted as a tax expenditure as are the costs associated with registered pensions, RRSPs, and the new Tax Free Savings Plans. All three have made savings more attractive and accessible for Canadians, thus making the Canadian economy more efficient and productive.

Tax credits have moved far beyond those listed above, which all have the potential to benefit every Canadian citizen while improving the overall economy. We now have, for example, specific tax credits for children’s art classes, school text books, children’s fitness programs, tools for tradespeople and apprentice mechanics, professional and union dues, political contributions, volunteer firefighters, artists, musicians, caregivers, child-care, first-time home buyers, small business, Northern residents, students, miners, farming and fishing properties, and the list goes on.

And this is only a sampling of the 100-plus carve-outs or special treatments offered for personal income taxes. These special preferences totalled $130.2 billion in 2011, which is significant given that the federal government only collected roughly $120 billion in personal income taxes. In other words, the value of the various tax credits and other exemptions exceed the value of the revenues collected in personal income taxes. And this list ignores the value and nature of tax credits offered for corporate income taxes and the GST, which adds roughly another $44.6 billion in exemptions and carve-outs.

Far too many of these carve-outs benefit a small group or sector of the economy at the expense of the larger economy. Remember that every carve-out shrinks the tax base, which means a higher resulting tax rate to raise the same amount of revenues. A far better approach and one whose time has come would be to cull or even eliminate many of these special-interest tax credits and use the resulting revenues to reduce marginal personal income tax rates. Reducing personal income tax rates would strengthen the incentives for work effort, savings, investment, and entrepreneurship, which are the foundation for a prosperous economy.

The second aspect of tax simplification to consider is the cost imposed on Canadians to comply with the tax code. Simply put, the more complicated the tax code, the more costly it is to comply with for both individuals and businesses.

A 2010 survey of Canadian tax-filers found that 51 percent used a tax preparer such as an accountant or lawyer to complete their taxes while another 18 percent relied on friends or non-profit organizations. Less than a third of Canadian tax-filers were able to complete their tax returns without outside assistance.

When one compiles these costs along with the costs of organizing receipts, corresponding with tax preparers and/or competing one’s own taxes, the total annual cost to comply with just personal income taxes was estimated at between $4 and $5.8 billion.

Additional costs are incurred for business, property, and other taxes. The last comprehensive study of tax compliance costs was completed in 2008. It estimated that the total costs incurred by individuals and businesses to complete and comply with all taxation was between $16.2 and $25.0 billion dollars. An additional $2.7 to $5.8 billion was incurred to administer the tax code by the federal, provincial and municipal governments. Thus, the total cost to comply with and administer Canada’s tax code was estimated at between $18.9 and $30.8 billion. The costs to comply and administer the tax code have likely increased as it has become more complicated over the last half-dozen years.

Simplifying the tax code should be a top priority in the coming budget. Such simplification offers the opportunity to both reduce the compliance and administrative costs of the tax code as well as improving the economy by strengthening the economic incentives for productive behaviour like savings, investment, and entrepreneurship.

Previous Post

Budget advice to Ottawa: Stop tinkering and be bold

Next Post

Ottawa Citizen: Seeking a cure for pipeline madness

Related Posts

It’s time to leverage Canada’s energy advantage into a geopolitical one, too: Shuvaloy Majumdar in Maclean’s
Columns

For the oil patch, ‘just transition’ is buzzword legislation, not sound economics: Heather Exner-Pirot in the Globe

February 7, 2023
Prioritizing gender identity over sex in prisons endangers female prisoners
Releases

Prioritizing gender identity over sex in prisons endangers female prisoners

February 6, 2023
Greedflation? It’s a government thing: Philip Cross in the Financial Post
Columns

Jagmeet Singh uses confusion about private care to support the status quo: Shawn Whatley in the National Post

February 6, 2023
Next Post

Ottawa Citizen: Seeking a cure for pipeline madness

Macdonald-Laurier Institute

323 Chapel Street, Suite #300
Ottawa, Ontario
K1N 7Z2 Canada

613.482.8327

info@macdonaldlaurier.ca
MLI directory

Follow us on

Newsletter Signup

First Name
Last Name
Email Address

Support Us

Support the Macdonald-Laurier Institute to help ensure that Canada is one of the best governed countries in the world. Click below to learn more or become a sponsor.

Support Us

Inside Policy Magazine

  • Current Issue
  • Back Issues
  • Advertising
  • Inside Policy Blog
  • Privacy Policy

© 2021 Macdonald-Laurier Institute. All Rights reserved.

No Result
View All Result
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Energy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media

© 2021 Macdonald-Laurier Institute. All Rights reserved.

IDEAS CHANGE THE WORLD!Have the latest Canadian thought leadership delivered straight to your inbox.
First Name
Last Name
Email address

No thanks, I’m not interested.