Three former finance ministers talk tax returns – no mention made of tax reductions.

By Ray Rivers

April 10, 2014

BURLINGTON, ON.

It is tax season and I normally use an XL spreadsheet to do mine, but this year the complications made that almost prohibitive.  So I tried to buy a tax software package, on-line, at the CRA website.  The first one, H&R Block, wouldn’t open for a Mac, even though it was listed for the Mac.  The second, Turbo Tax, somehow went haywire mis-reading the information I had entered. 

So I ended up retreating to my spreadsheet and working into the wee hours to finish the return.  Now it might have been that the TV was still on, that the hour was late, or that I’d poured myself too much of that Scottish medicinal nightcap.  But as I started dozing off I distinctly recall hearing the conversation below…(Editor’s note: In your dreams Mr. Rivers …in your dreams.)

Michael Wilson: Oh come on  now – that is rich.  You can’t blame me.  I didn’t know that Mr. Mulroney’s income tax reforms would impact the middle class the way it did – creating this growing divide between the rich and the rest.  I mean we just thought  it was tax simplification.

Paul Martin – Finance Minister in the Chretien government

Paul Martin: Simplification – that is a joke – with all that tax credit nonsense you introduced.  The only simplification was reducing the tax brackets so the rich paid less in taxes and the middle class picked up the difference.  Oh, and then you made accountants rich as well, since ordinary people could no longer complete those obtuse and complicated returns. 

Jim Flaherty:  So you were Jean Chretien’s miracle worker, the great Liberal deficit slayer – why didn’t you change that.  I don’t know if you remember, but it was our John Diefenbaker who set up the Carter Tax Commission back in the ’60’s.  Their report was seen as a landmark everywhere, except in Canada.  Your Pierre Trudeau largely ignored the report, pressured by big business and the well-heeled interests who used to finance your party.

Wilson:  I remember that.  Carter’s work was world renowned – still is.  A dollar of income is a dollar, or something like that – treat all income the same.  He also showed how he could reduce the taxes of the lowest income folks and still keep the budget balanced.

Martin:  Something you never did; balance the budget.  And as John Turner once said, Trudeau had no choice, he had to back away from most of the recommendations.  But at least he kept the middle class intact, retaining the progressive rates and higher taxes for the wealthy, till the early eighties, anyway.

Flaherty:  Well to be fair.  He wasn’t alone – everyone was lowering taxes for the rich in the ’80’s and ’90’s.  It was the Reagan/Thatcher ‘trickle-down economics’ flavour of the day – you know let the rich keep most of their income and that money will eventually trickle down to the rest of the economy.  I mean, I’m a conservative but I don’t believe that horse manure.  And they increased the debt in order to lower taxes.  Canada’s debt mushroomed in the latter Trudeau years and then our guys just kept digging an even bigger hole – until Paul, here, got the deficits under control. 

Martin:  Thanks.  And back at you though I think you should have run a tighter ship, Jim,  especially when you were Mike Harris’ finance minister.

Michael Wilson – Finance Minister in the Mulroney government

Wilson: Justin Trudeau has talked a lot about the middle class, do you think he has tax reform in mind?  The least he could do is come up with a simpler tax return.  I can’t see how the average tax payer can ever fill out today’s form.  No wonder people hate taxes.

Flaherty:  I’ve been thinking about that.  Here look at this – a one page tax return where you add all your income together – like the Carter tax folks said ‘’a buck is a buck’ – so treat it that way.  Then allow for transfers to your family or charity.  We’d need some new rules on that.

 Wilson: Right and then I see you have income deferments, like retirement savings, maybe education and home buying as well.

Martin:  And then you just subtract those items from the income, calculate the taxes from a tax table and presto.  If you paid more in tax installments or had deductions taken off at work, you get a refund, just like we do now.  Do it all on-line as we do the GST now.

 Flaherty:  Well it really makes sense.  I mean I don’t see why someone earning capital gains from selling investments or a second property should pay a lower rate of taxes than the poor slob slugging his guts out on the assembly line.  And it makes it all simpler too.

Martin:   And those folks with the big capital investments are mostly among the top 10% income earners – so why do they need a break?  So we get rid of all the regular deductions,and say good bye to all that credit nonsense, which even I have trouble figuring out. 

Jim Flaherty – a finance minister in a Harper government.

Flaherty: And I’d be tempted to drop deductions for health care, charitable and political donations from the transfers line.  I mean everybody gets universal health care and I think charities and political parties ought to attract donations without using the tax system.  We’d be better off to directly subsidize them, I think.

Martin:  You mean you want to bring back public funding for political parties?

Wilson: You know what, I like this form Jim.  Why didn’t I think of that when I was Finance Minster?  Hey, let’s call it tax simplification.

Ray Rivers writes weekly on both federal and provincial politics, applying his more than 25 years as a federal bureaucrat to his thinking.  Rivers was a candidate for provincial office in Burlington where he ran against Cam Jackson in 1995, the year Mike Harris and the Common Sense Revolution swept the province. He developed the current policy process for the Ontario Liberal Party.

Background links:

 Need An Accountant   Buck is a Buck

Carter Commission on Taxation      The Rich

 The Flat Tax      Alberta’s Flat Tax

Family Taxation      Tax Policy (for serious readers)