Taxing situation

0
53

PONTIAC PERSPECTIVE by PETER GAUTHIER

We all recognize that

PONTIAC PERSPECTIVE by PETER GAUTHIER

We all recognize that
our governments (federal, provincial, municipal) provide essential services that must be paid for, through taxes. Taxes come from different sources, but the two most important are personal income tax (about 50% of all taxes collected) and corporate income taxes (about 15% ). Other sources include payroll deductions, sales taxes, and diverse other revenue resources.
Income taxes are of special concern in that they are determined not only by income, but also by various government policies. Within this, there are two special rules that apply to personal income tax. First, they are generally progressive, so the tax rate (percent of income payable to the government) becomes greater with higher incomes. The justification for this includes the notion that those who have greater benefit from the system should contribute more to its maintenance.  Further, a progressive tax system helps avoid putting a concentration of money and power into the hands of a few.
The second principle is that an individual can use all legal means to reduce the amount of tax paid. This highlights the issue of corporate income tax. Because personal income tax is progressive, those in higher income brackets find they pay less tax by creating a corporation. For those with taxable income over $100,000, the difference can be significant, from approximately 25% for corporations to 45% for personal income.
This difference has led the Federal Liberal Government to consider mechanisms to redress the apparent imbalance in taxes paid on the same taxable amount. However, taxes are not just a mechanism for the government to collect
revenues; they are an important aspect of how our society operates and what are meaningful government policies. For example, having a corporation makes transferring a business to an owner’s children much easier, especially for farmers and small business owners. Small and medium businesses are the main force for job creation and innovation. Changes to tax laws could have severe negative effects on these sectors of the Canadian business environment. Also, investment decisions in new and expanding businesses are affected by tax policy and tax rates.
In summary, the tax system and tax rates have many effects on our society. Some are not immediately obvious, and changes to the tax system could have major negative consequences on present and future generations. While it is true that the tax system needs review and possibly changes, the government should not act until a very comprehensive study and detailed understanding of both positive and negative consequences are clearly identified; this would take several years, not months. The Finance Minister should subscribe to the “precautionary principle”; make changes only when all risks have been evaluated, and ensure any person seriously disadvantaged by the change has adequate resources to continue basic operations.
There is a further wrinkle for residents of Quebec: it is the only province that collects its own income taxes. Will federal changes require that Quebec businesses keep two sets of books – one for federal rules and another for Quebec rules?