In the world of fiscal and monetary policy, once you make specific changes, it’s very difficult to turn back on them.
Unfortunately, this is true for reductions that we’ve seen in the past with specific tools like the GST (now HST) which was reduced by Stephen Harper, Dalton McGuinty and other leaders in an economically questionable tactic to get into office. Today, our economic instability continues and yet our leaders still commit to reducing corporate tax rates, forcing us to shake our heads at the gross inequality of Canadian citizens compared to capital owners.
With this in mind, I’d like to spin the topic a little towards something more positive: eliminating or reducing tax deductions. I’m sure lots has been written about this, but I personally feel that little has been done to explore the impact of altering deductions when it comes to corporate and income tax policy. Here are some standard deductions, all of which create questionable policy outcomes:
- Car and gas: the more I drive for business, the less I pay in tax. Larger organizations would have entire ‘fleets’ that are deductible for tax purposes. Also, allowing car, gas and other fleet deductions encourages the consumption of the wrong kind of transportation and carbon-based fuels. My mind would change if someone actually developed a functional hydrogen vehicle or mode of transport that used an alternative fuel, but allowing these carbon deductions only keeps us stuck in the 20th century.
- Meals and entertainment: the more I eat and the more hockey games I go to, the less tax I pay. This makes no sense.
- Land and real estate assets: I don’t know a lot about this, but my instincts are that if we taxed inactive land assets, they would be used for economic activity or put on the market. While this might push down the value of land in the short-run, it would ease the cost for entrepreneurs to open up office space or local retail locations. It would also help put an end to the miles of waste that we see everywhere now with closed offices, land for lease and excessive apartment costs.
- Business losses: my understanding is that business losses that are accumulated in any given year can be carried forward for use indefinitely years for the company in question and are also transferable to other subsidiary or parent companies. Are there ways to proactively reduce losses that are carried forward against profitable organizations? I know I’m playing with fire on this, but at what point should we just force unprofitable companies to be shut down?
- Charity activity: ‘charity’ runs counter to the goals of profit maximization, so why do we allow massive deductions against corporate activity (some might argue ‘meddling’) with charities and non-profits? Why don’t we just increase the deduction at the personal level?
- Professional services: how many lawyers are enough?
- Dividend tax preference: once again, I’ll concede that the economics on this topic are grey, but giving preferential tax status to dividend income seems to run counter to income earned from non-dividend sources.
- Special incentives and investment programs: All levels of government are hobbled by excessive grant giveaways and most of the companies that benefit from these programs have shareholders that simply don’t need handouts from the public. Great examples of this are the Canadian Magazine Fund and the Canadian Film and Video Tax Credit. Do we really need to give CTV and Quebecor hundreds of millions of dollars each year to produce what amounts to propaganda?
Of course, most of you who are intensely more familiar with tax policy would quickly jump on me and argue that many of these deductions are equal in the sense that small businesses and co-ops can make use of them as much as a large corporation can.
Unfortunately, most small businesses can’t even afford these expenses and rarely take a moment to spend any more than a couple of hundred dollars per year on the odd hockey game or taking a buddy to brunch. As someone who describes himself as a small business owner, I know this to be true.
All I’m suggesting is that we consider caps on these deductions and for some, look at ways to eliminate them all together as effective ways to shape social policy and reaction out of prudent fiscal measures. For example, now that we live in the digital age, why do we need to drive to meetings? Why don’t we just do more via Skype calls or by leveraging other video-conferencing tools?
In an ideal world, we address simply questions of ‘equality’ and ‘fairness’ by understanding that our tax system is excessively skewed to the benefit of those that own it: governments and the corporations that own them.
Simple modifications will improve financial liquidity for our governments and ensure that fairness is restored to average citizens. I think this is something we can all accept, possibly including those with #occupywallstreet.
Ultimately, any or all of these changes push the needle towards a flat tax, but that’s something best discussed in another article.