May 1, 2010

Progressive Platform: Tax Policy, I

By admin

Author’s Note:

I’ve decided that I’m going to air my suggestions about what I’d like to see in a progressive platform.

I believe that the space defined as ‘progressive’ voters is WIDE open in this country, as neither the Liberals or NDP seem capable of claiming this vital territory and owning it.

Regardless, I’ve become party agnostic.  Neither the Liberals or NDP cater to my interests, but by posting my thoughts on what a progressive platform should look like, maybe both of them will snatch snippets of it, making me (and presumable all of us) better off and happier.

Progressive Platform:  Tax Policy, I

Don’t Raise Taxes (Yet), but Reduce Deductions

Much of the economic platform of the Conservative Party of Canada relies on tax cuts, reducing the size of government and a philosophy that in the kindest of words would be ‘regressive’.

Tax cuts offer no benefit to those who have lower incomes or who don’t own a business.  Tax cuts don’t benefit the Jane and Joe Six-Pack that punch the clock at Wal-Mart.  Tax cuts don’t return the money that we’ve spent at Wal-Mart and just act to enrich other treasuries around the globe.

Tax cuts bring nothing to our economy.

Of course, the Conservative ‘platform’ is also in conflict with what we’re seeing as a reality:  massive and unprecedented spending;  mortgaging the future of our economy, environment and society by slashing public services for those who can’t afford to sustain themselves; and, of course, making the assumption that consumption is a bottomless pit that will save us all economically (and politically for the Cons).

Pushing an economic platform that blindly slashes at taxes and social infrastructure ignores the reality of our current global crisis, most of which is rooted in over-consumption.

Having just finished my annual taxes, the wounds are still deep, but the inspiration has been catapulted to a new level.

Tax Shaping, Not Tax Cuts (or Increases)

I recommend a very simple approach to tax policy that I call ‘Tax Shaping”.

Instead of worrying about which taxes we’d raise, a progressive platform would slowly eliminate specific deductions that do nothing but encourage over-indulgence with our expenses.

We would shape taxes to reflect the policy directions that we want to encourage.

Let’s think about deductions related to your car, something that’s allowed for all businesses, including small businesses, but not individuals.

Here are just a few expenses related to cars and transportation that are deductible as a business:

  • Gas.  Gas and most other car-related expenses are not deductible by individual taxpayers, so why we make it deductible for businesses does not make for solid social and progressive policy.
  • Regular car payments, including interest on car payments and leases
  • Insurance
  • Maintenance and repairs
  • License and registration fees
  • Etc.

In 2009, these expenses wound up being about 15% of my overall deductions.  I believe that there are more than a million businesses registered in this country and altering the tax structure in this respect would like result in billions of dollars per year in new revenue for the federal coffers.

Please note that I know I’m a hypocrite, but I’m also an economic animal:  I make these deductions because I can.

If they were not deductible, and other forms of transportation were, like bus and rail passes, I’d change my economic behaviour to favour those options.

Or if we proceeded with this kind of tax shaping, me and only myself would be responsible for bearing the cost of putting another car on the road, something that our planet really can’t sustain any more.

Tax Shaping Example #2: Entertainment

When you start picking apart the deductions that we’ve made available to the business world, it becomes really easy to identify ways that we can encourage specific directions in economic decision making without implementing policy as a government.

The second obvious example is the deduction related to “Meals and Entertainment”.  How many claims have been made with strip clubs or other ‘suspicious vendors’ as a significant line item?

How many people have submitted bottles of wine bought at the LCBO and claimed that they were related to a party for an employee, only to tuck them away in their cellar?

Or the deduction of season’s tickets with a hockey team or baseball team that might be used a few times and that rarely actually lead to new business being struck.

This time, I’m happy to say that I’m not guilty of any of these activities, but I know people who flaunt these angles related to “Meals and Entertainment” and it has to end.
Once “Meals and Entertainment” becomes less of a priority from the perspective of a business deduction, perhaps they’ll become less of a priority for society at large.

The simplest approach is to reduce what people can claim on an annual basis in the process of earning income.

Other Examples

Looking at the tax code, it’s easy to come up with other examples of deductions that could be shaped to reflect a progressive platform:

  • Subscriptions and memberships:  this category is similar to Meals and Entertainment, but includes stuff like conferences and seminars that are grossly over-inflated in price and value.
  • Interest on loans.  This one is debatable and vast financial models have been created to justify some leverage that comes from borrowing.
  • Travel.  In an age of digital communications and Skype calls, do we really need to hop on a plane when a client calls or can we encourage a lower frequency of jet-setting?

Summary: Tax Policy, I

The act of discouraging certain consumption patterns has tremendously positive implications with our societal and economic structure.

By making certain activities less attractive because we’re forced to treat them differently financially, we will make better choices.

More energy will be devoted to building a car that will last for 20 years, but will also go 1,000 km on a single litre of gas.  Such tactics will shatter demand for fuel and force an explosion in demand for renewable energies.

Of course, there’s the whole other side of this discussion that I haven’t even begun to dive into:  deductions that are perceived to be GOOD for our economy, environment and society at large.

If you have ideas or suggestions, please post them in the comments.