In all of the fuss about Canada’s 150th this year, we completely forgot to do anything about the 100th birthday of income tax. That’s always the risk when your birthday falls within a few days of some other high holiday like Confederation or Christmas. My wife complains that because her birthday comes in the first week of January, nobody ever has the energy to do much about it.
To be fair, 100 years is not that remarkable a run for a ‘temporary’ government measure. That’s what income tax was supposed to be — a special levy to help meet the costs of conscription and the skyrocketing debt piling up during the First World War.
The ‘conscription of the wealthy’ was a phrase on everybody’s lips that summer, heard as often as you hear ‘the elephant in the room’ today. But once a government figures out some nifty new way to separate cash from the citizenry they almost never come back around to put a thing back the way they found it. The minister of finance of the day, Sir Peter White, expressed concern that this new tax might discourage ‘men with capital’ from coming to the country and suggested the measure be reviewed within a year or two after the war.
But because the tax was only 2 % and the basic exemptions were high for the day, nobody was discouraged very much and in the meantime, the politicians fell in love with this new bathtub of cash. The war passed into memory and the income tax lived on.
There’s an old Jewish proverb that taxes are the only thing that grows without rain. Since 1917, the special little temporary tax has swelled and now produces fully one half of the federal government’s revenues. It has become the largest single household expense for most families. The personal exemptions rose by a multiple of three over the century while the tax itself went up by a multiple of 15.
But we got used to it. Just like we got used to the HST, gas taxes, property taxes, land transfer taxes, development taxes, dog taxes, environmental taxes on mattresses and tires, and now the carbon tax. We didn’t even blink when they put a special temporary surtax on the income tax.
Over that time, governments of all stripes have learned that Canadians can take a punch. We complain quietly and darkly but we never do much of anything about it. They know that the only thing that ever discouraged anyone from coming to Canada is the climate. If you have the stomach for a Canadian winter, you probably have the stamina to handle a whole lot more. At least, that’s how they see it in the finance departments of Ottawa, Queen’s Park, the county and the township.
Governments exist to serve themselves. Once committed to a course of action that benefits the inhabitants of the building, they never back up and change course willingly. This is the first rule of government.
The second rule is that governments usually achieve the exact opposite of what they set out to do. Rent controls are imposed to hold down the price of housing. But they discourage investment in rental units, reduce supply and eventually drive rents up. The same rule applies to any effort a government makes to alter behaviour with a new tax.
Bill Morneau, the federal finance minister, must be regretting his announcement last month that he was ‘going after’ doctors who use personal corporations to avoid taxes. He has now discovered that his own ancestors in the Liberal government were the ones who encouraged doctors to set up these corporations in the first place as an alternative to a fee increase. There was even a government program to help them with the paperwork. The phrase on everybody’s lips that summer was ‘income sprinkling’ and how helpful that would be to small business, professionals and farmers. All of them invest large sums in their businesses, see large swings in their income from year to year and have to provide for their own pensions, life insurance and other expenses that salaried employees never have to think about.
But no one in Ottawa or Queen’s Park remembers that. They have also forgotten that every system of taxation depends on the good will of the taxpayer. Lose that and you start to share space with countries like Italy, where tax evasion is more popular than soccer.
You lose good will when you tell honest, hardworking professionals and farmers you are ‘coming after’ them for doing exactly what you told them to do in the first place.
Dan Needles is a writer and the author of the Wingfield Farm stage plays. He lives on a small farm near Collingwood, Ont. His website is www.danneedles.ca
