Behind Closed Doors
How The Rich Won Control of Canada's Tax System... And Ended Up Richer
McQuaig, Linda
Publisher: Penguin, Canada
Year Published: 1987
Pages: 363pp Price: $7.99 ISBN: 0-14-010057-1
Library of Congress Number: HJ4662.A6M38 1988 Dewey: 336.24'0971
Resource Type: Book
Cx Number: CX6181
A stinging indictment of Canada's tax system and the people who shape it.
Abstract:
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Table of Contents
Introduction
Chapter One: How the System Works …. Against You
Chapter Two: Tax Haven in the Snow
Chapter Three: The Confidence Game
Chapter Four: The Cosy World of Tax
Chapter Five: How a Nice Bay Street Accountant Ended Up Hated by His Neighbours: The Tale of Kenneth Carter
Chapter Six: Running Scared: How Ottawa Handled Tax Reform
Chapter Seven: Revenge of the Lobbyists
Chapter Eight: The Cosy World of Tax Meets the Kilted Priest: Allan MacEachen's November 1981 Budget
Chapter Nine: Tax Credits for Sale: No Experience necessary
Chapter Ten: Mickey Cohen: Courtier in the Cosy World of Tax
Chapter Eleven: Deficit Mania: How Ottawa Raised Taxes for Everyone but the Rich
Chapter Twelve: Michael Wilson and the Hijacking of Tax Reform
Select Bibliography
Index
Excerpts:
But, inside the government, a clever idea was taking shape: if the move to a greater reliance on the sales tax could be made part of an overall package of tax reform, then maybe it could be sold to the public. If income taxes were to be reduced now, most people likely wouldn't care or notice that they would end up paying more sales tax later -- and more tax altogether. Tax reform became the vehicle to carry out what the government really wanted -- to decrease the emphasis on sales taxes. And that move, despite the dressing-up of the tax reform package, would have one clear effect. It would continue the trend of shifting the tax burden from the rich to the middle class.
What did come as a shock in the Carter report, however, was its insistence that individuals be taxed on the basis of their true ability to pay. Up until this point, the progressive ideal of higher tax rates on higher incomes had existed largely on paper. Few well-to-do individuals actually paid those dramatically high rates -- which were as high as 80 percent -- since the tax laws essentially allowed them to leave out large chunks of their income when they were calculating their total income for tax purposes. So the high rates remained largely mythical, something the rich could complain about without actually experiencing.
Although the top federal rate is 50 percent, many high-income people do not pay rates this high because they are able to use tax breaks and tax shelter schemes to shield part of their income from tax. But this raises an interesting question. If the rich have managed in this way to pay taxes below the 50 percent rate, why is the only option now to officially lower their tax rate? Why not close the breaks, cut off the shelters and make them, in fact, pay a top tax rate of 50 percent?
There's another chart that is rarely shown -- although it was released by the federal government in a rare burst of reform zeal in 1981 -- which reveals the actual rates of income tax paid. It tells quite a different story. This "hill" which represents the actual rates of tax paid, is much more gradual, without any steep part at the top. In fact, it stops rising and drops off sharply after $200,000.
When the government allows someone to not pay tax that he or she would otherwise pay, the effect is the same if the government had given that individual a grant for that amount af money.
Even when a tax break is deliberate government policy, it receives none of the public scrutiny that direct government expenditures do. Any dialogue over the measure is almost always restricted to the narrow confines of the community of tax specialists.
The stark reality was that, over its first two years in office, the Mulroney government ended up taking an extra $300 from someone earning well below the poverty line while giving an additional $706 to someone living in considerable prosperity.
On the upbeat side, businessmen are asking the government to buoy up their confidence so they will think positively and feel like investing. But the flip side of this scenario is a threat: Give business what it wants -- tax breaks, deficit reduction, whatever -- or it will lose confidence, and no confidence, no investment. This is the implicit extortion business uses against all governments. But, to come out and express it directly, to actually flash sharp teeth or unsheath long swords, would make businessmen look like bullies in the public eye. Instead, they simply refer to the need to maintain business confidence. The threat remains unspoken, but the government gets the message and usually responds with more tax breaks.
But business has the power to threaten something far more serious -- the withdrawal of its capital. It is the genius of the business confidence doctrine that it can dress up this most powerful intimidation in all the harmless lingo of a positive-thinking slogan.
Indeed, one of the most highly paid professional groups in the country -- tax lawyers and accountants -- dedicate themselves to the task of aiding the well-to-do in their attempts to exploit the loopholes in the tax system. Imagine the outrage if a set of bright activists dedicated themselves to devising elaborate schemes that would allow the poor to exploit the loopholes in the welfare system. Yet tax professionals move about freely in respectable society without even the slightest tinge of shame or embarrassment! In fact, we train them at great public expense in our universities and law schools.
By looking at the role of the tax practitioner in shaping tax policy, we are raising an important question. To what extent are tax practitioners able to advise the government objectively about tax policy when the financial interests of their clients -- and themselves -- are at stake? To a surprising extent, we seem willing to overlook this apparent problem.
To say this is not to suggest that members of the business and financial community are any greedier or more dishonest than other members of society. Overall, their scruples are about the same. The difference is that Ottawa has traditionally been prepared to give the business and financial community far more leeway and, consequently, far more opportunity to take advantage of government largesse.
Furthermore, the new data showed that about 50 percent of capital gains claimed were made from real estate investments.Not only did real estate investment do little to create jobs, it had a negative effect of driving up land and housing prices, making both housing and rental accommodations even more expensive.
In the midst of this puritanical universe, the preferential treatment accorded capital over labour strikes one as odd. Whatever happened to our Protestant work ethic? Isn't working for a living at least as commendable as insulating one's house, abstaining from alcohol or giving up smoking? Do we really mean to signal our social disapproval to those who live by the sweat of their brow, as opposed to those who merely clip coupons or dabble in commodity futures? W. O. Twaits, former president of Imperial Oil, once questioned whether it was fair to tax the entrepreneur at the same rate as the "drones" in society. In this moral universe, the drones were employees who merely worked for a living. Twait's view may not be widely shared by Canadians -- the bulk of whom would fall into the drone category. But while most Canadians undoubtedly place a high value on the dignity of work, our tax system does not.
Tom Walkom: "When I was a kid is South Porcupine, a creative person was an artist, an interior decorator or someone who worked for the CBC. And a risk-taker was a person, such as a hard-rock miner or steeplejack, who paid high life insurance premiums. No more. The creative person is now the capitalist, the risk taker, someone who risks money. When the government says it is committed to rewarding risk-takers, it doesn't mean it will give bonuses to hard-rock miners. It means it will give tax breaks to anyone who has capital."
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