I think most Canadians would agree with Canada’s progressive income tax. The more you earn, the more you pay because you can afford to pay more. However, it isn’t that simple since there are numerous possible deductions and tax credits – refundable and non-refundable. Aside from making filing one’s taxes very difficult if you do it on your own, many of the deductions and credits favor the wealthy. That goes against the basic principle of a progressive tax. I suggest removing all of them except for the charitable one. I’ll explain why that should be kept later but first let’s look at some of the deductions/credits and see why they are bad and how they could be replaced, if necessary.
Basic exemption
Simply start the lowest tax bracket at a higher level.
Child Care expenses
This is to encourage Canadians to have children so that we will have more tax payers in the future to pay for our government services. However, why should parents keep track of all these expenses when the government could simply pay a fixed amount per child? Why should the wealthy, who spend more, get a bigger tax break than the poor? Are we afraid that parents will spend the money gambling or on drugs or alcohol? I think Canadians are responsible, love their kids and will spend the money on their children.
Medical expenses
We have Medicare! Why do we need this deduction except for services not covered by Medicare. Use the money saved from eliminating this deduction to provide more free medical services. In addition, this also requires taxpayers to keep a lot of receipts and tends to favor the wealthy.
Tax credits for investments in whatever
These distort investor behavior and often lead to bad investment decisions. Even if the government gives you 50% of your investment back, you and the government lose if the company goes bankrupt. If an industry must be supported let the government give direct subsidies or better, low interest loans or purchase stock in the company. Then voters will have a clearer picture of what the government is spending. Hiding the help in the tax system is not very transparent. Also, these credits favor the rich.
Disability deduction
Those with handicaps have extra expenses and need help but do it with direct payments. A deduction favors the wealthy and does nothing for an unemployed person who might have a better chance at getting a job with extra help.
RRSP
I used to be in favor of this deduction but it primarily benefits the rich and now we have the TFSA which benefits all investors equally since there is no tax deduction. If the RRSP deduction is dropped the maximum yearly contribution to TFSAs should be increased.
Home office expenses
You already save money by not commuting, eating lunch out and so on. Why do we need this?
Moving expenses
Does it benefit the economy when people move? Regardless, this is not a necessary deduction.
Province specific deductions
eg. In Ontario they include adoption expenses, property taxes, apprenticeship training, energy costs and more. In most cases these benefit the wealthy more than the poor and in all cases there are more direct ways to help than through the tax system.
Charity donations
This is the one exception. I think it should be retained although as a refundable tax credit so everyone gets the same benefit regardless of amount or income. The alternative is for the government to give money to the charities but then our elected representatives will only give to the most popular major charities. There are countless smaller charities which all do good work but are not large enough to come to the attention of our elected representatives. Let the people vote with their donations and the government can match the amounts. This is fairer and ensures a diverse range of support.
How did we ever get such a complicated, non-transparent and regressive tax system?
A cynic might call it vote buying. Each budget is another opportunity to provide goodies to select target groups that the government hopes will vote for them. Then once implemented there will be hell to pay if something is eliminated.
Dropping deductions and tax credits will allow the government to reduce tax rates and/or spend more. It will mean more transparency in what governments spend money on. It will simplify our lives and allow accountants more free time to enjoy life.
4 Comments
Hello Bill,
First of all, since someone else is the Mayor of Hampstead, I find the roads there in deplorable conditions.
As to your tax observations, you did not take into account that under the heading Medical expenses are the costs of medicines. I pay thousand of dollars for my pills, even though I am “for my age” relatively healthy. There are medicines that are so expensive that people can not afford them. Also, when I had hearth arrhythmia, I was told that I would have to wait for a heart monitor for 4-6 months. In the meantime, I can die (who would care in the government?)
Waiting for your next ideas.
Hi Aleksander,
Thanks for writing. Re the roads, I will write about Hampstead from time to time but quickly on that subject cutting the budget for roads and sidewalks by at least 50% as the new council did has to have an impact and it will get worse over time. However, the council refused to up zone CSL Road to 10 stories as I advocated and now won’t have the needed extra revenue.
Re the Medical Expenses deduction, a much better solution is better health care including covering the cost of drugs. Canada’s is one of the worst among developed countries with Medicare while also being one of the most expensive per capita. See my article “Prescription for better health care in Quebec and Canada.” All of my past articles can be found by clicking on the “Bill’s Uncommon Sense” tab on my web site BillSteinberg.ca.
How about blending the Quebec tax filing with the Federal one as is done in other provinces. The savings for all would be significant. As the saying goes, common sense is not common.
I agree but the Federal government refuses to stand up to Quebec on this and many other issues including Bills 21 and 96.
I’ll write about how we might be able to help the Federal government grow a spine but that will be at a later date.
Thanks for writing.