Fixing Canada Without Raising Taxes on (Most) Canadians

The Harper Conservatives have done a lot of damage to Canada. It has been the proverbial death by a thousand cuts:  health transfers, aboriginal education and health, child care, social and co-op housing. The list goes on. It has increased stress on ordinary Canadians and created a huge social, economic and environmental deficit. And it has increased unemployment and harmed economic growth.

We’re told so-called austerity is necessary because Canada doesn’t have enough money.

That is untrue. Our economy and our people could be in a much better position with leadership, savvy fiscal management and fair taxation.

The upcoming federal election campaign is a good time to push back on the necessity of cuts to social spending. We also need to push for a commitment from opposition parties to fix the damage done by the Conservatives. But promises to rebuild Canada will be credible only if they include fair tax policies to raise revenue to do the job.

The big question will be: Can damage be undone without raising taxes on 90% of middle and lower income Canadians?  The answer is yes.

The Alternative Federal Budget (AFB), released this week by the Canadian Centre for Policy Alternatives is a carefully-costed alternative fiscal plan. Entitled "Delivering the Good," it shows that we can afford to build a national child care program; introduce a pharmacare program; fund public transit; expanded qualification for employment insurance; invest in First Nations housing, education and drinking water; launch a poverty reduction and  affordable housing program, and much more. These things would benefit ordinary Canadians.

The bill for all this and other initiatives in the AFB totals about $50 billion. The AFB shows that this can be done without raising taxes for 90% of Canadians. And all this is possible while reducing the federal debt to GDP ratio.

How? The Alternative Federal Budget Tax Chapter, which I co-wrote with economist Toby Sanger proposes a number of tax measures that would be fairer, simpler and more efficient. They include:

1. Eliminating regressive and ineffective tax loopholes and simplifying the tax system - Some tax credits and deductions are effective, progressive. They make sense. Others do little more than benefit the wealthy and distort the tax system. The AFB would take steps to eliminate or restrict the most regressive of these, including: family income splitting, stock option deduction, capital gains deduction, corporate meals and entertainment deduction and fossil fuel and mining subsidies. Total lifetime contributions to Tax Free Savings Accounts would also be capped at $36,500. These measures would save about $13.5 billion a year.

2. Restoring corporate income tax rates to 2006 levels – Lowering corporate taxes was a costly, failed experiment. It did not boost private investment or create jobs. It just contributed to the $600 billion in “dead money” of corporate cash reserves. Restoring the general corporate income tax rate from 15% to 22% will provide estimated additional annual revenue of $12 billion.

3. Introducing a top income tax rate of 35% on incomes over $250,000 - This would only affect the top 10%. Taxes should not only raise revenue, they can also be used to reduce income inequality, which is sapping our economic growth and contributing to poor population health. Progressive income taxes can counter-balance sales and property taxes which are regressive. This rate would be less than the 40% top federal rate in the United States.

4. Tackling Tax Havens and Tax Evasion - Canada is losing billions of dollars to tax haven-facilitated tax evasion and avoidance. The AFB will increase the capacity of the Canada Revenue Agency. It would limit corporate tax dodging with tax act amendments that require “economic substance” for offshore subsidiaries.

Canadian direct foreign investment in tax havens increased to $170 billion in 2013. The main reason for channelling investments through tax havens is to evade or avoid paying taxes in Canada. Applying a 1% withholding tax on Canadian assets held in tax havens would likely raise $2 billion.

5. Bringing Back Inheritance and Wealth Taxes - The AFB would introduce a minimum inheritance tax of 45% on estates over $5 million (e.g., after a $5 million deduction) similar to the US estate tax. This could produce $2billion in annual revenue.

6. Increasing Taxes on Banks and Financial Institutions – Introduction of either a Financial Activities Tax (FAT), as proposed by the IMF, at a rate of 5% on profits and remuneration in the financial sector, or a broad-based Financial Transactions Tax (FTT), as has been implemented by a dozen EU governments,  at a rate of 0.5% on transactions of stocks and at lower rates in bonds and financial derivatives. Both of these would generate an estimated $5 billion annually.

7. Introducing Green Taxes to Tackle Climate Change - This would be accompanied by a $300 per person (and $150 per child) rebate that would reimburse the majority of Canadians for increased costs of carbon based fuels. It is a progressive tax because those with lower incomes use less carbon fuels and their rebate would more than cover additional energy costs. If you drive a Hummer or a Porsche, are a jet setter or live in a big house, the $300 will not pay for all the carbon energy you consume. But the rich can more easily adapt their consumption choices and invest in energy-saving technologies. While part of the revenue raised would be rebated, this is not a revenue neutral tax.  Funds would still be available for investing in public transit and green infrastructure. This will double the positive impact of the green tax.

This tax fairness plan would not increase taxes on 90% of Canadians. It keeps taxes competitive with our major trading partners.  It is good for the economy as additional revenues would be re-invested in the form of infrastructure and services.

It is a solid plan to stimulate the economy and create jobs. Canadians deserve this plan instead of the failed tax cut strategy  of the Conservative government.