Taxes have been a key issue in this federal election. All the parties have elaborated their tax policies in their platforms. Voters have some very different positions to choose from. Canadians for Tax Fairness has reviewed all of them and offers this analysis:
Conservative tax cuts make taxes even more unfair and will lead to more public service cuts.
One party, the Conservatives, have made lowing taxes a key plank in their platform. They go so far as to propose "tax lock" legislation that would prohibit tax increases in the next four years.
But their tax cut agenda makes taxes even more unfair.
The Conservative Party has introduced income splitting for families with children and increased the annual contribution limit for the Tax Free Savings Account to $10,000.
Most of the benefits of income splitting will go to Canadians who need it the least. According to an analysis done by Queen's University Law School Professor Kathleen Lahey, the top 20% of families with incomes over $140,000 would get 43% of the estimated $2.4 billion a year, even with a $2000 cap on benefits. Men would get 87% of the additional income.
Although 41% of Canadians have TFSA accounts, only 8% deposited the maximum limit of $5,500. And almost all of the "maximizers" were high income. Although the cost of providing this tax break was "only" $410 million in 2013, the revenue lost to both federal and provincial governments will grow exponentially to billions of dollars in the next few years as the rich are able to shelter more and more of their wealth from taxes. This scheme to double the TFSA contribution limit hobbles future governments' ability to fix or improve our social programs for decades to come.
Both the Liberals and NDP have said they will end income splitting for families (but not for seniors) and return the TFSA limit to $5,500 (though not cancel the TFSA).
The Conservatives are promising more tax cuts, if re-elected. The proposed Home Renovation Tax Credit would only help those who can afford to do home renovations and could make the consumer debt and housing bubble problems even worse.
These tax goodies are on top of a whole slew of tax cuts that they have introduced over their years in power. The benefits of these tax cuts have disproportionately gone to corporations and the rich.
Tax cuts are also very poor economic policy. Corporate tax cuts have not worked to increase investment or create jobs. They have mostly ended up as "dead money" in corporate coffers, or as additional revenue for the U.S. government. This is because the U.S. taxes their corporations on the basis of their global income. American corporations operating in Canada still have to pay the U.S. government the difference between what they pay in Canada (a maximum federal and provincial rate of 26 per cent) and the American rate of 35 per cent.
Many of the boutique tax cuts, such as the children's fitness tax credit or the transit tax credit did not achieve their stated purpose. They just made the tax system more complex and do not provide help to those who need it the most.
The deficits of the Harper years were not just the result of economic stimulus spending in response to the global recession, but also overly generous tax cuts given out to the wealthy and to corporations, even though the cupboard was bare.
Tax cuts and the deficits they have created have also been used as justification for severe cuts to public services. The retirement age has been raised to 67, federal health transfers to the provinces are set to be reduced and service cuts have hit everything from veteran's offices to rail and food safety inspections.
The problem with all the tax cuts is not just that it makes the tax system more complex and unfair, it has also severely reduced government revenue from 16.5% of the national economy in 2000 to 12.6% in 2013. Tax cuts have reduced federal government revenue by $43 billion since 2006. This reduced revenue constrains what governments can do about major challenges we face, such as climate change, poverty, and crumbling infrastructure.
Liberals would raise taxes of the top 5% but cut them for the next richest 15%.
The Middle Class would get next to nothing.
Yes that is right. What Trudeau says in the escalator ad about giving more to the middle class is actually quite misleading. The richest (the top 5%) will pay more tax (about two or three thousand more.) But most of the tax cuts go to the top 15% just below the top 5%. They would get a tax cut amounting only to a few hundred dollars. All other Canadian tax payers will get next to nothing (less than $50) and the lowest 40% will get nothing.
Lower income families would benefit, however, from their plan to roll all the different child benefits into one Canada Child Benefit plan which would provide more to those who need help the most and less to those who need less. Under this plan families with incomes under $30,000 would see an increase of about $600 per child.
One problem with the Liberal plan to raise taxes on the top 5% is that they may not collect as much as they hope to because of all the tax loopholes and other ways the rich have to avoid or evade paying taxes.
The Liberals say, however, they will conduct a review of all tax expenditures to target tax loopholes that particularly benefit Canada's top one percent. The Liberals also say they will invest an additional $80 million, over four years, to help the Canada Revenue Agency crack down on tax evaders.
The biggest problem with the Liberal tax plan is that they are not addressing the need to raise more revenue. The Harper government has cut revenue to the lowest level as a share of the economy since the 1960s. Governments can't do much if they don't have the money to do things with.
The Liberals are taking the easy way out and just plan to run a $10 billion deficit for the next few years to fund their new spending commitments. While a small deficit is not going to cause a serious problem in the short-term, in the long-term it is not sustainable. And an additional $10 billion is not sufficient to fix all the social and economic infrastructure challenges we face.
They have said they will not raise corporate taxes, even though there is strong public support for doing so. They are raising more in income tax from the top 5% but giving it all away to the next 15%, which doesn't really help government raise the revenue needed to do all the things they need to do. They are eliminating or re-directing some Conservative policies such as income splitting and the child care benefit and that gives them some room for new measures. But with an aging population and a proportionately smaller number of people working, it will be impossible to sustain, let alone improve our medicare program or seniors benefits unless they find ways to raise more revenue.
NDP would raise revenue by hiking corporate taxes.
The NDP would raise corporate taxes from the current 15% federal rate to 17%, which is expected to raise an additional $3.7 billion a year. This is a very modest increase and would keep the combined federal and provincial corporate tax rate to about 28% which is less than the OECD average and well below the 39% rate in the U.S.
Tax integrity measures, including creating a tax force to crack down on tax cheats using tax havens is expected to raise an additional $500 million a year.
Closing tax loopholes such as the Stock Option Deduction, ending income splitting for families and rolling back the TFSA maximum annual contribution limit to $5,500 would raise an additional $3 billion.
The NDP would also save $240 million by ending fossil fuel subsidies.
These and a few other revenue measures would result in additional funds of about $7.5 billion that would be available for spending on their program priorities.
In addition to this the NDP would not reduce EI contributions but use the surplus in the EI fund to expand access to more unemployed workers, expand parental leave and increase training opportunities for a total investment of about $5 billion a year.
The NDP would raise in total about $12.5 billion in additional revenue to pay for the social and economic investments they propose to make, which is a bit more than the Liberals, and more sustainable as they would not have to make the cuts the Liberals will have to when they end their deficit financing.
But this revenue is still a way less than the $43 billion that has been cut since 2006 and the $50 billion that the Alternative Federal Budget said is needed to fix all the things that need fixing in Canada. Both the Liberals and the NDP are being overly cautious and not ambitious enough about what governments could do to improve our lives.
Both the Liberals and NDP support mis-guided small business tax cut.
While both the Liberals and NDP have adopted a number of the tax fairness policies advocated by Canadians for Tax Fairness, they have both, unfortunately fallen for the faulty argument that tax cuts for small businesses would create jobs. It is true that small businesses create a lot of jobs, but they also shed a lot of jobs when many of them fail. So the net job creation figure is actually quite low. While there may be some justification for a slightly lower tax rate for small businesses because they don't have the same access to all the tax havens and profit shifting schemes that big businesses can take advantage of. But if the gap between regular and small business rate gets too large, this creates an incentive for small businesses to stay small and we lose out on the job creation and export opportunities this might create.
Tax cuts for small businesses are also a very costly (up to $500 million a year in lost revenue) and diffuse way to direct support to job creation. Most business will not use the tax break to expand. It would be far better to tie government support directly to job creation to get a much bigger bang for your buck.
If small business tax rates are set too far below income tax rates, it also creates an incentive for well off professionals to set themselves up as a small business to reduce their taxes. Both the Liberals and the NDP have said they will address the problem though.
The Green Party proposes Carbon Fee and Dividend Plan.
The Green Party's tax policies focus on the environment. They would end fossil fuel subsidies and introduce a Carbon Fee and Dividend Plan. It would put a price on carbon but then return the revenue raised in the form of a dividend.
While this revenue neutral approach may be a way to buy public support, it is not the best way to achieve greenhouse gas reductions. Pricing carbon, as a way to discourage consumption, would be much more effective if some of the revenue raised was invested in things like public transit and clean energy development so that consumers have some viable alternatives that they could choose from. Canada will also need to raise revenue to contribute our share to a global mitigation and adaptation fund.
Part of the revenue does need to be rebated to ensure the carbon tax does not place an unfair burden on the poor. That is why the Alternative Federal Budget called for a $300 per person rebate that would offset the cost of the carbon tax for the poor.
But a revenue neutral carbon tax only does half the job.
The Liberals, NDP and Greens have adopted a number of the tax fairness measures Canadians for Tax Fairness and the Alternative Federal Budget have recommended. But none of the parties have committed to increasing revenue in the amounts that would be needed to fix the damage done to Canada by the Conservatives and seriously address the challenges of poverty, climate change and our crumbling social and physical infrastructure.