Fair Tax Report Card Election 2019

FAIR TAX REPORT CARD : Election 2019
Authors: Toby Sanger & Erika Beauchesne
Published: 18 October 2019
 

INTRODUCTION
 
The idea of a Fair Tax Report Card began when, in spring 2019, C4TF published a 2019 Platform for Tax Fairness, showing how the federal government could raise an additional over $40 billion annually by implementing a number of moderate fair tax measures. Doing so would have brought federal revenues closer to, but still below,their long-term average as a share of the economy. These funds could also have been used to improve public services for all Canadians, to alleviate poverty in Canada and abroad, to make our tax system fairer for ordinary Canadians, and to invest in the transition towards a greener and more sustainable economy. For instance, each $10 billion in additional revenue could provide funding for: a national pharmacare program; $10 a day universal childcare; retrofitting 2 million homes; eliminating university and college tuition; and 40 million stays in hospital beds.
 
Our supporters expressed most interest in five of the areas explored by the Platform:
  • Closing tax loopholes
  • Tackling tax havens
  • Making our tax system more progressive
  • Taxing the e-commerce giants 
  • Fighting climate change
So, during the Fall 2019 election campaign, C4TF published factsheets on each of these issues, and produced this Report Card, grading each Party’s election platform based on how effective it would be to move Canada towards fairer taxation, specifically relating to those issues.
 
The idea was a tool to address what economists Emmanuel Saez and Gabriel Zucman call, as their book title, The Triumph of Injustice - how regressive tax systems are increasingly a major cause of today’s disturbing levels of inequality. We hoped it would help voters make an informed choice at the ballot box, while many ordinary Canadians struggle to keep up as most of the income gains in recent years have gone to top incomes, and to large corporations who increasingly dominate economic and political agendas.
 
As the results below show, though no party got a perfect score in any category and most parties at least paid lip service to some important issues, we were most impressed by the NDP and Green Party proposals on progressive tax measures - some of the most important proposals that have been discussed in decades.
 
 
 
SUBJECT: CLOSING TAX LOOPHOLES
 
Canada’s tax system includes various regressive tax loopholes that allow the wealthy to avoid taxes, with many paying much lower rates of tax than ordinary working people—or no tax at all. In our Platform for Tax Fairness and our Close Tax Loopholes factsheet, we highlight five regressive tax loopholes: the stock option deduction, capital gains, business meals and entertainment expense deduction, corporate dividend tax credit, and TFSAs. Closing these could save the federal government over $16 billion annually.
Party
Grade
D
While the Liberals promised to close regressive tax loopholes in the last election and made some—but not enough—progress on these commitments, they unfortunately haven’t specifically promised to do anything further in this election over the next four years. 
F-
Not only have the Conservatives failed to commit to closing any regressive tax loopholes this election, they promised to create more tax loopholes and further complicate the tax system with boutique tax breaks that will provide the largest benefit to higher incomes. Most disturbingly, they’ve promised to bring back a $500 million tax loophole that will only benefit the millionaire owners of private corporations, with each getting an average tax benefit of $10,000 annually. If there were a grade lower than “F”, they’d get it on this issue.
A-
The NDP has pledged to close at least three of the five tax loopholes we highlighted: the stock option deduction, capital gains, and the business meals and entertainment expense deduction. There are more regressive tax loopholes that can and should be plugged, and the NDP has also committed to a public review of tax loopholes to identify others that should be closed. 
A-
The Green Party has committed to close at least three of the five regressive tax loopholes that we identified, including the stock option deduction, capital gains and the business meals and entertainment expense deduction. They’ve also committed to establish an arm’s length federal tax commission to analyze the tax system for fairness and accessibility based on the principle of progressive taxation.
D
The Bloc Québécois have promised some progressive tax measures in other areas, but haven’t committed to closing the regressive tax loopholes we identified. 


 
SUBJECT: TACKLING TAX HAVENS
 
Canada loses at least $8 billion annually from international tax dodging by corporations and the wealthy. Our Platform for Tax Fairness and Tackle Tax Havens factsheet outline a number of the measures the federal government should take to seriously deal with this problem. 
Party
Grade
C
The only measures on tax havens and international tax dodging the Liberals have committed to in their election platform this time relate to e-commerce companies (see below) and to limit interest deductibility for larger corporations to no more than 30% of corporate income (and to limit “hybrid mismatch arrangements”). This commitment is welcomed as interest deductibility is an important way multinational corporations avoid tax, but it is similar to what the U.S. put in place two years ago. Hasn’t committed to increased transparency or to 
D
The Conservatives haven’t made any commitments to limit the billions lost through international tax dodging, except in relation to e-commerce companies (see below), and to provide more funding to the CRA to increase its compliance and enforcement for large, multinational and international taxation. This is welcome, but the CRA still hasn’t recovered from the Harper government cuts in exactly these areas. 
A
In addition to taxing large tech companies (see below), the NDP has committed to crack down on tax haven abuse and international tax dodging by vowing to: limit interest deductibility by large corporations to no more than 20% of corporate income, limit hybrid mismatch arrangements, deny deductions for corporations with foreign subsidiaries without any economic substance, and provide additional funding to the CRA for compliance and enforcement of the GST and of multinational firms, large corporations and international taxation. The NDP has also committed to increase corporate transparency, create a public beneficial ownership registry to fight money laundering and consider restricting companies that engage in tax dodging from obtaining government contracts.
A-
In addition to addressing tax avoidance by large tech companies (see below), the Green Party is committing to reduce offshore tax dodging by limiting interest payments made to foreign affiliates to 10% of corporate income, to deny deductions for corporations to foreign subsidiaries without any economic substance, and to apply a withholding tax of 1% on corporate business assets held in tax havens. They’ve said they would provide adequate funding to the CRA to collect tax revenue in offshore tax havens, launch a federal public inquiry into money laundering, but don’t commit to increasing corporate transparency or restricting companies engaging in tax evasion from government contracts. 
C-
In addition to addressing tax avoidance by large tech companies (see below), the Bloc supports providing additional funds to the Canada Revenue Agency to increase tax compliance and enforcement efforts for the GST and of multinational firms, large corporations and international taxation. 

 
SUBJECT: MAKING THE TAX SYSTEM MORE PROGRESSIVE
 
Canada’s tax system has become far less progressive in recent decades with cuts to top income tax rates, deep cuts to corporate tax rates, and the expansion of loopholes—all of which have contributed to the top 1% now paying a lower overall rate of tax than all other income groups, including the poorest 10%. Our Platform for Tax Fairness and Progressive Tax Rates factsheet propose a number of ways to restore progressivity to the tax system, including by increasing the top marginal tax rate, increasing corporate tax rates, applying a tax to wealth and inheritances, and reducing incentives for corporations to pay their CEOs multimillion dollar compensation. 
Party
Grade
C-
While the Liberals introduced a new top income tax rate following the last election, unfortunately they haven’t made any further commitments to make our personal or corporate tax system more progressive at the top this election. They have promised to increase the Basic Personal Amount tax credit to $15,000 for incomes up to about $215,000, which will make the tax system more progressive at the bottom end.
D
The Conservatives haven’t made any commitments to make the personal income or corporate tax system more progressive in any way. They’re promising to introduce plenty of tax breaks and boutique tax cuts but the benefits of these all tend to be higher for higher incomes. They have also promised to gradually reduce the tax rate for the lowest bracket with their “universal tax cut.” However, the full benefit of this cut will only go to tax filers with incomes over $52,000 while about one-third of lower income tax filers won’t receive any benefit from this.
A
The NDP has committed to increase the tax rate for those in the top bracket from 33% to 35% for incomes over $210,000. They have also promised to increase the general corporate tax rate (payable by larger corporations) from 15% to 18% while keeping the federal small business rate at 9% The NDP has also pledged to introduce an annual wealth tax on individual wealth of over $20 million. These are all very progressive measures similar to what we have called for.  
B-
The Green Party has committed to increase the general corporate tax rate from 15% to 21% while keeping the small business rate at 9%. The Green Party hasn’t committed to increase top income tax rates or introduce a wealth or inheritance tax, but they have pledged to introduce a Financial Transactions Tax and charge a five percent tax on commercial bank profits.  
D
The Bloc Québécois hasn’t made any specific commitments to make the federal tax system more progressive. 

 
 
SUBJECT: TAXING BIG FOREIGN TECHNOLOGY FIRMS
(Also known as: Leveling the Digital Playing Field.)
 
The Canadian government allowed some of the largest corporations in the world—Google, Amazon, Apple, Facebook, Uber, Netflix and others—to get away with paying little or no taxes on their sales and profit from Canada. These tax preferences for big tech not only cost billions in lost revenue annually, but are highly unfair to competing Canadian companies and workers, and are profoundly damaging to our media and cultural industries. Our factsheet specifies what the federal government needs to do to Level the Digital Playing Field, including: collect GST/HST on imports of all digital services, apply corporate income tax to the profits of foreign e-commerce companies associated with their business in Canada, eliminate the ability of businesses to deduct the cost of advertising on foreign internet platforms, apply specific revenue taxes to large tech companies, and enforce existing laws that require foreign companies to collect and remit sales taxes to Canada.
Party
Grade
 
C
After not confronting this issue for years, the Liberals have committed to introduce a 3% tax on the revenue of large foreign tech firms related to targeted advertising and digital intermediation services from Canada. They’ve also said they would “work to… ensure that international digital corporations whose products are consumed in Canada collect and remit the same level of sales taxes as Canadian digital corporations” but this wasn’t costed by the Parliamentary Budget Office (PBO) nor included in their fiscal plan. 
D
The Conservatives have said they would apply a 3% tax on the revenues of large foreign tech firms related to social media platforms, search engines, and on-line marketplaces from Canada. However, they would allow corporations to deduct any corporate income tax they pay in Canada from any of these taxes they pay. 
A-
The NDP is committing to apply a 3% tax to the revenues of large foreign tech firms related to targeted advertising and digital intermediation services from Canada. It has also committed to eliminate the ability of businesses to deduct the cost of advertising on foreign internet platforms such as Google and Facebook from the corporate tax they pay in Canada.   
B
The Green Party’s commitment for this aren’t absolutely clear with differences between what’s stated in their platform and what’s in their fiscal plan and cost. In their fiscal plan, as costed by the PBO, they have committed to apply a corporate income tax on transnational e-commerce companies doing business in Canada and to require e-commerce companies to collect and submit GST/HST on their transactions in Canada. They have said they would also prohibit Canadian businesses from deducting the cost of advertising on foreign-owned sites, but this wasn’t costed by the PBO or included in their fiscal plan.
B-
Like the Liberals and the NDP, the Bloc Québécois is advocating for the federal government to both apply a 3% tax to the revenue of large tech companies related to targeted advertising and digital intermediation services from Canada. The Bloc is also calling for the federal government to apply the GST to all transactions of e-commerce companies in Canada, regardless of platform.


 
SUBJECT: FIGHTING THE CLIMATE CRISIS WITH FAIR TAXES
 
We need to use every tool available to address climate change, including carbon taxes and other fiscal measures. Carbon taxes work by putting a price on pollution while also raising funds to invest in complementary measures, such as a Green New Deal. But carbon taxes must be broad-based, progressive and combined with a wide range of complementary measures, including Just Transition measures for those whose jobs will be affected. Our Combat Climate Change fact sheet recommends key ways the federal government’s carbon pricing plan should be strengthened including by: applying the carbon price to all emissions from large emitters, introducing carbon tariffs on imports from countries not taking sufficient action on climate change, and making payments to households more progressive and more visible.
Party
Grade
C
The Liberals are planning to maintain the national carbon pricing system they introduced, but haven’t made any additional commitments to strengthen it further beyond the $50/tonne it is scheduled to rise to by 2022. They had previously committed to review fossil fuel subsidies, but haven’t promised to eliminate them in this election. Their commitments include providing a rebate of the GST for used zero-emission vehicles, providing grants and loans for retrofits and providing tax breaks for clean tech companies. 
F-
The Conservatives have promised to eliminate the federal carbon tax (and to eliminate the carbon tax incentive payments going to households) and to also change the system for large emitters so they invest in research and technology. They’re also promising corporate tax breaks for businesses that invest in green technology, to provide a tax break for energy saving renovations, but to eliminate the GST on all forms of energy, including fossil fuels. They’re not promising to eliminate fossil fuel subsidies, but instead to expand them significantly. 
A-
The NDP has an extensive climate change plan and has said they will continue with the Liberal’s carbon pricing plan, including rebates to households, while making it fairer and rolling back the breaks for big polluters. They have also said they would immediately eliminate fossil fuel subsidies. The NDP has also committed to eliminate federal sales taxes on zero emission vehicles and provide a $15,000 purchase incentive for made-in-Canada zero-emission vehicles.
A
The Green Party would maintain the carbon pricing system but increase it above $50/tonne every year by an additional $10/tonne, reaching $130/tonne by 2030 (with the revenues returned to Canadians as a dividend) until Canada has reached net zero emissions. They are also committing to eliminate all fossil fuel subsidies, introduce an international tax on aviation and shipping fuels, and exempt new and used electric and zero-emission vehicles from the GST. 
C+
The Bloc Québécois has been supportive of Quebec’s carbon pricing system, and has called for the elimination of fossil fuel subsidies. It has also proposed tax credits for renovation of residential buildings and farms. 


 
OVERALL RESULTS
 
ISSUE
Close Tax Loopholes
D
F-
A-
A-
D
 
Tackle Tax Havens
C
D
A
A-
C-
Make the Tax System More Progressive
C-
D
A
B-
D
Tax Big Foreign Tech Firms
C
D
A-
B
B-
Combat Climate Change
C
F-
A-
A
C
Final Grade
C-
F
A-
B+
C-


COMMENTS
 
Ultimately, the NDP’s more progressive income and wealth tax policies nudged out the Greens, whose platform and financial plan contain a number of inconsistencies. The Liberals’ tax fairness commitments were disappointingly less ambitious than last election. While the Bloc is sometimes progressive, its platform includes only a few tax fairness measures. The Conservatives are on the opposite end, proposing many tax changes, the vast majority of which would most benefit higher incomes and corporations.



 
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