|Montreal, April 13, 2002 / No 102
by Pierre-Luc Thibault
There are many problems related to the current tax system. It influences our lifestyle, working habits, and is also trying to reflect the values of today's society. But only citizens have values. A tax system should not try to reflect some nonexistent global values. The only way governments should use tax money is to fund their legitimate activities such as protecting the physical integrity of their citizens and protecting their right to property. The current system should be seen for what it is: legislated theft. It is a share-the-wealth system that takes money from some to give it to others. It is immoral as well as hurting our economy and that is why it is time to change it.
There is a fiscal reform that could radically and positively change the life of Canadians: the introduction of a flat rate income tax. One of the main characteristics of the flat rate income tax is that it would be much simpler than the current Canadian income tax. It would be far easier for the average taxpayer to understand how it works. Compared to the current system, the flat rate tax form would only take a few minutes to fill. It can even be anticipated that the form will be no longer than a single page.
On the upper part of the sheet one would have to fill the form with personal information and then fill the rest of the form with a few numbers. The wages and salary earned during the fiscal year, pensions or other benefits, would have to be given. From this amount, personal allowance would have to be subtracted. This is the amount of money which is not taxable. The amount would vary according to the political party elected and one's own personal situation. The number of dependants on the individual could be considered and that number would have to be multiplied by the money allowed for each of these dependants. Once those numbers have been calculated, it is simply a matter of subtracting personal allowance from the earned income. This amount is then multiplied by the current tax rate. Finally, depending on how much money the employer withheld from one's pay checks, it is known how much money is owed to the government or how much money the government must return, depending on whether or not the employer withdrew enough money.
In short, this form would probably gain a lot of supporters because of its simplicity. It would prevent a lot of hassle to ordinary people when filing the tax reports. Because of the simplicity of this tax, it may decrease the amount of tax evasion and the government would then be able to collect more money than it is currently collecting.
It is estimated that 40% of Canadians cannot file their tax report on their own and must consequently seek help from either professionals, relatives or acquaintances. The government is asking its citizens to file the reports by themselves, but a considerable number of them cannot even do it properly without help. I consider that the government has a duty to hand out a simple form to file instead of its current very complicated one. Not only do ordinary citizens struggle with this complex tax system, the government itself has to hire a huge number of people to verify and correct the forms submitted by citizens.
Fairness is the second criteria that should be used to evaluate the quality of a tax system. From a libertarian point of view, a fair tax system is, among other things, a system that would collect money from citizens without trying to redistribute the money afterwards. The tax system should remain completely neutral; by neutral it is meant that it should not be used to fund or encourage social values that may not be supported by all Canadians. Presently, the system is influencing individual decisions by rewarding some and punishing others depending on their corporate or individual decisions on how they earn, spend or invest their money. This is wrong; a dollar is a dollar, no matter how it has been earned. Everybody should pay the same percentage of money regardless of how they earned it; this is something the current system is failing to do.
One might also add that the underground economy in Canada is estimated to be worth more than 100 billion dollars every year. This is considerably hurtful to the Canadian economy and is the result of a tax system that is being considered unfair by many people.
Finally concerning efficiency, the current Canadian income tax system is costing a lot of money just to administer it. The Canadian government has to spend approximately a billion dollars each year in salary just to administrate its tax system. In addition to being expensive in terms of money, the system also costs a lot in terms of the number of brilliant experts that are literally wasting their time in working for enterprises or individuals, trying to help them deal with the complex tax system, trying to avoid taxes instead of working on improving the efficiency of their enterprise and expanding it. This data is difficult to evaluate but it can easily be inferred that the costs are large for the overall Canadian economy.
The progressive tax system is probably also a factor that we must consider in relation to the brain drain of highly skilled professionals, who leave Canada because they consider that the system takes too much money from them. As a final argument against the progressive tax system, it can be said that a considerable number of Canadian workers might be discouraged from working harder and earning more money because the more they earn, the more taxes they have to pay. This is also a factor for enterprises that might be less interested in trying to expand their business because high progressive taxes makes it unappealing to work harder and take risks in expanding.
To conclude on the flat rate income tax: it would have much more positive effects than the current progressive tax system. That is why I think that in order to improve the simplicity, fairness and efficiency of our tax system, it is time for Canadians to switch to a flat rate income tax rather than keep their obsolete current progressive tax system.
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