Tax reform: the Chicken Littles come home to roost

“Professor Kimble’s comments seem to reinforce the recent CBC Marketplace show on fake credentials,” Gerry Anderson wrote on LinkedIn. He was among the unhappier readers responding to my recent column about the federal government’s modest tax reform proposals. “His comments show that he has not done any research nor has any real-world experience.”

Similarly, Robert Ferretti weighed in: “Yet again, an individual with academic credentials but without a fundamental understanding of our tax system, evolution of tax law and, by default, without an understanding of how far-reaching these proposals are, tries to mislead the public by calling these proposals ‘modest reforms.’ Not to mention…”

… Ferretti then goes on to mention… “that yet again, another public-sector employee with a generous salary, full benefits, millions of dollars in tax-deferred defined pension, executive health benefits, fully paid vacation, thinks that they have any moral authority in lecturing about tax fairness when, in most cases, any corporate tax advantage [only] gives the self-employed some measure of protection against economic uncertainty.”

Matt Scolozzi MBA, M.Arch, couldn’t have agreed more: “I could rant all day about this,” he ranted. “Ask this Stephen if he has ever had a business. I would venture he would say, “Why do I need a job when I work for the university.’”

Someone else also gleefully revealed my publicly available university salary, and suggested if I really cared about tax reform, I’d start by advocating an end to my own gold-plated pension plan.

OK, I get the message. Not everyone agreed with my conclusions.

I acknowledge as well I am not a tax specialist, or even an economist. But I read them. And many economists who do carefully study our tax system — especially those who are not paid shills for business interests — believe these changes are merely a modest, necessary baby step on the broader to real tax reform, and that they will not affect most Canadians, including most small business owners.

Michael Wolfson, for example, is “an expert adviser with EvidenceNetwork.ca and a member of the Centre for Health Law, Policy and Ethics at the University of Ottawa. He is a former assistant chief statistician at Statistics Canada.” One of his stats-laden research studies served as the basis for the government’s tax proposals. “This is a complex area of tax law, so consultation is clearly important,” he wrote. “But the loudest voices are not neutral. They are the ones with the strongest vested interests — and their interests do not necessarily accord with those of the people they claim to represent.”

Or with reality.

Stephen Gordon, an economist from Laval who also supports the reforms, wrote in the National Post: “Heated rhetoric notwithstanding, the measures affect only a small group of [Canadian-Controlled Private Corporation] owners: those with the sort of incomes that would put them comfortably among the top one per cent of Canadian earners.” 

Add in — among many others — the economists at the Canadian Centre for Policy Alternatives, a progressive think tank, and Canadians for Tax Fairness, a group that focuses exclusively on tax issues, and you begin to see that the arguments I made are the same ones made by many reputable and knowledgeable economists.

And yes, I have read the “near apoplexy” from the other side too.

So how can groups, using the same set of facts, produce such disconnected, 180-degree opposing narratives about what these changes will actually mean for small business, for our economy?

While those who are paid to protect the interests of the richest among us are entitled to their sky-is-falling arguments, the rest of us might want to consider a previous Chicken Little.

How about the Saskatchewan doctors in the early 1960s who predicted that the province’s doctors would all pack up and move elsewhere if Tommy Douglas’s government imposed Medicare on them. In May 1962, they passed a resolution vowing to close their practices if Medicare began. They even staged a strike. But the government called their bluff, and three months later they were back to work. Ironically, three years later, surveys showed most doctors there actually favoured the new system, which soon became the basis for our own flawed but fundamentally fundamental-to-our-Canada national universal health care system.

In the end, the issue comes down to fairness. Why should business people be able to sprinkle income among their not-working-in-the-business family members to reduce their taxes, for example, when salaried folks can’t? Or be entitled to use inside-the-corporation, passive investment vehicles to save for their own retirements when their employees probably don’t have company pension plans at all? Two-thirds of Canadians don’t.

And yes, I acknowledge I do speak — as Robert Ferretti pointed out — as someone with probably “millions of dollars in tax-deferred defined pension” based on more than 30 years as a fulltime employee of a university with a reasonable pension plan. But, as Canadians for Tax Fairness rightly argues: if pensions are not adequate, “the solution is to improve pensions for all, not boutique tax treatment for a privileged few.”

Speaking of personal criticisms the column raised, let us recall Matt Scolozzi. “Ask this Stephen if he has ever had a business.”

Yes, this Stephen did own and operate a small magazine publishing business for two-and-a-half years in the 1980s. I know a little about the risks entrepreneurs take, about making payroll and about the financial and psychic cost that comes with failure. My business failed. So I have a lot of respect for those who do succeed, particularly the many serial entrepreneurs I know who, undaunted by failure, keep on creating until they succeed. I admire their tenacity and salute their success.

But I don’t believe that should automatically entitle them to tax benefits other Canadians don’t also enjoy.

It may surprise some of my critics to know I also currently own one of those Canadian Controlled Private Corporations that are the bulls-eye target of the finance minister’s tax reform proposals. I created it years ago on the advice of my lawyer and accountant, partly to protect my personal and family assets from legal liability for my freelance work, and partly to lower my own annual tax bill. It is all perfectly legal, as its defenders are quick to point out, but does that make the tax advantages I get as a result fair for everyone else who works just as hard but doesn’t have those benefits?

I don’t think so.

Will the proposed tax changes cost me personally? It depends on which experts I believe. But even if the Chicken Littles are right (which I doubt), and I do end up paying more taxes as a result, that’s OK too.

The tax system will at least be slightly fairer. And we can get on with the work of real tax reform.