A new study by two economists from the Canadian Centre for Policy Alternatives (CCPA), an independent left-leaning policy research institute, says Canada’s tax system is in dire need of “fairness” reform. Marc Lee and Iglika Ivanova argue that “ad-hoc tax changes over the last two decades have seriously weakened the redistributive role of Canada’s tax system at a time when market inequalities call for more, not less, redistribution.”
Their report, titled Fairness by Design: A Framework for Tax Reform in Canada, recommends the creation of a Fair Tax Commission, whose key mandate would be to “examine how federal taxes and transfers work together as a system and make recommendations for changes.”
“At a time of rising income inequality and unprecedented concentration of wealth in the hands of a few, restoring fairness should be the primary objective of the Canadian tax system,” said Ivanova in this release. “Instead, the past twenty years of tax cuts have disproportionately lined the pockets of Canada’s wealthy.”
A recent Statistics Canada analysis of income trends revealed that Canada’s top one per cent grabbed 10.6 per cent of the nation’s total income in 2010, up from the 7.0% they claimed in the 1980s. Recent analyses by the OECD and Oxfam International have shown that the gap between the one per cent and the rest continues to widen.
In the meantime, banks and financial institutions, where the rich keep and invest their money, are increasingly using foreign tax havens. The Canadians for Tax Fairness (C4TF), a tax fairness advocacy group, recently told the House of Commons Finance Committee that the increasing use of tax havens by financial institutions is costing Canadians an estimated $7.8 billion annually.
“Tax haven use is at an all-time high in Canada,” said C4TF’s executive director, Dennis Howlett, in this brief to the committee. “The Canadian banking and finance industry is clearly choosing to park money in the Cayman Islands and Barbados over what’s good for Canada. Banks are one of the biggest users of tax havens in the country. Using a haven may be legal but it compromises Canada’s ability to provide health, education and infrastructure.”
The CCPA report presents a framework for a progressive tax reform strategy, that includes:
- broadening the income tax base to ensure that all forms of income are subject to the same progressive tax rates,
- raising marginal income tax rates on top incomes,
- eliminating tax credits and deductions that disproportionately benefit the richest Canadians,
- introducing a single, streamlined, income-tested transfer for low- and modest-income families, and
- implementing inheritance and/or wealth taxes to prevent the concentration of wealth across generations and to improve social mobility.
“The last comprehensive tax policy review, the Carter Commission, was convened more than half a century ago, in 1962,” said Lee. “It’s time for a meaningful and broad-based public dialogue on how to make our tax system fair for all Canadians.”
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