My Name is Cliff, Drop Over Some Time

As I head into the New Year I’m disheartened by the sorry state of the tax legislative process in both the US and Canada. The pathetic response of the US legislators to the debt crisis in that country is profoundly disturbing. Not only did the so-called “American Taxpayer’s Relief Act of 2012” not address the real problem, it compounded it by including some 50 temporary tax breaks estimated by one source to cost some $76 billion (http://bigstory.ap.org/article/new-tax-law-packed-breaks-businesses). It would be nice to think we can do taxes better in Canada, but recent experience makes this a fond hope. Two points are on my mind as I write this.

The first is the fact that our governments (federal and provincial) are wedded to the belief that real economic growth is just another tax tweak away. Like the US tax code, the Canadian Income Tax Act is replete with concessions to special interest groups. The plethora of provisions designed to encourage economic activity of one kind or another has seriously eroded the tax base. Worse still, the economic activity that results is inefficient and can be positively damaging in the long term. Almost all of these concessions are enacted with the best of intentions, but our politicians haven’t yet learned that trying to pick winners this way is a mugs game. We have serious spending and debt problems in Canada, but I’m not hearing any politician call for a rigorous reform of the current tax system as part of the solution to them. In this regard, we are in the same boat as the US, although our situation is not quite as critical as theirs.

The second point is more fundamental, and is particular to Canada. When it comes to enacting tax provisions, democracy is all but dead in this country. The Anglo-Canadian parliamentary system gives enormous power to a majority government. When that power is abused, democracy suffers. Last year was a low point for me on the tax change front. First was the decision to enact the 2012 budget proposals in omnibus bills containing measures that can be justified only remotely as tax measures. Both the tax and the non-tax measures suffer from this; there is insufficient time to seriously debate the merits of any of the proposals. By using its majority position to force the bills through with very limited debate, the government undermines the traditional role of Parliament as the guardian of the public purse.

Add to this the introduction of a mammoth so-called Technical Tax Bill late last fall. My printed version of the changes and accompanying notes runs to well in excess of 900 pages. This Bill will also be passed without  much in the way of informed debate in the House. Most parliamentarians voting on it will admit that they have not read it, let alone tried to fully understand the consequences of voting for (or against) it. This is not how Parliament is supposed to deal with one of its essential functions – the raising of revenue. It’s sad to say it, but I don’t think most of our parliamentarians understand this aspect of the role of Parliament, or, if they do, have the courage to go to the wall in defending it.

I’d like to think things might change for the better in Canada in 2013, but I don’t see any prospect of this. There have been a number of serious studies of the tax legislative process over the course of my professional life, but few of their many useful recommendations have been adopted. Yes, there is a better way to do taxes, and yes again, we know what it is. No, the country will not implode if we continue to let governments do things the old way. But we will all be worse off than we could be as long as this situation continues.