Blogs & Comment

Unbearable heaviness of tax system (II)

My previous postended with the thought that a flat tax might be a better system than the monstrosity of the present. I was going to do a write-up on it but some readers wrote in recently and did a better job expounding on flat taxes than I would have (it seems this is a passionate topic with many people). So Ill turn this post over to them. First up is Dave in B.C. Following him is John Wesson:
Dave in BC writes:
Basically, under a personal flat tax system all income is taxed at one low rate, maybe 8-10% no exceptions (subject to exemptions on income for single moms, people who are below the poverty line, handicapped people, etc).
All returns could be done on one page and the tax rules & guidelines would be simplified down to a small book not the current messed up set of rules on rules. It can be done and as a revenue neutral project to government but who will undertake this on our behalf??
As I see it Canada must streamline its cumbersome & messy personal tax system. To me, the best way to really make it simpler, more efficient and, most importantly, as FAIR to all taxpayers as possible the flat tax is far & away the best model I have ever seen.
In its purest form, income from all sources (employment salaries & commissions, bonuses, stock options, investments, etc) & of all types (capital gains, income, dividends, etc) is taxed from dollar 0 at one fixed rate. Really simple, isnt it?
In the real world, one would expect to see some modifications to a flat tax structure; possibly as an exemption for a certain minimal earnings amount for folks with very low income, disabilities, students, the elderly etc. This would replicate the relief they get under the current system and would be seen as fair & equitable by most of my fellow citizens who are a charitable lot at the end of the day. Still, a one page tax return is totally doable!
Government could calculate what the flat tax rate should be tomorrow based on the revenue they currently get in the Great Canadian Tax Grab. TFSAs & RRSPs would remain the same as tax shelters.
A flat tax system is mainly about fairness and efficiencies but there would be a few casualties. For instance, the tax dept would not need thousands of the employees they currently employ to process our returns annually. Also, tax return booths that spring up each tax year may not get as much business.
Think about the big picture for a minute though a pure flat tax is ultra-efficient, its easy to calculate & administer, its going to encourage economic growth (and may encourage foreign investment but I need to chew on this one a bit more); and most of all its FAIR.
Right now, there are office buildings where the cleaning staff pay more tax than the CEO & CFO. Honest. The cleaning staff have little or no tax dodges & loopholes.
In a flat tax plan, you pay a percentage tax on everything you earn in a year. So all of the corp. execs & hedge fund mgrs that are under the gun currently for huge bonuses & salaries would pay a flat tax on everything. We would no longer need the Robin Hood mentality where government steals from the rich to pay the poor.
Dont for a minute think this is a brand new idea, either folks. Its already up & running in something like 24 countries. Because it is so successful in places like Russia (tax rate 13%), Lithuania (24%), Czech Republic, Latvia, Romania, Serbia, Slovakia, Iceland, Mongolia & others many western European countries are currently considering a flat tax too. They feel they will be at a disadvantage if they do NOT install one as eastern European countries have higher economic growth rates now with it & they feel left behind.
John Wesson writes:
Larry you seem to be planning a flat tax feature soon, and I am very much in favour of that for many reasons, but I fear the lobby in favour of the status quo will crush it like a bug underfoot. Lobbyists representing accountants and tax firms will mount such an anti flat tax campaign that it might take years for parliament hill to recover. It would, however, be nice to dream about a flat tax system for personal taxation in Canada.
Think about all the time currently wasted by millions of Canadians wading through the annual tax time drudgery. And what about the unbelievable amount of money ordinary Canadians pay to tax accounting organizations in order to avoid the pain of filling out those wretched forms each year. The fact that the Canada Revenue Agency (CRA) has created such a complicated monster is reason enough to adopt a flat tax system.
A flat tax would bring a sudden halt to all the pain involved in trying to understand the special kind of geek speak found only on Canadian tax forms. A flat tax system would probably reduce, by a significant number, the depression patients seen by doctors at tax time. Canadians would easily be able to figure out what 18%, for example, of their taxable income is. In fact, I can use my desktop calculator to figure out that problem in just under two seconds. Think of the joy involved in doing your taxes under those circumstances. Its especially gratifying when you compound that pleasure with the fact that you would also save the money normally spent employing a tax expert to relieve you of the anxiety formerly imposed by the CRA by virtue of their nauseating volumes of tax regulations.
CRA could still provide necessary exemptions to protect low income Canadians, but high income Canadians would certainly have to pay up, especially if they could no longer wriggle out of paying the flat tax rate applicable to their level of earnings.
Some European counties have switched to a flat tax without any adverse effects on their economies or individuals so its not like we would be inventing the process. We probably couldnt change the tax code as it applies to corporations and small business immediately, so that should keep most of the accountants and tax specialists off the dole. For the few who do find their opportunities diminished I hear the Canadian Forces are still recruiting.