An idea whose time has come-again: the problems identified by the Carter Commission half a century ago still plague Canada's tax system.

Author:Peach, Ian
Position:TAXATION
 
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Anyone who has been exposed to the present taxation statutes of Canada will realize the difficulty in trying to understand the complications involved.

--Arthur Smith MP, 1962

The existing Canadian [tax] system is a hodgepodge.

--Jack Mintz, Financial Post Magazine, 2014

In l962, the government of Prime Minister John Diefenbaker established a Royal Commission on Taxation, chaired by Kenneth Carter. Arthur Smith, the Progressive Conservative MP for Calgary South, explained the reasons for establishing the Carter Commission in the February 20, 1962, statement in the House of Commons from which the first quote above is drawn. More than 50 years later, in the article from which the second quote is drawn, Jack Mintz, the Palmer Chair in Public Policy at the University of Calgary, identified the same problems of incoherence, complexity and unfairness in the tax system. (1) The time for a new "Carter Commission" would seem to be upon us.

The Royal Commission on Taxation, 1962

The Carter Commission's mandate was "to inquire into and report upon the incidence and effects of taxation imposed by Parliament ... upon the operation of the national economy, the conduct of business, the organization of industry and the positions of individuals; and to make recommendations for improvements in the tax laws and their administration that may be consistent with the maintenance of a sufficient flow of revenue." In particular, it was to look into "the distribution of burdens among taxpayers," the economic effects of the tax system, loopholes that needed to be closed, the effects of taxes on income and investement flows, using taxation to encourage Canadian ownership of Canadian industry without discouraging foreign investment and "the changes that may be made to achieve greater clarity, simplicity and effectiveness in the tax laws or their administration" (pp. v-vi). (2)

Four years later, the commission submitted a six-volume report--since described as having "few peers among modern proposals for income tax reform" (3)--to the government of Diefenbaker's successor, Lester Pearson. The commission felt the tax system's foremost objective should be fairness--summed up in the phrase, often attributed to Carter, that "a buck is a buck"--and determined that, by this standard, the system fell short. People in similar circumstances did not necessarily owe the same taxes while people in dissimilar circumstances did not necessarily bear "appropriately different" tax burdens (p. 1). The commission concluded that the tax system distorted the efficient distribution of goods and services and failed to compensate for non-tax barriers to efficient distribution. Moreover, the administration of the federal tax system was not sufficiently shielded from political influence (pp. 1-2). The commission proposed changes to the tax system in Canada that, if implemented, would have constituted a complete transformation of the system and resulted in improvements in both equity and efficiency (p. 2).

The commission recommended that the tax system be rebuilt on the foundation of counting all income equally, whatever its source. This comprehensive tax base should be subject to progressive rates of taxation, which would...

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