At the time this article was
written Alex Shepherd was Member of Parliament for Durham
As taxation has changed, so have
attitudes of taxpayers. Avoiding consumption taxes, offshore investments, and
outright tax avoidance have become common practice. This article argues for the
need to rethink our entire approach to taxation.
Taxation is fundamental to the
functioning of our nation. Yet many citizens believe they are isolated from the
process that sets income tax levels. They feel they no longer have the ability
to pay. This is why I am advocating a Taxpayers' Bill of Rights.
Over the course of history people
have shown a common reaction to taxation and the relationship between taxation
and government. Whether it is donating a portion of your crop, being involved
in a political issue that affects you, or being dependent on government for
retirement support, a lot of our involvement with government stems from our
view of taxation.
One hundred and fifty years ago
Canadians consented to being taxed for what they received equaled what they
paid for. Taxes went to build roads, rail lines and port facilities.
Now, times have changed. Canadians
are suspicious of government spending and they do not feel the goods and
services received is equal to the amount of tax paid. This cam about for two
reasons. First, Canadians do not understand the cost of government. Government
has spent too many hours and dollars disguising it. Why do we include taxation
in the price of liquor, cigarettes, gasoline and other products? Why are taxes
not visible. Is there some efficiency involved here or is government ashamed of
how it treats taxpayers? Secondly, Canadians do not feel they have consented to
the collection, by government, of such high levels of income tax. Some
so-called experts have suggested different ways of limiting the amounts of
money government can take from citizens. Mostly they advocate tax and
expenditure limits but this approach places rigidities on fiscal arrangements
and requires referendums to change. Furthermore taxation and expenditure limits
do not contribute to a better understanding and knowledge of how and why
So why not put in place a degree of
accountability taxpayers could accept, which would account for how taxes are
spent to create government programs?
Increasing visibility of how
government spends is one major objective of the Taxpayers' Bill of Rights.
Costing government programs, past, present and future, and having the costing
method certified, as reasonable by the Auditor General, forms the basis for
creating visibility in government.
Whether or not visibility would
change voting behavior is not clear. But if voters clearly see the relevant
cost of programs and how much their taxes are contributing to them, they would
take a greater interest in what government is proposing and be more selective.
For example, if I told taxpayers
that gun registration will cost a minimum of $20 each per year for the rest of
their lives, whether a gun is owned or not, they would want the benefits of
registration clearly spelled out.
You can visualize the impact this
would have. Political parties would have to have their programs properly
costed, in total, and on an individual taxpayer basis. Is it not a logical
extension of our democracy that we have the right to know what government
programs and services are going to cost?
Revenue Canada has acquired
enormous power. Much of this power has gone unchecked by government. Take, for
example, the proposal in the last federal budget reducing the necessity to
prove probable cause in order to make demands on third parties. This means
Revenue Canada does not have to possess evidence of wrong-doing, before making
demands for outstanding funds.
This is only the tip of the
iceberg. Who knows how many bank seizures, property leans, people forced into
bankruptcy (when a settlement would have make both parties better off) occurred
because an unwieldy state apparatus regularly transgressed, what I believe to
be, Canadians civil liberties.
Read your tax return. You will see
included there, what Revenue Canada calls Taxpayers' Rights. It is about three
paragraphs long. None of the so-called rights are legislated, they are only
administrative practices. It would not take the casual observer long to realize
he or she had very few practical rights with respect to taxation.
Reducing the number of changes to
the Income Tax Act, and legislating major changes, approximately every
15 years, would assist taxpayers in familiarizing themselves with the tax
system. Believe it or not, the system changes weekly. This is a root cause of
blank stares by Canadians and feelings of total helplessness every year when
tax time rolls around. A labyrinth of tax forms and regulations, bearing little
resemblance to previous years forms, leaves taxpayers with the feeling the
system is administered by sorcerers.
The ability to change, not only the
rules of the game, but the entire game in mid stream, are normal practices on
the part of Revenue Canada. A Taxpayers' Bill of Rights would attempt to rein
in this excessive power, while developing a degree of stability in tax policy,
along with confidence and respect by Canadians for government.
A real Taxpayers' Bill of Rights
would create a taxpayers ombudsman. The ombudsmans job is to stand between the
state and the individual. The rights of taxpayers, compensation when the
taxpayer is wronged, and defining taxpayers rights, all fall under the
authority of this office.
Still the question remains of just
how much money government can take? The taxes of an average family have risen
to 36 per cent of total income from 26 per cent over the last 20 years. At the
same time spending on food, shelter and clothing fell to 25 per cent from 32
per cent. Canadians are paying more in taxation than for basic necessities. The
large outstanding balance of unpaid income tax - now approximately $4.5 billion
– represents people preferring to maintain the necessities of life during the
recession of the 80s, instead of paying their taxes to government.
People who come into my office feel
there is no end to the amount of money government will take from them. The
Taxpayers' Bill of Rights addresses this. Government needs to define its
limitation. I am suggesting government measure total taxation against total
annual income since both can be easily measured. Starting with a threshold of
55 per cent of income, and reducing this by 1 per cent each year for 15 years,
would give taxpayers the knowledge that limitations had been put on total
With the visibility of taxes,
mentioned previously, it is possible to total the amount of direct taxes paid
by a person in any one year. Then, by multiplying this amount to a factor
established by Statistics Canada, to show how much a person paid in indirect
taxes – such as royalties and custom duties – a total picture of the amount of
taxes paid by a person can be accomplished.
If this amount exceeds the 55 per
cent threshold, the difference is refunded by a tax commission, jointly chaired
by the federal and provincial governments.
Obviously, some people may design
their financial affairs to report low levels of income who have substantial
assets. These people could finance consumption out of capital. I have excluded
people who have a net worth in excess of $500,000 for this reason.
This kind of legislation is long
overdue. Ask yourself this, "Would Canadians have rolled up the horrendous
debts that tie the hands of policymakers if they were aware of what government
programs and services cost?"
A Taxpayers' Bill of Rights would
put the onus on government to manage its affairs differently, since there is
only a limited amount of funds available to spend. Actually, the Bill would
take us back to previous regimes where the powers to tax, spend and borrow were
in different hands. The Bill would put Canadians on an equal footing with
Greater visibility of taxes and
creating voter awareness are the main objectives of this legislation. Curbing
excessive powers in the hands of Revenue Canada, a department constantly under
pressure to collect more funds, is also an important objective of the Bill.
Determining specific individual
limitations to taxation will give taxpayers a degree of certainty with respect
to the future. Guaranteeing them access to a known quantity of their disposable
income will make Canadians less likely to consider avoidance in paying taxes,
while encouraging consumption.
Restoring mutual respect will
actually discourage the movement of capital outside of Canada. The erosion of
the underground economy is another benefit since Canadians would see that
government has established limits on how deep it is willing to dig into the
But most importantly, a Taxpayers'
Bill of Rights establishes the basis for respect of government, and that is
something sadly lacking in this great nation.