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Is it really feasible to get the tax rate down to 20 percent?
Yes, it is. This process requires some tough choices, and these choices must be made by Canadians in an honest and open way. The 20 percent solution is an ideal that we should try to achieve, but that ideal would be compromised by each additional credit or deduction we add to the system.
Can we really eliminate every preference?
Elimination of preferences is not saying take the breaks away, but rather let’s get the tax system doing what it is supposed to do, and let’s consider more effective ways of achieving the goals associated with each preference.
Can’t we reduce rates by simply cutting the costs of government?
We can reduce rates by altering how Ottawa spends, and we have tremendous efficiencies and savings generated by improving the quality of spending and program delivery. A single rate income tax of 20 percent could produce more such savings.
What happens to charities if you remove the incentive to donate?
A single income tax system in its purest form suggests that charitable donations eventually will not be deductible. The single tax system ultimately generates more revenue than the existing system and puts more take-home money into taxpayers’ hands. When these trends were tracked in the US in the 1990s, when the so-called incentives for donating were reduced, total donations actually increased.
Is any income group unfairly impacted?
A single rate tax system is truly progressive by taxing income according to ability to pay while completely removing the very low-income earners from the tax rolls. In the short term, about two years, some tax payers earning income from $70,000 to $100,000 could pay slightly more (about $300 per year), depending on the exact mix of preferences included. Against that, if few preferences would included, taxpayers will realize costs savings through simplicity, and midterm rate reductions as a result of increased growth generated by a single rate income tax system.
Won’t the wealthy benefit the most?
Not at all. For example, a single rate tax system treats capital gains and dividend income the same way as other sources of income. Wealthy taxpayers will realize tax relief but the real winners are seniors, families and low-income earners. Remember that, if the ideal single rate system is adopted, anyone earning under the $13,000 to $14,000 range would pay no income tax at all.
Are there any intrinsic biases in this system?
Taxation by its very nature should be apolitical and non-partisan. A tax system should ideally be designed and administered with the sole goal of generating revenue to pay for public programs and services. Ideally, a tax system should be guided by an equity orientation, and this is clearly the case under a single tax system: it is not only progressive, but removes low-income taxpayers completely of the tax rolls.
Does the single tax system penalize single Canadians without children?
No one is penalized under a single tax system. Tax planning measures are wiped off the books. We ought to look at the system with a fresh perspective and consider what a single tax system at 20 percent would look like based on the highest possible basic exemption. All Canadians will have more to keep – ideally not less than $13,000 – and everyone with income above that basic exemption pays tax proportionate to their income. This system does not suggest that we can’t include certain other credits of deductions. However, we must remember that for every preference we add to the system, either the higher the total rate or the lower the basic exemption available to everyone.
What happens to all the other taxes when the single tax system is adopted?
Ideally, once this running smoothly, we should consider harmonizing the federal-provincial coordination of income taxes and sales taxes. In other words, a single tax system affords us the opportunity to examine more rationally the renewal of other taxes and levies in Canada.
What happens to all my credits and deductions when I file, which represent a significant refund for me?
There are advantages and disadvantages associated with each and every credit and deduction in the tax system, which should be examined and openly discussed during a one-year period of public input and debate. Canadians must decide for themselves which trade-offs they are prepared to make.
What is the difference between a flat tax and a single tax system?
A flat tax and a system tax system are very different. Flat taxes (sometimes called sensible tax or simple tax) do not incorporate preferences, such as for seniors or those with disabilities, and tend to ignore income and expense realities among a population. A single tax system first eliminates low-income earners, then allows for the inclusion of needed preferences in tandem with consideration of the impacts of how a universal basic income could complement the application of such a tax system.
Don’t some of our taxes go towards debt reduction? What happens to the size of the debt and debt payments if we reduce the tax rate?
Cost savings and efficiencies generated by a single rate tax system, especially if postulated under a scenario of growth in GDP, would produce substantial revenue. Any economist or accountant who has looked at the single rate tax model has confirmed this. Simplification alone reduces current costs. So any additional revenue through cost savings could receive the same treatment of existing policy and program spending vis-à-vis debt reduction.
Wouldn’t most modest income Canadians, specifically those who are in the lowest tax bracket, face increases in their marginal tax rates?
The present system of variable rates does not provide true progressivity, but only a series of disincentives at the top of each tax bracket – thus penalizing those who wish to work harder. This has had a negative effect on productivity and growth in the economy. The single tax system is comparatively more progressive because it closes the loopholes that make nonsense of the supposed progressivity of variable rates. What is important to low-income earners is their actual tax rate. Because of the large basic tax credit, the actual rate that low-income Canadians pay will be far below the 20% tax rate.
Where and when did this idea develop?
The story of the single tax system has its origins in many conversations with Canadians from all walks of life, business colleagues, politicians of all political stripes, and with people in every province and territory of Canada. In 1988 I was elected as the Member of Parliament to serve an incredibly diverse constituency of approximately 110,000 people in a community that straddled Danforth Avenue in Toronto. In response to constituents’ concerns, I began a project to look at Canada’s income tax system. I consulted experts and the general public, and set up a research team. We developed a model to integrate corporate and personal taxes, simplify the process, and bring greater fairness and efficiency to the tax system. We even wrote a couple of books about it, The Single Tax in 1990 and A Life Less Taxing in 1998.