Fraser Forum

William Watson: On taxes, would a ‘Broaden the Base, Lower the Rate’ commission help?

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The day before April 30, Tax Filing Day, I wrote in this blog about a new Fraser Institute study documenting what all Canadian taxpayers are painfully aware of, namely, the increasing complexity of our tax system. This week the movement for tax simplification took a big step forward when in a Toronto speech Business Council of Canada President John Manley proposed that a new Carter Commission take a comprehensive look at Canada’s tax system.

It was in 1962 that Conservative Prime Minister John Diefenbaker appointed the Royal Commission on Taxation, headed by accountant Kenneth Carter, to review the country’s tax system. It produced a six-volume, 600,000-word report that the Liberal government of Lester Pearson tabled in February 1967 but never formally printed. Thus the text of the report is in the Courier typewriter font that today’s design stylists fondly recreate as a piece of calligraphic nostalgia but which was one of the two or three workaday and not always admired typefaces the world lived in at the time.

The report prompted a 1969 White Paper on Taxation (“Proposals for Tax Reform”) and eventually a 1971 tax bill incorporating some of the Commission’s reforms. Unfortunately, Kenneth Carter died in 1968 and saw neither of these. Perhaps that was to the good. One popular history of Canada concludes the whole process was “an exercise in futility and a splendid case study of pressure-group activity.” That’s probably too harsh. The episode did result in at least partial taxation of capital gains, as well as a more sophisticated integration of the personal and corporate tax systems, both of which live on today. (In 2002 the Canadian Tax Journal produced a retrospective on both itself and the Commission that is available in its entirety here.)  

Perhaps because it was such a long document, the Carter Commission’s report was usually summarized as “a buck is a buck is a buck,” a paraphrase of Gertrude Stein’s “a rose is a rose is a rose.” Stein was being descriptive, or perhaps philosophical. The Commission was being normative: For fairness’ sake it wanted people to be taxed on their incomes, with everything that added to their purchasing power, including capital gains, counted as income. As it turned out, once the politics and the shouting died down that hadn’t quite happened. But the Commission did nudge our society a little in that direction.

Should we have another such big-picture commission? Before deciding, you’d like to know the outcome, which would probably be 10 or 12 years down the road, given how politics and process have slowed down since the 1960s. The Carter Commission won many more plaudits internationally among tax scholars and theorists than it did at home among taxpayers—or at least among those taxpayers it would have taxed more, who were able to blunt many of its more pointed recommendations. What would a 21st century Carter Commission recommend? And which of its recommendations would make it through the politics of 2023-28?  

In his speech, John Manley cited what is the mantra of many tax economists and would, I hope, be the Twitter version of a future Carter Commission’s recommendations, namely, “Broaden the Base, Lower the Rate.” The idea here is that lower tax rates cause fewer distortions in economic activity, while broad tax bases mean few exceptions or exemptions, which are often where the true unfairnesses and inefficiencies arise.

In the current political environment, both in Canada and around the world, with populists rearing their heads, some ugly, some not so ugly, what would be the chances of generally sensible recommendations first emerging from a new royal commission and then eventually being enacted? Would a Kenneth Carter-type head a new commission or rather a fiscal Robespierre?

It’s true that a 21st century Carter commission might end up lending real oomph to “Broaden the Base, Lower the Rate.” But it might not. It might head off in all sorts of unhelpful directions. On balance, I’d probably take our chances on informed people continuing to push that policy mantra all on their own.


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