This is the Tax and Spend newsletter, which is delivered every Monday morning.
Don’t believe the hype.
It’s not just a classic Public Enemy song from the eighties, it’s a core mission of journalism. And the starting point for my Tax and Spend on the Canada Emergency Wage Subsidy program, which explores the gap between how the government describes CEWS and how it works in the real world. You can read the full article here.
Since the launch of CEWS, the government has at various points left the impression, or stated outright, that the program is limited to companies that have suffered revenue losses because of the pandemic. But that’s not true. So long as companies meet the threshold for declining revenue, they can qualify for CEWS, something clearly laid out in the program’s FAQs, not to mention the related legislation.
As I write in this week’s instalment of Tax and Spend, pointing out that discrepancy is not just a matter of word games, and not a question of playing “gotcha” with the government for a misstatement. It’s obvious that there is significant confusion about the mechanics of the CEWS program, with Globe readers and other Canadians wondering how companies in such dire straits that they qualify for subsidies are still able to pay out dividends. Or be allowed to lay off workers.
The fact of the matter is companies can legitimately qualify for payments in one month, and then rebound in the months that follow. Companies can receive CEWS payments, but still eliminate jobs at a later point. Those are the rules, and the reality, of the CEWS program – even if they don’t align with Ottawa’s preferred description.
TAXING QUESTIONS
Responding to the Tax and Spend on wealth taxes, Murray Taylor of Guelph asks about a possible solution – what about a flat tax that the uber-rich would not be allowed to avoid? “Above a certain income threshold, we all pay the same percentage of our income to the government, no tax dodges, loopholes, exceptions. The very wealthy would pay a lot in actual dollars, right down to those who would pay very little. But all would contribute on an equal basis according to their ability,” he wrote in an e-mail.
Usually, a flat tax is seen as a move that makes a tax system less progressive (in the technical sense of those with higher incomes paying a higher rate of tax, rather than the left-wing political connotation). A flat tax, even with some of the limitations that Mr. Taylor describes would probably mean that the highest earners pay a lower amount of tax than under a truly progressive income-tax system. But he also hints at a different approach: the alternative minimum tax. As the name implies, the alternative minimum tax sets a floor on the percentage of tax a filer pays, even if deductions would have reduced the amount payable below that minimum.
In the United States, tax cuts during the Trump presidency curtailed the reach of the U.S. alternative minimum tax for individuals, and the corporate version was scrapped altogether. (President Joe Biden and the Democrats may reinstitute the corporate alternative minimum tax as part of a wider tax increase; watch for more on that in a coming Tax and Spend.)
Ultimately, the goal of what Mr. Taylor is describing seems more akin to an alternative minimum tax than a flat tax. And, certainly, a good rule of thumb is that the larger the number of exemptions, the greater the opportunity (and propensity) to engage in tax avoidance, for those who are able. Closing loopholes reduces those incentives. But politicians of all stripes seem unable to avoid the temptation of using the tax system to reward or to discourage certain behaviours.
Have a Taxing Question? Send it to me here.
LINE ITEM
A new Alberta Advantage: Economist Ben Eisen floats a provocative scenario on FinancesoftheNation.ca – what would happen if Alberta reversed course, and not only introduced a provincial sales tax but also repatriated carbon-pricing revenues by (re)introducing its own levy? Mr. Eisen, managing editor of Finances of the Nation, concludes that those revenues could wipe out the province’s snowballing deficit, at least in the near term, and reduce reliance on natural-resources revenues. Or Alberta could choose to eliminate personal and corporate income taxes, and take other steps to eliminate the deficit.
Either move, never mind both, would be a political about-face for the United Conservative government, which campaigned on the elimination of the carbon levy introduced by the provincial NDP. And the elimination of income taxes, an extreme version of the initial revenue-neutral structure of British Columbia’s carbon tax, would carry its own long-term fiscal peril. That’s because carbon-tax revenues would, over decades, continually fall along with emissions. But those tax cuts would be permanent, meaning that unless reversed, they would create a fiscal shortfall that widened over time. In an e-mail exchange, Mr. Eisen acknowledged those issues, but noted that it would take many years for the gap to fully emerge – and that tax rates could be adjusted upward to compensate at that point.
Accounts payable: Repayments of the Canada Emergency Response Benefit are continuing to mount, with the Canada Revenue Agency saying that the government has received about 1.1 million such payments as of Jan. 19, up from 396,000 on July 1. Those voluntary repayments are from individuals who received CERB payments but weren’t actually eligible, returned to work earlier than expected, or received retroactive pay. That statistic measures the number of transactions, not individuals, since recipients can and do make multiple payments. The government says it’s not yet able to disclose how much it has received to date, or what amount of benefits are being repaid (although the minimum amount of CERB that could be repaid is one month’s benefit, $2,000). The final tally will only become clear once tax-filing season is done.
How to spell fiscal sustainability: Kevin Lynch and Paul Deegan, both with platinum pedigrees in public finance, outline a path to fiscal sustainability in an opinion piece for The Globe and Mail that lays out their five steps: Set, Shift, Stop, Switch and Start. It’s an argument against short-term thinking, and a pointed rebuttal to the counter-historical insistence that rapidly rising debt levels carry little consequence or risk. Instead, the two write, federal politicians need to demonstrate the same will, and build the public support, that successive administrations did in the 1980s, 1990s and 2000s to stabilize Canada’s finances.
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