Categories
Taxation

Love tax theory, hate tax application

Tax is a subject that is near and dear to my heart, but not because I occasionally fill out a tax return. Tax theory is fascinating and relevant stuff, but I won’t ask you to take my word for it.

I think the reason why I like tax theory but hate applying tax law, is because it combines my love of accounting with my love of politics. Taxes are an intensely political subject. And I don’t mean office politics, I mean the good kind.

But the politicization of taxes if often detrimental to constructing a truly successful tax system. Witness the recent Canadian federal election, when the Conservatives won, partly on their promise to reduce the GST by 2%.

The GST is a consumption tax, which is the most efficient type of tax. Instead of cutting the GST, we should be cutting income tax or capital tax. Income tax discourages work, and tax codes across the globe have become convoluted with various tax credits and deductions, increasing compliance costs for everyone.

The US is even worse than Canada, because it doesn’t even have a consumption tax. But Europe is ahead of us with their VAT, which ranges from 18-25%. The GST in Canada is now 6%, with a further reduction to 5% coming. We’re headed in the wrong direction.

I’m convinced we need to do away with income taxes entirely, and replace it with a consumption tax. It would be fairer and would encourage saving and investment. A credit for low income earners could be employed to maintain the progressive nature of most income taxes.

What are we waiting for? Politics, as usual.