Op-ed by Stewart Sinclair, February 3, 2013
We all know that taxes of various sorts are almost universally considered to be vexatious in some way. But just how much so and why is usually not closely examined – like the making of sausage.
It all started for me about 4 years ago when, out of curiosity I attended a talk by some “de-tax” advocates (people whose beliefs range from the feeling that the income tax system is grossly unfair to those who oppose all forms of tax). As a result I got curious about the legislation itself and what it looked like. Not having a legal background, I was blown away by what I found.
I have downloaded the web pages containing the main parts of the income tax law as text and loaded them into a Word document. The raw statistics are quite staggering:
- The Income Tax Act itself, as of January 1, 2012, is 1,642 pages and 980,000 words. The Application Rules Act is another 48 pages and 30,000 words.
- The Income Tax Regulations (directions developed by civil servants explaining how to implement the laws) add another 796 pages and 385,000 words for grand totals of more than 1.33 million words and nearly 2,500 pages. It gets worse.
- References to other laws are found in 1,122 passages in the Income Tax Act and the Regulations with the following format: “Note: Application provisions are not included in the consolidated text; see relevant amending regulations.”
Just one of these “notes” is followed by 29 references to other pieces of legislation. These references are such an example: SOR/78-2, s. 1; SOR/78-331, s. 1; SOR/80- 382, s. 1; SOR/80-502, s. 1; SOR/80-683, s. 1; SOR/80-901, s. 1; SOR/80-941, s. 1; SOR/81-471, s. 1; SOR/83-349, s. 1. And so on for 20 more references.
SOR stands for Statute of the Realm – the formal name of an Act of Parliament. The notes cited above, all refer to other acts that appear to modify the effects of the tax laws in some way. It seems that the contents of these three documents, as monstrous as they are, are not nearly sufficient to know what is intended by the Act. If the original intentions can ever be known any more.
“Notwithstanding” is a further problem with the Income Tax Act. In the text of the Act there are 95 instances of the expression, “N(n)otwithstanding any other provision of this Act.” That is, every other portion of the Act is nullified for this passage – including, presumably, the other general notwithstanding clauses. This alone implies that the Act is probably self-contradictory.
The statistics in this paper can be checked at any time at these links: https:// laws-lois.justice.gc.ca/eng/acts/I-3.3/index. html, https://laws-lois.justice.gc.ca/eng/ acts/I-3.31/index.html for the primary Acts, and https://laws-lois.justice.gc.ca/eng/ regulations/C.R.C.,_c._945/index.html for the regulations.
Though the afore mentioned documents will certainly have grown since 2012.
Such a law is expensive and cumbersome to enforce. As of 2011, the tax enforcement and collection arm of government (the Canadian Revenue Agency [CRA]) had 45,000 employees and consumed nearly 4.5 billion dollars per year.
Tax compliance has become one of the heaviest regulatory burdens on the Small Medium Enterprise (SME) sector. Only large corporations and the wealthiest of individuals can afford the legal representation to appeal rulings of the CRA on anything like equal terms. While the most dynamic part of our economy, the SME sector bears the heaviest compliance burden. Even wage earners now frequently have to get their income tax returns prepared by professionals at some cost to themselves. For those who carry the load in this economy, the costs of tax compliance are an ever-mounting burden.
Tax law must only serve to collect taxes. The core of the difficulties with the current system is the habit governments have of using the tax system to implement many kinds of social and economic incentives. This practice ensures that these laws will continue to grow with every change in policy and government. For instance, the consolidated Income Tax Act grew from 912,000 words in June 2009 when I first heard the “de-tax” talk to the current 980,000 words. The original Income Tax Act of 1948 was 88 pages and about 32,000 words. Under a system that combines tax collection with incentives policies, we can only expect ever increasing complexity and unfairness.
Economic and social incentives cannot be buried in the tax system in a fair tax and incentive system. Governments that want to provide economic and social incentives need to put the money on the table with purpose-specific legislation so that everyone can see what’s going on. Not bury them in the tax system.
Fully indexing rates to inflation to stop hidden tax increases is another important principle. (This is often known as “bracket creep.” The partial de-indexation of tax rates in 1985 effectively raised tax rates across the board to rates never before paid by ordinary people).
One consequence of not carrying out this basic reform is that, when Parliament and the provincial legislatures agree on changes to the tax system, they may have little idea of what we will get in practice. The changes will simply get buried by the civil service in the current legal jungle. These income tax laws make a mockery of the principle of the rule of law.
Many of these conditions were recognized and addressed by the Carter Royal Commission on Taxation Report, published in 1967. The problems addressed by that commission have only massively intensified since then. And they will continue to do so until the whole system is reformed and designed solely for the purpose of tax collection.
Our Comment
A lack of transparency? Or a deliberate obfuscation?
With the list of features that have created the monster and make it tick, Steward Sinclair has provided us a clear and insightful analysis of the travesty rendering our tax laws a “mockery of the principle of the rule of law.”
We may be forgiven an attack of cynicism – given especially the fate of the Carter Royal Commission on Taxation Report.
His solution, firmly validated as it is in the details he has provided, leaves us – remarkably – with hope that we can tackle and deal with the problem.
Élan
