It’s not just about the money.
If, as the government says, an overhaul of Canada’s tax code to make it simpler is truly in the air, the country will be in trouble if we only look at taxation as a burden that needs to be lessened.
MP Wayne Long, the politician in charge of the Canada Revenue Agency, told The Canadian Press last week that taxation in Canada is too complicated and is in need of a shakeup, albeit a gradual one.
“When you say the word tax code to people, everybody rolls their eyes. Everybody’s like, ‘Oh, the tax code used to be one book thick, now it’s two books thick. We just keep piling on,’” Long said.
“Is a total review of the tax code needed? Absolutely.”
Why simpler doesn’t mean smaller
But let’s not rush to assume this simplification exercise means taxes need to be cut or eliminated.
Our taxes are complicated for a reason. Nuance is added to prevent fraud. Measures are often qualified or tweaked to enhance fairness. Scandals of the past live on into the future through rules and regulations meant to ensure they never happen again. And politicians make many, many promises along the way, all of which add another layer.
Some of those reasons are perfectly legitimate policy aims that are worth evaluating. Others have unintended consequences that hurt more than they help.
Simplifying the tax system shouldn’t mean stripping away fairness or letting up on integrity. Since tax policy is as much about how our society functions as it is about financing the deficit, a simplification exercise can only be effective if it takes all parts of the equation into account.
But in practical terms, how?
Measuring what taxes really deliver
Economic researchers at the University of Calgary have developed a framework to evaluate what happens when a government undertakes a tax reform, and they are taking a broad view of the social returns of tax.
Their framework includes the traditional dollar-and-cents ways of sizing up a tax measure — cost to the taxpayer, cost and revenues on the government side of things, processing times, administrative costs.
But they also look at outcomes to the fabric of society itself: what happens to social welfare and to the way we live as a result of the tax? How much do we trust government as a result? Who pays more, who benefits most, in what way? And is that kind of distribution something we would consider fair and aligned with the government’s initial policy objective?
“Administrative reform can enhance fairness and trust, but if designed or evaluated narrowly through cost and yield metrics, it can deepen distributional inequities and erode public confidence,” write the authors Selvia Arshad, Gillian Petit and Lindsay Tedds.
The University of Calgary academics are collaborating with others from Carleton and Sherbrooke, as well as the Canadian Tax Observatory and Social Capital Partners, to better understand how tax policy interacts with the Canadian economy, its people and the state of its democracy.
The first plank is measuring the social return per administrative dollar spent — the marginal value of public funds used in tax administration.
That’s a mouthful so here’s an example. When the analysts look at the federal initiative to automate tax filing for low-income Canadians, they’ll not just look at the administrative costs. They also ask who the automation actually reaches and put a value on that.
Between 10 and 12 per cent of Canadians don’t file a return at all, meaning they don’t receive the benefits they qualify for. Automatic tax filing is meant to correct this. But whether it reaches these Canadians turns on things that never appear on a cost sheet: a reliable internet connection, a form written in a language they understand, an office they can get to, an hour they can spare.
Get that right and the reform returns more social value — reducing poverty and improving trust in government — than it costs. Get it wrong and some people end up worse off than before.
“The idea is to bring in these public value channels,” Arshad explains. “It forces the government to be very transparent about the choices they are making and who they are targeted at.”
They’re now applying the same lens to child and family benefits, including the Canada child benefit and the federal child care expansion. The team will put numbers on the value of mothers moving into the workforce and on long-run health and development gains for children, and fold them into the evaluation.
Including the social value of tax may seem intuitive. But as soon as Long or anyone with authority starts talking about tax reform, the public conversation is far too often framed very narrowly around how large the tax “burden” is and how it should be lessened.
Instead, we need to ask ourselves what value we get from our taxes, figure out whether they’re worth it, and try to improve the social returns.
That’s how we finance a sturdy society.
