Backlash against tax changes shows how hard it is to promote equality: Don Pittis

If you can believe Finance Minister BillMorneau, his latest proposedchanges to the tax system are intended to fulfil an election promise to make sure poorer Canadians share in the wealth.

"Our overall goal is to make sure that our system is working, that it's fair, that we don't have tax advantages that are going to the wealthy," Morneautold Anna Maria Tremonti on The Current.

In the segment,which also included opposition critics, Morneauinsisted it was not an attack on small businesses.

The backlash, however, has been intense.

'Class War'

People like doctors andfarmers, whom we don't typically think of as the super-rich, are fearful of losing various tax breaks. They're angry.

TheCanadian Federation of Independent Businesshas weighed in against the changes saying they directly target small businessin three costlyways.

Critics, including a well-known national columnist,have described the move as "class war."

New income data from Statistics Canada out Wednesday indicatethe split between rich and poor in Canada has not been fixed.

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It is a quite valid political position to criticizeMorneau'splan. Some of those who accuse the government of "class war" may believe inequality motivates the poor to try harder and justly rewards the rich for their hard work.

But the proposed changes showthe government is worriedabout a sharp rise in the number of better-off Canadians using income sprinkling, passive investments and business capital gains breaks to reduce the taxes they pay.

More than anything, the reaction is reminiscent of the outrage that faced the late Conservative finance minister Jim Flahertywhen, as a trick or treat onHalloween2006, he eliminated the tax break on income trusts.

For those who don't remember, back thena relatively innocent tax break for certain kinds of investment income grew to becomea monster threatening toswallow the entire financial system. Even large corporations such asBCE and Telushad announced they were converting to income trusts, forcing Flaherty's handto protect future tax revenue.

Flaherty and the Conservatives faced howls of indignation from those who had been benefiting from the tax breaks. And as usual those howls were not from the poor.

In the dying days of the Harper government there seemed to be a groundswell in favour of greater equality and the Liberals won the nextelection witheconomic equality as one of the pillars of their campaign.

'Detrimental to growth'

People like French economist Thomas Piketty, with his 2013 bestsellerCapital in the Twenty-First Century,advanced the view thatmodern capitalism could not survive endless polarization between rich and poor.

"The trouble is, when inequality gets too extreme, it can actually be detrimental to growth," said Piketty."It can reduce mobility, makes it more difficult for new groups to make the right investment to enter the economic game."

You would think thepolitical chaos in the U.S.would be enough of a warning about the dangers of growing inequality. Statistics show poor people, especially uneducated white men of the type who support Donald Trump in large numbers, are falling into despair.

But changing the rules in favour of equality is a difficult political task.

Swiss cheese

Our tax system, superficially intended to make sure the rich pay a greater share of the bill, is actually a Swiss cheese of exceptions.

Turning yourself into a company is nothing new. I have journalist friends who have done it, insisting that they be paid as freelancers and thereby able to claim everything from computers to cars to babysitting as before-taxbusiness expenses. The difference, according to Morneau,is that to take advantage of the additional tax provisions he is trying to eliminate,incomes must be more than three times the national average.

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A goodaccountant is clearly an advantage for those who can afford one.

Even if you are not incorporated, well-managed tax planning offers large advantages to people with money.

The wealthy and theaccountantswho represent them point out that complex tax avoidance schemes are completely legal, but even garden-variety tax breaks favour the rich.

Dividend tax credits are unknown to the majority who don't own shares.People who can't afford to save don't get the advantages of tax-free savings accounts and RRSPs.

Giving a tax breakis easy

One of the most glaring tax breaks for the rich is the one that allows you to escape capital gains taxes on your principal residence. For those with multimillion-dollar homes, the recent rise in asset prices has been an enormous tax windfall that renters will never see.

Just imagine the backlash if the government tried to change those rules.

It is a well-known principle of policy economics that giving out tax breaks is easybut asFlahertyfound, and now Morneautaking them away is hard.

It is not strange thatCanadians are anxious to protect theirwealth and try to preserve the perks that keep themcomfortable. Trying to get richer and trying to stay that way are two of the driving forces of human survival.

If, as Morneau says,the government wants to cut tax loopholes for the wealthy, it will repeatedly finditself battling those vested interests.

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