Tax reform needed to restore fairness, group says

Canada's tax system needs substantial reform to restore fairness andreduce the growing gap between rich and poor, says a study by the Canadian Centre for Policy Alternatives, an Ottawa-based social policy research institute.

Key to the authors'findingsis a call forricher Canadians to pay more tax andto eliminate the preferential tax treatment given to many forms of income like capital gains, dividends,and stock optionsincome that tends to beearned by those in the upper income brackets.

"At a time of rising income inequality and unprecedented concentration of wealth in the hands of a few, restoring fairness should be the primary objective of the Canadian tax system," says study co-authorIglika Ivanova, a CCPA economist.

"Instead, the past 20 years of tax cuts have disproportionately lined the pockets of Canadas wealthy," she says.

On the tax front, the study's authors suggest that Canada bring in additional, higher tax brackets. It givesthe top one per cent and top 0.1 per cent of income earners as examples of which groups could be targeted by these new tax rates.

The authors cite one recent U.S. study thatestimated that the optimal top marginal tax rate for the top one per centof earners was 73 per cent.Currently, the top marginal tax rate in Canada is about 50 per cent, depending on the province.

All incometaxed

The studysuggests that the tax base be broadened to tax income from all sources on the same progressive basis. This would see income that is now exempt from taxsuch as lottery winnings and gains from the sale of a principal residencebecome taxable.In some cases, the study's authors recommend that such income be averaged over several years to reduce the tax hit.

'Canada is currently one of the few developed countries that does not tax bequests and inheritances.' CCPA study

The authors also want to limit the ability of Canadians to transfer wealth from one generation to another.

"Canada is currently one of the few developed countries that does not tax bequests and inheritances," the authors write. "We recommend that large inheritances and gifts be included in the recipients taxable income."

The study also says a number of tax deductions and credits may need to bescaled down or eliminated. It spells outthe RRSP and registered pension plan deductions, the basic personal amount, spouse or common-law partner amount and the amounts for eligible dependents and children, the employee stock options deduction, and the charitable donations tax credit as items that deserve to be evaluated.

The authors also call for:

• Increasing corporate income tax rates, which they say arethe lowest in the G8.
• Bringing in a basic or guaranteed income by amalgamating the various income-tested tax credits and benefits into a single income transfer that would phase out gradually.
• The establishment of a fair tax commissionto carry out a comprehensive review of the tax system.

The Canadian Centre for Policy Alternatives is well known for its social justice agenda, whichis frequently at odds with government policy. It brings out its own alternative federal budget each year.