Is it too much to expect people to talk calmly and reasonably about tax changes? Yes. Yes, it is too much.
As a historian of tax in 20th century Canada, I have read thousands of letters to ministers of finance, and they are often ferociously angry – similar to some of the outrage being expressed now by opponents of the Liberal government’s tax reform proposals.
It’s hard not to dismiss them as hysterical.
But we shouldn’t. The rocket-fuelled fury of the worried taxpayer is a constant feature of tax culture for good reasons.
In the archives of finance ministers since 1942 (when Canada got its mass income tax), I’ve seen how tax debate draws in free-floating anger and focuses it. On the surface, tax rage is about money. But it’s also about deeply held personal identities and hard-to-reconcile views on government. Angry tax talk tells us about more than just tax policy.
In observing our current debate, I’ve been especially reminded of the furore over the Benson White Paper. Launched in November 1969, the Benson tax proposals formed the basis of the modern federal income tax act of 1971.
What the government put on the table included full taxation of capital gains — a real challenge for high net worth Canadians, investment firms and pensioners. Another flashpoint was a proposal to eliminate the small business tax rate on annual business profits under $30,000 ($196,733 in 2017 dollars). Consultation took the small business rate off the table and modified the capital gains proposal.
The Benson changes also included tax relief for millions of very low income earners whose income tax payments truly cut into subsistence spending. In the end, abut 60 per cent of Canadians, many of them poor, saw their federal tax bill lowered, though less than originally proposed.
Vows to move to Mexico
In some quarters, this proposal inspired a furious response. Small business wanted to keep its lower tax rate (a sacred tradition since 1949). Middle-of-the-road Liberal Edgar Benson was called a radical and a socialist. Doomsayers predicted that the tax changes would kill the Canadian economy. Threats to move to Mexico were heard throughout the land.
Benson, who had been national revenue minister earlier in the 1960s, was accustomed to abuse, though it was usually pitched at a lower volume. Revenue ministers had been hearing since 1917 that income taxes were too high, tax compliance too complex, tax administration too inflexible.
Mitchell Sharp, Benson’s predecessor in Finance, called the annual review of letters from the public during the budget process a mixture of “interest, amusement, and boredom.” I’ve read the same letters, and wrote about them in my book Give and Take: The Citizen-Taxpayer and the Rise of Canadian Democracy, and I know what Sharp meant.
The special pleading is snooze-makingly predictable. Colourful invective and crackpot remedies provide some comic relief.
But sometimes the letter writers went beyond the usual grinding of axes. Sometimes, and especially during the White Paper debate, they took a personal risk, and told the politicians something real about their lives and their communities.
‘Lack of respect’
One woman saw the big chain stores coming, and spoke for the local dress shops, independent gas stations and corner drug stores that added creativity and care, not just jobs, to their communities. Facing these threats in her business environment, she found the thought of an additional tax burden intolerable.
Others described how their business success was about more than money. A widow supporting her six children with modest investments in real estate was proud of how she had achieved independence through the exercise of her brains and energy. She saw in the tax changes a lack of respect for the effort that she had made.
And a father, stressed by having had to spend much of his disposable income on insurance premiums to protect his seven children and wife, worried that his father’s legacy to him, a trucking business, would not be passed on to his sons.
His concern about taxes cutting into his business’s income was about money, of course, but he and others who wrote that they were “frightened, angry, and frustrated” were also expressing their feelings as parents.
These types of letters made it clear that small business ownership was not just an economic interest but also an honourable personal identity, something that one tax reformer belatedly recognized was “as sacrosanct as motherhood.”
Pensioners also brought something bigger than money into the conversation. Many of them, born within a few years of 1900, shared a strong generational identity. In letters to Benson, they wrote something like: “We lived through two World Wars, the Great Depression, and now … galloping inflation.”
Some of them were proud of having saved in spite of these obstacles. But in the 1960s, even the thrifty savers saw inflation turning their comfortable living into mere subsistence. People who hadn’t been able to save depended on the Old Age Security pension. Its value had been steadily shrinking in relation to prices.
Tax anger linked to personal identity
Most weren’t wealthy, but they lived on the income from small savings. Some lived close to the bone and were easily alarmed. The 20th-century generation had endured so much. They really did need to catch a break.
Small business people and pensioners were not the only Canadians who brought to tax reform a point of view that went beyond economic interest into the realm of personal identity.
Letters to Finance, both for and against the reforms, came from artists, amputees, the mentally ill and their families, students, people living in the North, foster parents, First Nations, female professionals, firefighters, ultra-Protestants, parents of young children and more.
They saw in the federal income tax a tool that could help them or hurt them in any number of ways. They called for fair tax treatment, and they meant not just a financial break, but recognition and respect for their struggles.
Many fears find a focus in blistering tax talk. When that anger takes the form of mud-slinging and misrepresention, it’s unfortunate.
But if we look for the honourable sentiments in tax outrage, we can see where impersonal forces of change are making for personal stresses.
In 1969, a lot had changed since the introduction of the mass income tax in 1942. The age of easy money was ending, and it was time for Canadians to talk seriously about what the state should and could do and how it should be financed.
Today we should ponder the same questions.
Small businesses have suffered
The battering of credit markets in 2008 and the bumpy economic ride since then, including austerity programs and their failures, have landed hard on small business and savers.
It’s a good time to ask whether we can do better, as a community and through government, to collect revenue fairly and to spend it in ways that support security for all Canadians, including small business.
Tax reform, then and now, brings out deeply felt competing positions on these questions, and helpfully so. Rage at taxes can get in the way of good answers by making our objective too simple — lower taxes.
But if we listen to the stories that people tell when they’re angry about high taxes, we can learn about more than merely taxes. What we learn might lead to meaningful changes both inside and outside the tax system.