Tax Expert Advocates for Major Canadian Tax System Overhaul
In a compelling critique of current Canadian tax policy, tax expert Kim Moody argues that Canada should implement significant tax rate reductions while replacing the existing complex web of credits with a single, generous credit. Moody emphasizes that true tax reform requires thoughtful planning rather than political gimmicks that offer temporary relief without addressing systemic issues.
The Problem with Quick-Fix Tax Policies
Moody draws a parallel between maintaining good health through consistent habits and creating sustainable tax policy, noting that just as there's no magic pill for wellness, there are no shortcuts to effective taxation. He points to recent policy examples that demonstrate what he calls "quick-fix approaches" to taxation, including the 2016 increase in personal tax rates for high-income earners, the 2018 tax on split-income rules for private corporations, the 2023 prohibition of deductions for certain short-term rental owners, and the recent rebranding of the GST credit as the Groceries and Essentials benefit.
"The latest tax gimmick," Moody writes, "comes with a $12.4-billion unfunded cost that will supposedly help with affordability matters." He questions whether such approaches genuinely address Canada's longstanding affordability and productivity challenges or merely serve as disguised vote-buying schemes.
A Better Path Forward: The Big Bang Proposal
Moody endorses economist Jack Mintz's "Big Bang" tax reform proposals as superior alternatives to current approaches. He outlines what meaningful personal tax reform should encompass, focusing on two primary objectives: simplification of the system and reduction and flattening of tax rates.
Regarding simplification, Moody suggests Canada could learn from the United States system, which offers taxpayers a choice between a generous standard deduction and itemized deductions. Most Americans opt for the standard deduction due to its generosity, creating a simpler tax filing process for millions of citizens.
Implementing a Single Generous Credit System
Moody proposes that Canada should adopt a similar but enhanced approach by introducing one comprehensive, generous overall credit while eliminating numerous existing personal tax credits and deductions. This would include removing the current personal credit, spousal credit, medical expense credits, and various other specific deductions that currently complicate the tax system.
"Eliminating a bunch of personal tax credits and deductions in favour of a large deduction would improve simplicity," Moody argues. He acknowledges that additional measures would be necessary, such as consolidating income-tested benefits to reduce punishing tax-back rates, but considers this simplified credit approach an essential starting point for meaningful reform.
Addressing Tax Rates and Productivity
The tax expert highlights that the bottom 50 percent of income earners in Canada currently contribute only about five percent of overall federal and provincial income tax collections. By establishing a standard credit at a generous level, this percentage could be reduced even further, potentially removing more low-income individuals from the tax rolls entirely.
Moody also addresses the crucial question of maximum personal tax rates, noting that while this debate could be extensive, it's essential to reduce maximum combined personal tax rates below 50 percent. "This would encourage Canadians to work hard, keep more than 50 percent of what they earn, and improve productivity," he asserts, connecting tax policy directly to economic performance and individual motivation.
The article concludes by emphasizing that genuine affordability solutions require moving beyond temporary political measures to implement a tax system that rewards effort, simplifies compliance, and fosters sustainable economic growth. Moody's analysis suggests that Canada's tax system needs fundamental restructuring rather than incremental adjustments to address the country's economic challenges effectively.
