Tax preparation season is upon us again. Most of us do our best to perform our fiscal duty every April and pay our taxes on time. Typically we employ one of three methods to complete the task. We pay a professional tax preparer to do the chore for us. We enter the relevant data at a computer terminal, press a button, then file a tax return electron- ically. Or we do it the hard way and work out our tax situation late in April, in the wee hours, using paper, pencil and a pocket calculator.
Whichever way we do it, the calcu- lations we go through are overly com- plicated and that is inconsistent with the very nature of a democratic, egali- tarian society. If filing a personal tax return is so complicated that we have to resort to a professional tax filer or a machine to do it, then we have improp- erly distanced ourselves from the most basic of governmental processes””the political power to tax citizens. We lose part of the basis of our civic society if we, as citizens, don’t understand our government’s methods for relieving us of our hard-earned money.
I pity the Canadian who tries to do his or her own tax return. There are four basic pages of additions, carry- overs, multiplications of the first $200 by one percentage, then another calcu- lation with a different percentage, sur- charge tax computations, references to supplementary sheets for all sorts of things, different rates of capital gains taxation along with new provincial level re-calculations of federal tax computations. The tax form, however it may originally have been intended, has degenerated into a sorry mess of ad hoc supplements that is an affront to the citizenry of this country.
Is there any way out of the tangled webs of the current tax form system? I think there is and I want to advocate an alternative way of performing this annual civic duty. I call it the ”œA minus B” method of tax calculation and it works this way.
On page A the taxpayer lists all income earned in the fiscal year and enters the total at the bottom. On page B all deductions are listed and added for a total at the bottom of the second page. Then the total on B is subtracted from A to give the taxable income. Reference is then made to a tax table to find the amount of both federal and provincial tax owed or rebate due. The result is simplicity itself. There is no need for multiplication or division or computer programs. ”œA minus B” requires no superfluous carry-overs and gives a clear picture of the indi- vidual’s tax situation.
How can we arrive at such a state of improved tax filing? Here are some basic principles and ground rules:
A citizen with basic literacy and numeracy skills should be able to do his own personal tax return easily and within, say, two hours maximum.
All employers, banks, finan- cial institutions and other organiza- tions that are obliged to provide tax receipts to individual citizens shall be required to state on the receipt the exact line on the tax form where this amount is to be entered.
The tax form for private indi- viduals shall be self-contained, with no need for supplementary forms for income calculation.
No calculations other than addition and subtraction will be required on the tax form. That means all the various multiplications, percentages, surtax calculations and so on must go.
The whole reformed ”œA minus B” system shall be revenue-neutral and any government that wants to raise revenue further will be allowed to do so only by changing the final tax table.
Provincial personal income tax should be a set proportion of the federal income tax payable and that amount should be arrived at by a sin- gle reference to a tax table.
What would such a simpler tax filing process look like in more precise terms? In the first place, all income would be simply listed on page A with as few distinctions as possible as to the different types of income. If it is absolutely necessary to have one type, say capital gains, taxed at a spe- cial rate, then the required computa- tion should not be done on the tax form. Say a person had a capital gain of $100 to be taxed at 75 per cent of the usual rate. The way to handle this is to have a receipt issued for the $100 for a specific line on page A and $25 targeted to a specific line on page B.
The current tax form requires tax- payers who donated more than $200 to charity to do three (in New Brunswick, five) percentage calcula- tions. The result of this two-tiered imposition is that Revenue Canada collects an extra $8.16 extra from some taxpayers by crediting the first $200 at a lower rate. Is that really worth the effort? Why not simply add the total donations, forget the percentages and enter the whole amount as a deduc- tion on page B? If the taxman worries that this is too generous, then let him adjust the tax table to compensate and produce revenue neutrality.
Likewise if a government wants a surtax on high-income earners, then let that be accomplished by an alter- ation of the tax table, not by an on- form calculation. The same applies to tax relief for lower-income earners.
Under my ”œA minus B” system the government will collect the same taxes, we’ll each pay roughly the same tax as before and with the sim- pler process we’ll all be much more satisfied citizens. Well, perhaps not all. My system would deal a heavy blow to the entire tax preparation industry, the many manufacturers of tax-filing software and a good propor- tion of Revenue Canada employees at various taxation centres across the country.
The practical benefit of my system is twofold. First, the huge amount of time wasted every year in this country doing complicated little tax computa- tions could be applied to some more socially constructive purpose. Second, we citizens would have a hands-on, clear grasp of the method our govern- ment employs to raise revenues from us. Without that we drift, like juve- niles, toward a state of civic dependen- cy that is inconsistent with a free and democratic society. It is my hope to see a tax collection system in Canada that is understood and operated by individ- ual citizens.