Taxing the rich is a solution, but is it the best one?

The majority of Knowledge Bureau Report readers think the rich and corporations should pay more taxes, judging by the responses to Knowledge Bureau's June poll. When asked "Should high-income earners and corporations pay higher marginal tax rates?î 101 readers responded; 61% said "Yesî and 39% said "No.î

But the "Nosî were more voluble when it came to explaining their positions. Of the 38 readers who left comments on Knowledge Bureau's website, there were 22 in the "Noî camp and 16 in the "Yes.î And from both camps, slightly less than a quarter raised the idea of a "flat taxî in which everyone is taxed the same percentage, such as Alberta uses.

Those who believe high-income earners and corporations should pay higher income taxes often cited the dreadful state of government finances. Governments at both the federal and provincial levels are struggling with deficits, they said, and could use the additional revenue.

"With Canadians demanding the Cadillac of services,î wrote Walburga Pagniello, "how do we think our governments can provide it? We must strive for balanced budgets at all levels and pay down our national debt ó or we are heading for disaster, like other countries globally!î

Added Patricia: "It may be an unpopular idea and many may argue that these people employ other people etc., but the country needs more tax revenue. The provinces are broke. Everyone argues that what people pay in taxes should be commensurate with their ability to pay. Well, this is a step in the right direction.î

But many on the other side of the argument feel the government doesn't deserve any additional tax revenue. Governments' inefficiency and spendthrift ways have gotten them to where they are today.

"Our governments take almost six months of our income through the current tax system,î wrote a former civil servant, "and they still cannot make it work. Giving them more tax monies will not work. The annual findings of the federal and provincial auditors general on governments' wasteful spending are only the tip of the iceberg.î

Added another reader: "We really need to find out where the powers-that-be are spending the money first. I'm not against paying my fair share, but I would like to see an accountable system, instead of throwing more money at the problem.î

Or, as another reader succinctly put it: "It's time the government became responsible for handling our money!

Many in the "Noî camp, however, labour under the misconception that high-income earners do not pay their fair share of taxes. A recent C.D. Howe Institute report entitled Ontario's Tax on the Rich: Grasping at Straw Men maintains that is not the case. For example, the top 1% of Ontario earners account for 12% of the province's income from taxable sources yet provides 27% of its income tax revenues. The top 10% provide 66% of all net income taxes, says the report's author Alexandre Laurin, while the bottom 75% of tax filers deliver only 12% of the province's income taxes.

Although Ontarians may have a heavier tax load than the rest of Canada, the numbers are not so different across the country. For the rest of Canada, the top 1% has a 10.9% share of taxable personal income yet shoulders 18.7% provincial income tax burden.

"These groups already pay a highly disproportional share of the total tax burden,î commented Carl Davidson, "whereas low-income individuals often pay no income taxes at all.î

Those who are against raising the taxes of high-income earners also fear that those individuals will move or, through tax planning, rearrange their incomes so they pay less taxes ó a fear shared by Evelyn Jacks, president of Knowledge Bureau (see Knowledge Bureau Report, June 27). Overtaxing of corporations could likewise have unintended consequences, they have pointed out.

"Raising the corporate tax rate will have a negative effect on job creation and production,î wrote a reader. "Corporate tax rates were extremely high in the past and we are now seeing the benefit of having reduced the corporate tax rate.î

Bill Kelsall had a suggestion: "Perhaps corporations should have a sliding scale similar to personal taxpayers, instead of the all-or-nothing $500,000 small business limit. I also believe that lower tax rates for corporations should be tied to the amount of investment in capital and employees in Canada."

Nine of the 38 who left comments suggested a flat tax would be a good idea. Alan's comment was typical: "I am a proponent of a simplified, flat tax system with a high basic exemption.î That would even the playing field.

Knowledge Bureau Report would like to thank readers for participating in June's poll. July's questions is "Should governments have regulated exorbitant credit card rates instead of mortgage amortization periods?î We look forward to hearing from you.