Simply Taxing

The Bahamian government is financed almost entirely by formidable import duties, in the range of 35% to 50%. Added to heavy shipping costs, these duties result in a price of US$9 for an eight-foot two-by-four, at least four times what that same piece of wood costs in Arichat. But Bahamians pay no other taxes — no income tax, no property tax, no sales tax. When you buy a $5 item in the Bahamas, you just hand the clerk a $5 bill. No calculations, nothing extra, no groping for change. It makes a person think. Taxes are the price of public services. They enable citizens to do useful things collectively — like providing schools, hospitals, roads, policing and defense. A civilized society also makes systematic provisions for the basic well-being of its members. It supplies them with health care and education, and if necessary, food and shelter. It doesn’t leave basic needs to chance or charity. It all takes money. But the necessity of taxes doesn’t justify the appalling complexity and incoherence of the Canadian tax system. We have a thousand taxes, federal and provincial and municipal, each with inclusions, exemptions, credits, penalties and loopholes. We pay sales tax on hamburgers, but not on hamburger meat. In some places, seniors get rebates on their property taxes. Sometimes income is income; other times it’s dividends or capital gains. And all these taxes interact with one another in unexpected ways. The result is a dense cobweb of complexity, full of unintended consequences. Battalions of civil servants administer this Red Green apparatus, and phalanxes of lawyers and accountants try to outwit them. The immense creative effort of all of these bright people adds up to sheer waste. It produces nothing valuable and solves no human problems. It simply siphons value out of the economy. The world would be better off — and we would be wealthier — if we paid all those people to plant trees. What’s the fairest, most efficient, and least expensive way to raise money through taxes? Canada relies heavily on the income tax — but income taxes tend to penalize initiative, discourage savings and investment, and drive wealth out of the country. The obvious alternative is consumption taxes — taxes on spending, like sales taxes and import duties. The Bahamian system essentially taxes consumption. Consumption taxes are relatively cheap and simple to administer, and difficult to evade. They favour thrift over waste. They discourage you from spending, and reward you for saving and investing. But eventually you’re going to spend what you’ve earned — and that’s when the government takes its cut. Canada has both types of taxation — and others, too. Property tax, for instance, is really a tax on wealth. You pay the tax even when there’s no transaction, simply because you own your house. Imagine being rid of all this clutter. “In the Bahamas,” says a transplanted Canadian businessman, “your monthly bank statement is your accounting system. Money in the bank at the end of the month? Good. No money? Better get cracking. You really don’t need an accountant. Just look at the bank statement.” The Commonwealth of the Bahamas is a small island nation, and its policies can’t easily be transplanted to the frozen industrial north. It doesn’t provide a Canadian level of services to its people — it doesn’t have medicare, for example — and it doesn’t regulate some things which really should be regulated, like the discharge of raw sewage into its harbours. On the other hand, the Bahamas doesn’t have a huge bureaucracy, and the government presence in a Bahamian community is minimal. Canada, by contrast, creates weighty bureaucracies with tentacles reaching deep into our lives, even though their activities are often counter-productive. Case in point: the Bahamas has a small fisheries department, and plenty of fish. We have plenty of fisheries bureaucrats, in every corner of the nation — and no fish. As the elephantine Canadian tax system ramps up into feeding mode this month, I find myself wishing we could demolish the whole creaking apparatus and start afresh. We probably can’t achieve a tax regime of Bahamian simplicity, but surely we can devise a tax system that will generate the same amount of money fairly and efficiently — and a lot more simply.