How Trudeau's fairness agenda became an attack on doctors, farmers and entrepreneurs
Can the Liberals still find victory in the Great Incorporated Tax Kerfuffle of 2017?
Justin Trudeau embraced "fairness" as a guiding principle on the afternoon of Feb. 22, 2014.
"In 1968, when my father, Pierre Elliott Trudeau, said that Canada must be a just society," he told a Liberal Party convention in Montreal, "fairness was at the heart of that argument."
By that reading, one might trace a line connecting Pierre Trudeau's just society and his son's Great Incorporated Tax Kerfuffle of 2017.
One can at least trace a line from that afternoon in 2014 to the current trouble.
Trudeau invoked the f-word 14 times in that speech. Fourteen months later, #fairness was the official hashtag when Trudeau unveiled a set of policies as Liberal leader that would ask the richest to pay more, reduce the tax rate for the less rich and provide a substantial means-tested child benefit to families. A week after that, he used a speech in downtown Toronto to posit that fairness was the basis for Canada's success.
Since then, as prime minister, he's been fond of reminding his Conservative opponents that they didn't vote to raise taxes on the "wealthiest" and that Liberals have stopped sending benefit cheques to "millionaires."
- Trudeau says tax changes to ensure wealthy pay fair share
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Speaking to a bow-tied audience in Germany earlier this year, Trudeau put his move to tax the richest and help the rest within a larger story about shared prosperity and the populist backlashes that have roiled global politics over the past two years.
But then, in July, Finance Minister Bill Morneau released a series of proposals "to improve the fairness of Canada's tax system by closing tax loopholes and amending existing rules to ensure that the richest Canadians pay their fair share of taxes and that people in similar circumstances pay similar amounts of tax."
What's followed is seven weeks of hue and cry from a conglomeration of doctors, small-business owners, farmers, industry associations and accountants. The cacophony of op-eds, open letters and hashtags has included meditations on the nature of entrepreneurship, warnings that doctors will flee the country, complaints the consultation period is not long enough and laments for the government's tone.
Liberals change who gets what
Up till now, the Liberals have been able to act with near impunity, at least as far as fairness applies to taxes and benefits.
Conservative plans to introduce income-splitting for married couples and raise the limit on tax-free savings accounts were rescinded. The children's fitness and arts tax credits — which disproportionately benefited wealthier families — were cancelled with only mild complaint.
But there was some fussing on Bay Street this year when it was rumoured that the federal budget might include a new tax on capital gains. And the Liberals have seemingly abandoned a campaign promise to eliminate the stock option deduction amid warnings from the tech sector.
On those two counts, the Liberals could be accused of not going far enough. But now — in attempting to limit the ways incorporation can be used by individuals to reduce their tax rate — they are accused of doing too much.
Selling tax reform
Their failure might be one of basic politics.
"It's simple: never do tax reform one reform at a time," says Scott Clark, a former deputy minister in the Finance Department. "If you do that then all the political focus will be on that reform. You will lose the communication battle."
There have to be winners from tax reform and Morneau has failed to show who benefits from tax reform.- Scott Clark, former deputy minister in the Finance Department
He says a successful tax reform strategy would introduce all the reforms at once.
"No one group can then claim they are being singled out," he says. "Second, there have to be winners from tax reform and Morneau has failed to show who benefits from tax reform. In my mind, a successful closing of unfair and inefficient tax advantages should be part of a commitment to lower income taxes for all middle income Canadians."
When the Conservatives decided to tax income trusts in 2006, the move was presented alongside three tax cuts. (Coincidentally, the Conservatives dubbed that package the "tax fairness plan.")
For that matter, the Liberals could look to their own platform, which presented their intention to deal with personal incorporation alongside a promise to reduce the general tax rate on small business (the Liberals have deferred that cut).
Perhaps a sweetener could help this dose of medicine go down.
Distilling the debate to a pithy principle
The Liberals could also try winning the argument — something they didn't put much effort into before this week.
When Trudeau stood before his skittish caucus on Wednesday, he tried to offer something like open-minded determination. And he had distilled the debate down to a pithy principle.
"People who make $50,000 a year should not pay higher taxes than people who make $250,000 a year," he said. "We are always open to better ways to fix that problem but we are going to fix that problem."
(Like all the numbers flying around this debate, Trudeau's deserve to be frisked.)
The notion of "tax fairness" is politically potent. The Liberals have the support of economists like Michael Wolfson, Kevin Milligan and Stephen Gordon. And underneath the sound and fury, there are glimmers of agreement.
Pressed by reporters on Tuesday, Conservative MP Pierre Poilievre didn't dispute that family members shouldn't be receiving business profits without doing work. He just feels the proposed solution will require too much paperwork.
The Canadian Federation of Independent Business does not dispute that some abuse is happening. It just wants Morneau to junk his proposals and work with them to come up with something else.
The subjective power of fairness
However often we tell our children that life ain't fair, fairness is a powerful idea — Robert Fulford recently wrote that it is something like Canada's national religion.
It is part of what got Trudeau this far. And, in Trudeau's own telling, the fate of liberal democracy depends on preserving a sense of it.
Ironically, it is Trudeau who is now accused of stoking class warfare and demonizing certain groups.
In part, that is a reminder that what's fair is still often subjective.
If the Liberals can pull out a victory on this fight, they might be emboldened to pursue other measures of fairness. Or they might regret that they expended so much capital on this one attempt.
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