Fair share taxes: only in the eye of the beholder

Posted on January 18, 2011 12:07:00am by Okanagan Business Examiner

What to make of the report last month that stolen Switzerland banking records, now in the hands of French investigators, show 1,800 Canadians as having Swiss bank accounts worth a minimum of $500,000? Switzerland’s secretive banking officials are predictably miffed and Canadians seem split on whether it is justice that some of the rich avoided the taxes or justice that they have been ratted out.

What to make of the report last month that stolen Switzerland banking records, now in the hands of French investigators, show 1,800 Canadians as having Swiss bank accounts worth a minimum of $500,000? Switzerland’s secretive banking officials are predictably miffed and Canadians seem split on whether it is justice that some of the rich avoided the taxes or justice that they have been ratted out.

The French were the first to receive the list to track down tax evaders, but noted that 1,800 Canadians is a conspicuously large number for our population. Americans deposit holders on the list were said to number only 1,600. Consider that in 2006/2007 there were only 751 official offences prosecuted under Canada’s Income Tax Act, 80% of which, by the way, ended with a guilty verdict.

Having a Swiss bank account is not a crime in Canada, but not reporting the income from such accounts or how it was earned, is.

Just as predictable as Swiss ire are the calls about what this means. Canadian taxes are too high, highlighted by the fact that fewer Americans are on the list, but that’s a red herring. Throw out the American comparison because these records are from one bank only, which might mean nothing more than a better job by HSBC to recruit Canadians than it has done in the United States. It was only last year that the U.S. forced Swiss bank UBS to give over records of 4,450 American clients who had accounts with that company to avoid taxes.

It is also likely that the record thief, Hervé Falciani, was not able to gather all the records of account holders on his way out of the country so he might have taken the Canadian section and not the American ones. We don’t know.

Then there are those clamoring that these people are tax evaders who should be paying their fair share. Fair share is like beauty; pretty much it’s in the eye of the beholder. 

Aside from the fact that none of us really want to pay any taxes it is really tough to compare tax rates. Canadian taxes, especially B.C. taxes have come down substantially in the past 10 years, but yesterday’s tax cuts quickly become old news.

One measure of taxes are total tax receipts as a percentage of GDP. The United States comes out way ahead on that measure: 25.5% versus Canada’s 33.5%, but that was using 2004 figures. Since then many tax reductions have come into play in Canada with more scheduled into the future. Even in 2004 though critics said the U.S. number was artificially low by about 6% because the United States didn’t include health care costs, a huge factor in our country’s tax burden. 

Similarly there are other fees and government costs that don’t show up as taxes per se and these could skew the government’s economic drag, likely not to our advantage in a U.S. - Canada comparison. 

All that aside a 2010 OECD study shows, that by corporate tax measurements the U.S. is the second worst in the world at 39.21%, only slightly behind Japan’s 39.54%. In that measurement Canada was way ahead at 29.52%, but it is expected to get a bigger jump on the U.S. as corporate tax rates here are scheduled to decline another 4% by 2012 while America is staying the course. In June this year the online publication The Daily Caller reported Japan would lower corporate rates putting the U.S. into the corporate tax lead.

On personal tax rates we don’t fare as well; although our personal income tax rates have come down, we are still approximately 7 or 8% higher than the U.S. average. 

What’s fair and what’s competitive depends on whether you’re rich or poor, educated or not, running a company or employed on the government payroll, but mostly it will depend on who you compare yourself to. I’ll wager the Canadian holders of those Swiss bank account holders aren’t interested in the average person’s tax experiences – instead they will compare themselves with their wealthy peers. Similarly most Canadians don’t care whether the elite in the U.S. or Switzerland or Singapore can get away with paying little or no taxes, they know the tax bite in their pockets and are bitter when they feel Canada’s extreme wealthy get away with less. 

Fair income taxes have little to do with facts, it’s about how you feel.

Devon Brooks is the managing editor of the Okanagan Business Examiner. Any comments or ideas you wish to share on this, or any other content in the Business Examiner, should be sent to editor@businessexaminer.ca. 

Editorial Graph on Income Taxes

Source: OECD