Behind Closed Doors

Michael Iscove was a senior partner in the accounting firm Iscove, Gold & Glatt in Toronto.

If Linda McQuaig had expended as much energy learning about her topic as she did in generating these meaningless emotional tirades, this might have been a much better book. There is no question in my mind that there are a significant number of issues in this book which affect the economic strength and viability of this country. In fact, on many of these issues I would side with the author. However, she has not done her homework and many of her arguments are misleading and false. I hope that not too many lay people attempt to utilize the so-called facts in this book.

The author is attempting to address the distribution of income in Canada. She asserts that far too much incorne is left at the disposal of the “rich,” a term which is never defined throughout this diatribe. Is rich based upon income? Is it based upon assets? Is it determined by net worth? Presumably income is the major component in her mind. If income is key, should there be an adjustment to “rich” based upon where the individual lives and his or her cost of living? It costs a great deal more to live in Toronto than it does in Moose Jaw. Where does rich begin in each case? I would argue that someone could live better in Moose Jaw on $50,000 than in Toronto on $150,000.

The key consideration is the basics of the system. Who spends their money in the most advantageous way for Canada? Is it the lower, the middle, or the upper class? Perhaps one is no better than the other? Is it better that the government take from one class and give it to another after utilizing the majority of funds to operate its bureaucratic machinery? From my perspective the direct method results in more funding reaching the ultimate destination. For example, the reason that an individual who earned $250,000 was able to pay no tax was that he or she probably invested in the Canadian film industry or a mining or extractive resource venture. On a direct and indirect basis the Canadian film industry has injected billions into the economy over the last few years. Films are high-risk ventures as are the resource industries. If we eliminate the direct injection of capital into these industries from those who can afford to take the risk, where will the industries turn for assistance? The government will have to dole it out after taking the money from us and setting up 33 departments to look after the distribution of the funds. This scenario is exactly what is now happening to the film industry as a result of the budget. I would estimate that the net result will be that maybe 10 per cent of what might have reached the industry will actually get there. This type of scenario is far worse for many of our high-risk sectors. Research and development in Canada are far behind those of our competitors, and this type of tax reform does little to help besides create work for more bureaucrats and further reduce the direct flow of funds to those to whom they are intended to go.

The author argues that our progressive tax systern rewards the rich by placing a ceiling tax of 44 per cent on income over $55,000 and thus the person making millions pays the same rate of tax as the person making $55,000. I think that we have to consider that first of all the rate she is using, when you include the provincial tax portion, now exceeds 50 per cent and is indeed a disincentive for individuals to work. The author seems to assume that these people are somehow caged here and that they will not attempt to escape a penalizing tax situation a la E.P. Taylor or many wealthy people from Britain. There is no question that Britain’s tax base was eroded by their punishing tax rates as a significant number of high-income generators left the country rather than give about 80 per cent of their income to the government. I suggest that an approach such as this will further burden the middle and lower classes as wealth leaves the country permanently and the tax base is reduced.

Overall, the author’s venemous attack seriously misses the mark. The tax system needs to be overhauled and there are indeed many flaws. However, the solution lies in looking carefully at how to distribute the country’s income and resources in the most direct and advantageous manner for everyone concerned rather than in villifying the so-called “rich.” Canada has a poorly-run, under-efficient government which literally throws our money away. Feeding this monster more money is not the solution to our problems. We have to reduce the tax burden by reducing government intervention and interference in the economy.