Imagine gathering your receipts to add up your income at tax filing time in April, writing it down on a single line, subtracting contributions to RRSPs and pension plans and a few other deductions, and then calculating the income tax that you owe to federal and provincial governments. The form is just a page and is so simple that most Canadians don’t need to go to an accountant or spend money on an electronic program to calculate their returns (1).
Sound like science fiction? Not really. This proposal for a simple income tax has been made numerous times in the past both in Canada and other countries. The federal government even took it seriously enough that the Goods and Services Tax form is a page submitted to Canada Revenue Agency.
The only thing that gets in the way of putting a stake into the heart of complex and distorting income taxation are voters tolerating special interest groups pleading for targeted preferences and politicians enacting special provisions to attract votes. We could devise an income tax that is fair, simple and pro-growth if voters rose to the occasion and voiced their displeasure over a tax system that has gone off the rails.
Simplification would be a major disruption, but well worth the effort. Some people would pay more tax and others less in a tax reform that yields the same revenue, but the long-run economic benefits will appeal to voters. Only accountants, lawyers and tax economists like myself will regret a shift to a simple income tax since the demand for advisory services will drop like a stone (2).
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