Last Updated:Friday - 09/24/2010

The injustice of the flat tax

Alberta is now only three months from implementing one of the most radical tax reforms of recent decades - a flat tax on personal income tax. The flat tax does away with the progressive income by which higher-income earners pay a higher rate of their taxable income to the government than do lower-income earners.

The progressive income tax was based on a notion of fairness - that each should financially support government services based on his or her ability to pay. The progressive income tax and modern welfare state were two cornerstones of a basically christian idea - from each according to his ability, to each according to his need. It assumed that society is a community, rather than a collection of self-seeking individuals and that we should all assume responsibility for each other.

The weakness of the modern welfare state is that it is costly and bureaucratic, rather than personal, and tends to treat clients as numbers rather than neighbours. But in a mass society where there is no practical alternative way to meet the staggering social problems of our time, the welfare state remains a necessity if we are to maintain a semblance of social justice.

The progressive income tax also is the most effective way of implementing a principle that Pope John Paul has succinctly called "the universal destination of all the earth's goods." In his 1991 encyclical Centesimus Annus, the pope stated, "God gave the earth to the whole human race for the sustenance of all its members, without excluding or favouring anyone" (n. 31). To put it simply: We should share what we have because everything belongs to God.

This is a theological principle, a form of principle in deep trouble in a society where "theology" has been replaced by unreflective dog-eat-dog materialism. It is not surprising that in a society where religion has been shunted to the sidelines, a flat tax should be proposed as the way to fund government services.

In a recent analysis of Alberta's specific version of the flat tax, Greg Flanagan, an economist at St. Mary's College in Calgary, demonstrates that the Alberta government is shifting the tax burden away from the wealthy and onto middle-income earners.

The Alberta flat tax involves an ingenious sleight of hand. Its implementation has been combined with a large overall tax decrease and a higher basic deduction. Many low-income earners will now pay no income tax - this is the bright side of the reform - those with middle incomes will pay slightly less tax, and those with higher incomes will pay significantly less. A major shift in the tax burden has been camouflaged by an overall tax decrease. Flanagan demonstrates that the top 15 per cent of income earners will receive 58 per cent of the tax savings.

Public protest of what has been the most radically regressive act of the Klein government has been virtually non-existent. One could argue that the flat tax will lead to far more inequality in Alberta than will the much more controversial legislation allowing private hospitals. And yet there was no serious debate over whether this is wise and just.

Federally, the Mulroney government put Canada on a slow train to a flat tax in 1988 with its reduction in the number of tax brackets and partial de-indexing of changes to those brackets. Finance Minister Paul Martin finally put an end to this "bracket creep" with his 2000 budget, but not until after a lot of unfairness had been allowed into the system.

Now, however, the Canadian Alliance is championing a federal flat tax. If it gets the opportunity to implement this tax, expect the same scenario as in Alberta: An overall tax reduction at the same time the flat tax is implemented. Everyone will appear to be a winner, but those getting the largest break will be those who need it the least. A flat tax is not fair and it should not be enacted.

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