From: AlanBaggett@volcanomail.com   
      
   Tax reform paper recommends higher rate for top incomes, flat tax for   
   investments: CRA SOTW   
      
   Report calls for higher tax rates on highest income earners   
   CBC News   
      
   Income from all investments should be taxed at a flat rate and tax rates on   
   the highest income earners should be increased, a wide-reaching report on tax   
   reform says.     
      
   Income is currently taxed progressively in Canada. That means that the more   
   you make, the higher your tax rate is on each additional dollar of income.   
   There are now four main federal tax brackets, with marginal rates that rise   
   with each income bracket      
      
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   The report, published by the C.D. Howe think-tank, says one of the problems   
   that's increasingly apparent is that it's becoming easier for the wealthiest   
   Canadians to respond to higher tax rates with manoeuvres that lower the amount   
   of income subject to    
   those higher rates.   
      
   The author argues that Canada's tax system need to be reworked to reflect the   
   global reality. The main problem, according to the report, is that the   
   benefits of recent tax reforms, such as reductions to corporate taxes, have   
   tended to go to those with    
   the highest incomes.   
      
   Rather than reversing corporate tax cuts, which the report says enhance   
   growth, the government should consider reforming the entire income tax system   
   - specifically, by bringing in a dual income tax structure.   
      
   Dual tax system   
      
   The report recommends that wages continue to be taxes progressively, but   
   investments should be taxed at a low, uniform rate -- a flat tax.   
      
   As part of the reform process, the report suggests that the tax treatment of   
   stock options be tightened. It notes that stock options, which make up a large   
   part of the compensation packages for many executives, now get special tax   
   treatment. The report    
   urges that stock options be treated like other labour compensation, such as   
   wages, and to tax them at full rates as soon as practical.      
      
   Ottawa should then transform the Canadian tax system to a dual tax system, it   
   recommends. Under this scenario, Canada would move to a flat tax rate on all   
   forms of capital income, including interest and other investment income.   
      
   The report also calls for higher taxes on high income earners. Currently, the   
   highest federal tax bracket - 29 per cent - kicks in at income of $136,270. It   
   suggests a higher bracket of 32 per cent for employment income above $250,000   
   and 35 per cent    
   above $400,000.   
      
   This attempt to "clean up" the tax system would also require an end to some   
   boutique tax breaks, like the children's fitness tax credit, the public   
   transit tax credit and the volunteer firefighters' amount.     
      
   "It goes without saying that fitness, transit and firefighting are admirable   
   things, but loading the tax system with such measures enhances neither   
   efficiency nor fairness," says the report. "If these and other things are   
   worthy of support,   
   policymakers could find a way to do so outside the tax system."   
      
   It is a call for a major rethink in the way Canada taxes income, but the   
   report's author says it's worth it.    
      
   "Enacting these reforms would bring two large benefits to the Canadian economy   
   and society," says UBC economics professor Kevin Milligan.   
      
   "It would restore the ability of the tax system to respond to increasing   
   income concentration by taxing more those whose incomes have grown the most,"   
   he writes.   
      
   "This, in turn, would open the door to beneficial reforms of consumption   
   taxes, environmental taxes and corporate taxes that might otherwise remain   
   closed because of concerns about who benefits most from economic growth."   
      
   Milligan's report was published by the C.D. Howe Institute in partnership with   
   the Chartered Professional Accountants of Canada. But both groups say the   
   report is meant to stimulate discussion and is not the official position of   
   either organization.   
      
      
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