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Michael Wolfson is an expert adviser with EvidenceNetwork.ca and a member of the Centre for Health Law, Policy and Ethics at the University of Ottawa.

On the same day that the Minister of Finance, Bill Morneau, clarified the federal government's proposals to limit "income sprinkling" as a way for high-income owners of private companies to reduce their taxes, the Senate Finance Committee released its report recommending that all the tax changes should be scrapped. Instead, the Senate Committee recommended the government of Canada undertake an independent and comprehensive review of the tax system with the purpose of "reducing complexity, ensuring economic competitiveness and enhancing overall fairness."

The last time Canada had such a comprehensive review was the Carter Royal Commission on Taxation, which reported in 1966, with many but not all of its recommendations finally implemented in legislation in 1972. This process took a decade from the start of the Royal Commission. The Senate Committee's proposal, if taken seriously, looks very much like the proverbial "kicking the can down the road" – a massive delaying tactic.

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This is not to say that a more in-depth review of Canada's income tax system would be wrong. But it would be too much to accomplish if the objective were a review as extensive as that of Carter. Instead, it would be more prudent to focus on a few priority areas, or even better put in place the kind of regular analysis that the Auditor-General has been calling for.

So what should be the focus of tax reform? Let's look at five possibilities.

First, the firestorm of protest that has dogged Minister Morneau over the proposed changes in the taxation of private companies raises the question of just how individual and corporate income taxes should relate to one another. In tax jargon, the topic is corporate-personal income tax integration.

On the one hand, basic principles of income taxation require that incomes not be taxed twice: once when received by a corporation, and again when the income is paid out as salary or a dividend to individual shareholders.

On the other hand, income flowed through a corporation should not be undertaxed, compared to the way this income would be treated if it were received directly by individuals in the first place – precisely the concern being addressed by the controversial proposals recently detailed by the Finance Minister.

A second possible focus for tax reform could be the tax incentives for retirement savings in RRSPs and workplace registered pension plans (RPPs). The Carter Royal Commission recommended major reform. The key idea was that it should make no difference whether the retirement savings were contributed to a RRSP or a RPP, nor whether the individual was self-employed or an employee. This "comprehensive limits" proposal was never implemented in the 1972 reforms.

Shortly after I joined the Tax Policy Branch of the Department of Finance in 1977, I had the opportunity to talk with Bob Bryce, who had been deputy minister of finance during and for two years after the Carter Royal Commission. I recall asking him what ever happened to this Carter proposal. He replied that the department was too busy trying to implement other, higher priority recommendations, especially to include capital gains in income. (Recall the famous phrase from the Carter Commission, "A buck is a buck is a buck.")

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Both the federal government Green Paper on pension reform in 1982, and the Special Parliamentary Committee on Pension Reform in 1983, recommended essentially the Carter recommendations. (I worked on both reports.) The system we now have follows from those reports. In the context of possible major tax reform today, and given that we now have comprehensive limits, this second possible focus would not merit nearly the priority for comprehensive review as the corporate-personal income tax integration.

A third possible area for comprehensive review is the taxation of offshore income. Publicity surrounding the scandals revealed by the "Paradise Papers" reinforces the fact that this should be a major priority. In this case, though, it is an area that Canada cannot address on its own. Major improvements in enforcement against tax evasion (which is illegal), and even in detecting serious tax avoidance strategies (which are legal, but may be highly abusive), will require substantial international collaboration.

The OECD has been leading work in the area of what's known as "base erosion and profit shifting" (BEPs). But so far, it is not delivering nearly as much as needed to tackle the major issues.

A fourth possibility is that "tax reform" (or in the words of the Senate report, "ensuring economic competitiveness") is actually code for simply cutting corporate income tax rates. The cliff-hanging tactics in the U.S. Congress and final passage of their tax reform legislation have raised fears that a lower corporate income-tax rate there will place intolerable pressure on Canadian companies, inducing them to cut investment here. But tax cuts themselves are not tax reform.

If cuts are not to increase the deficit, then government spending would have to be cut, or taxes somewhere else would have to increase – possibilities include increasing the GST/HST, and tax "base broadening" such as cutting tax expenditures like stock options, retirement savings incentives, the small business deduction, and charitable foundations. Such base broadening would be an important fifth possible focus for tax reform, and would be a logical complement to a reduction in tax rates.

However, the Senate Committee's non-specific recommendation for a comprehensive review, without any thoughtful identification of the main problems such a review ought to address, looks to be little more than a delay tactic. It avoids a more thoughtful and probing identification of what should be the highest priority areas for review.

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It is also fundamental for any such review to be based on solid evidence.

While little-known, a major innovation of the Carter Royal Commission was that it developed the first computer simulation model of the individual income tax (John Bossons of the University of Toronto led this effort).

This model, and its underlying detailed database, was adopted by the Department of Finance and has been continually updated and in regular use ever since.

In contrast, the recent proposals regarding income sprinkling, passive income and avoiding equitable capital gains tax on disposition of a private company, have been notable, at least for data nerds, for the weakness of the evidence provided. Relatedly for any review of tax-base broadening, Canada's Auditor-General has observed, "information provided by the Department of Finance Canada on tax-based expenditures does not adequately support parliamentary oversight."

Even more important than another Royal Commission or comprehensive tax review would be for the government to provide itself with the high-quality data and analytical capacity so it can understand year by year what's really going on, and (subject to confidentiality restrictions) enable bona fide external researchers to provide Canadians with ongoing independent evidence-based analysis.

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