Tax loopholes: the good, bad and ugly
KAMLOOPS — What’s the difference between a tax break and a tax loophole? Tax breaks are legitimate deductions that I make and loopholes are shady tax dodges that others use. Seriously, they’re all what economists call tax expenditures. The only difference between them is whether they progressive or regressive, and how much they improve equality.
Some tax expenditures benefit low and middle-income families such as deductions for union dues and post-secondary education. Others benefit wealthy Canadians such the mineral exploration deduction and the capital gains allowance.
Regardless, they are all uncollected taxes. And it’s a lot, says David MacDonald, senior economist for the Canadian Centre for Policy Alternatives. The government of Canada gives up almost as much in tax expenditures as it collects in taxes. In 2011, tax expenditures were $103 billion while collected taxes were $121 billion.
Tax expenditures serve a useful purpose if they improve equality. Equality is an indicator of how happy citizens are, be they rich or poor, as I argued in an earlier column.