Mr. EULER:

- I quite appreciate what the hon. member says and I agree with him there is a difficulty in that direction. Does he regard that as a sufficient reason for abolishing the tax entirely, and if so, what would he suggest to take its place?

Mr. McGIBBON:

I am not advocating

abolishing the tax; I am speaking about the unfairness of the tax as it is at present applied. There is no question that the tax is being evaded. It has been stated this afternoon that victory bonds which are tax free are largely held by rich people. The Minister of Finance (Mr. Robb) and I am sure the hon. member for North Waterloo (Mr. Euler) know that to-day men can invest their money in stocks from which they receive a fairly good interest and yet escape the income tax because that tax is paid at the source. If I understand the apiplication of this tax correctly, we do not apply a double taxation and to-day we have the wealthy class buying stocks that are as good as gold and that pay good interest, and thus being exempt from this income tax. We have also dozens of organizations, holding companies and: such like, as a result of which men of wealth and means have their incomes exempted from taxation. Those are some of the unfair ways in which this tax is applied.

The income tax to-day has a very great effect in increasing the cost of living so that the poor man and the salaried man are hit in still another manner. What are we getting out of this tax? We know the tax received from the larger incomes has been decreasing every year and that will probably continue in an increasing degree. On the other hand the one class in this country that cannot evade the tax is being punished more severely every year. This country cannot carry on business and at the same time have a higher rate of taxation than that which exists in the

country to the south of us. Taxation is more or less dependent upon business. If you have no business you are not going to pay taxes, while if you make the country more prosperous, incomes will increase and you will be able to collect a larger amount of revenue from the different sources of taxation. The present application of this tax is unfair to the majority of our citizens, it is increasing the cost of living and it is one of the greatest hindrances to business in Canada.

Mr. WOODSWORTH:

Would the hon.

gentleman consider the possibility of a super tax on incomes earned in Canada but enjoyed by those resident outside of Canada?

Mr. McGIBBON:

I do not know whether there are many in that class or not, but I see nothing wrong with the suggestion. If people are making their money in Canada and do not think this country is good enough to live in, if it is possible to tax their incomes, I would do so. As the hon. member for North Waterloo said, there are other methods of evading this tax. For instance, I think it is a fact that if a man so wishes he can go on the stock market and buy good stocks for which he does not need to pay outright even if he has the money to do so, and if I understand1 the application of this tax properly he is not taxed on such holdings. A man can also buy stocks which have a real value, which are non-dividend paying, but which will increase and are bound to increase in value in the next two or three years, and that profit is not taxed. Therefore, I say that application of this tax as it is enforced to-day is not in the best interest of this country. I am not advocating (the abolition of the tax, but I think it could be enforced in a manner that would be much fairer to the Canadian people and that would produce a greater revenue 'for the public treasury. I am offering these suggestions to the minister, and I hope he will take into consideration the salaried people who cannot evade the tax and who are indirectly paying a considerable amount of the other taxes.

Mr. J. L. BROWN (Lisgar):

Mr. Speaker, I want to place myself very solidly behind income taxation as a principle. I agree with the statement that the only principle of taxation is ability to pay, and the intention is that the income tax should be levied upon those who are able to pay. I agree with the statement that in its application it has not always worked out fairly, but I am glad the hon member for Muskoka^Ontario (Mr. McGibbon) has not advocated the abolition

Taxation in Canada

of the tax. I was under the impression from remarks he made in this House on a former occasion he was advocating the abolition of the income tax. I agree that there are some things in which its application is unfair. Undoubtedly those who are living upon fixed salaries are in a different position from others in that it is hard for them to evade this tax, because the amount of their income can be readily ascertained and they are in all cases compelled to pay according to the amount.

I will offer one or two suggestions as to the system we might adopt. A distinction should be made between earned income, that is income derived from salaries or income actually earned in the conduct of business, and income derived from investments. On the one hand you have a salaried man depending upon a fixed salary and paying his regular tax every year. He passes away and those who are dependent upon him are deprived of that source of income. Another man who is perhaps living upon the proceeds of investment passes away and yet the income goes on, his family receiving the same income as they did while he was alive.

Some attention should be paid to incomes derived from stocks in any corporation. As has been pointed out, under the present system the taxation is collected at the source. Objection is sometimes taken that the income tax handicaps industry, and I believe it would be well if in order to get rid of that objection, industries as such should not be subjected to this taxation, but that it should be levied upon individuals. I know the amount is much more easily collected at the source as is the case to-day, but I do not see any reason why a wealthy man who is drawing large dividends from stocks should be exempted from paying income tax on that amount. I would prefer that the tax on industrial corporations should be abolished and should be levied entirely upon the individuals. The most equitable way would be to have the tax levied over a period of three or four years. Not only is it true in business, but it is eminently true of those who make their living from farming that there are sometimes very lean years. A farmer may have a good crop one year and be in a position to pay a tax while the next year he may be in no position at all to pay a tax. The result is that he may pay much more than he would be really entitled to pay if the tax were extended over a three-year period. I appreciate the objection that might be raised by the officers of the department that it would be difficult to apply such a system, but if it could be applied, there is no question as to its fairness. I do not think it 14011-105 :

is necessary to lay emphasis upon the fact that the income tax increases the cost of living, for all taxes do that. I do not see any reason therefore for distinguishing between this and any other form of taxation from the standpoint of the cost of living.

Mr. McGIBBON:

Does the hon. member

think that the sales tax contributes very much to the cost of living?

Mr. BROWN:

To some extent all taxes

must have that effect. Hon. gentlemen talk about taxes being a levy on capital, but all taxes are in some measure a levy on capital. We are taking something out of our pockets when we pay taxes, and therefore we have that much less with which to carry on business.

Considerable stress has been laid on income tax as an inequitable levy. The hon. member for Toronto Northwest (Mr. Church) dwelt upon this point. It seems to me that his argument would have had a great deal more force had he not suggested that the right to impose an income tax should be abandoned by the Dominion and left to the municipalities. If the income tax is unfair when levied by the Dominion, it is certainly just as unfair for the municipalities to impose it.

I would point out one respect in which, as I suggested a year or two ago, there might be some redress in the matter of income tax. I refer particularly to the tax as applied to farmers. Now, the farmer and his wife are one body working together, and their income is considered a joint return for purposes of taxation. In the case of people in some other walk of life, however, although husband and wife may have separate incomes they are allowed two exemptions. I admit that if the farmer's wife derives an income from some source outside the farm it is considered as separate from her husband's, but no matter how hard the two may work together on the farm, their income is treated as a joint income when it comes to paying the income tax. There are many men in other walks of life who enjoy a good income themselves while their wives are also in receipt of a fair competence, and they are entitled to two exemptions. My contention has always been and is now that the income of the wife for purposes of taxation should be considered jointly with that of her husband and be subject to one exemption, and this in every case.

Mr. J. L. CHABOT (Ottawa):

I just want to comment briefly upon a question I put to the Minister of Finance (Mr. Robb) when he was discussing the matter of taxation in a general way. The minister has been kind

Taxation in Canada

enough to send me a copy of the public accounts, to enlighten me as to the reduction in expenditures by the government during its tenure of office between the years 1921 and 1925, and I am bound to say that during that time the government has failed to deal satisfactorily with taxation, notwithstanding the wonderful resources of the country, notwithstanding our favourable situation, and notwithstanding the fact that Canada pays less than any other country in the world for selfdefence. My figures are also derived from the public accounts. I claim that 5 p.m. from 1921 to 1925 the government has actually collected in the form of special taxes the sum of $629,601,176 more than the government preceding it did during a similar period. In 1917 the special war taxes amounted to $16,000,000; in 1918, $25,000,000; in 1919, $56,000,000, and in 1920, $82,000,000. Let us compare that with the revenues derived from the same source in the Liberal regime for three years. I have not the figures for 1921, but in 1922 there was collected $177,484.000; in 1923, $181,634,000, and in 1924, $182'000,000 odd. Notwithstanding these enormous collections the government did not reduce taxation by a cent, and I simply want tc express the hope now that if hon. gentlemen opposite retain power for any length of time -as I am sure they will not-they will make an honest effort to reduce expenditures and thus reduce taxation.

Mr. HEAPS:

Is the hon. member taking

into consideration the value of the dollar in the respective periods he has cited? That is an important factor.

Mr. CHABOT:

That may make some

difference, but it cannot account for the large increase in revenue from 1921 to 1925 over the preceding four years.

Mr. HEAPS:

In 1920 the value of the

dollar was 41.1.

Mr. CHABOT:

The Canadian dollar was

never as low as that.

Mr. HEAPS:

I am speaking of the purchasing power of the dollar; that is what we have to consider.

Mr. JOHN MILLAR (Qu'Appelle):

The

hon. member for Muskoka-Ontario (Mr. Mc-Gibbon) objected to the income tax on the ground that in some cases it was being passed on. This may be partly true of course, but I can think of no other tax that cannot be passed on while this one can be passed on only to a limited extent. As pointed out by the hon. member for Lisgar (Mr. Brown), the IMr. Chabot.l

farmer in many cases pays in lean years for that which he has reaped in fat years, and others may be able to show that in some respects the tax militates against them in the same way. Judging by the remarks of some hon. gentlemen, there seems to be an impression that this is a new tax, but I was surprised to read recently that it was proposed over a hundred years ago. The Reverend Henry Beeke, professor of modem history at Oxford from 1801 to 1813, who was frequently called into consultation by Pitt, proposed this form of taxation at that time. He wrote a book entitled Observations on the Produce of the Income Tax, in which he claimed that the tax was based on moral equity and political wisdom. I believe the income tax has come to stay. It has been known for over a hundred years, and it is one form of taxation that is levied on those who are able to pay it. I believe it should be kept in force.

In Canada we have no means of knowing how much income tax the individual pays, but in the United States, until a short time ago at any rate, the figures were published. I believe a change has been made recently, so that the returns are not now made public, but statistics are available to show how much was paid by various individuals in the year 1923. I quote the following:

These returns have to do with the year 1923 and present many curious features. For instance, Douglas Fairbanks put up $225,000 as his yearly share, while the greatest international banker in the country, J. P. Morgan, paid $98,000. Jack Dempsey's share was $90,000. All of which goes to show that from a financial standpoint it is far better to be a movie king than a financial king, and it is almost as lucrative to be a "pug" in the first flight. President Coolidge paid a modest $6,000, while the Ford family contributed $19,000,000. John D. Rockefeller, Sr., paid $124,000 while John D. Jr., paid $7,425,000.

Andrew W. Mellon, Pittsburgh, Secretary of the Treasury in the Coolidge cabinet, appears to be the richest man in public Life in that country, as he paid in 1923 the sum of $1,173,000 in income taxes. William Wrigley, Junior, of Chicago, contributed $865,000 as his share of the income tax in 1923, while his corporation paid $649,000.

We should not forget that money must be raised and the business of the country carried on. Canada was spending hundreds of millions of dollars in the Great war while the United States was selling munitions to the allies and filling her coffers with that money, and that is one reason why at present we as Canadian people must expect to pay a heavier tax than is paid in the United States. We should not object to this; we favoured carrying on the war; we favoured putting in our last dollar if necessary to win the war, and now we have to pay the price. We have not the figures for Canada, but if they were avail-

Taxation in Canada

able they would show that the large sums are paid by the rich. If they are not collected from the rich they must be collected from the poor, which would form a very heavy tax. The sums which I have quoted, spread over the masses of the people of the United States, would add greatly to the cost of living.

In a discussion such as this reference is frequently made to the fact that the producer of grain or cattle-in a word, the farmer of Canada-pays a very small share of the income tax. Objection should not be taken to that, for the reason that he is not paying because he is not making any money. If he were making money he would as readily contribute his share to the upkeep of the country as any other class. He has no objection to paying according to his ability to pay, but owing to the fact that the prices of farm produce; dropped very suddenly after the war while the prices of other commodities were reduced very very slightly or not at all, the farmer was the first to suffer. It may be admitted that he made money easily in many cases during the war, and I think I may further admit that when he was making money easily, in a great many cases he was just the same kind of simple person we find in the city; he spent his money just as easily. If those who live in the cities think the farmer spent his money too freely and expanded too much, they are blaming him for the same mistake they themselves made and will perhaps make again. For the last four or five years the income of the farmer has been very small, and in many cases he has had to live on his capital. He is worth less now than he was worth five years ago, yet he is making as little complaint as possible. He is carrying on and keeping his land in a good state of cultivation so that when the opportunity comes to produce a crop and take his stand with other industries and pay his share of taxes, he will be able to do so. I think that is all you could expect.

It may be contended-and I have heard it stated-that the fact of so many farmers not paying income tax is evidence that they are shirking their duty, that they are either putting in no statements or making false statements. I do not for one moment think that that is correct. You will find people in every walk of life with so little honour and so little patriotism as to put in a false statement or bring about an adjustment of business whereby they would be relieved of paying income taxes, but I do not think they are any more numerous among the farmers of the country than among the professional and industrial people. It is simply that the farmer has not the.money, 14011-1054

and until he reaches the point where he is aible to pay, I think it better for even those industries of Canada which are paying the large proportion that they should carry the burden for the present. The producer of grain and cattle will thereby the sooner reach a position to purchase the manufactured goods of these companies.

Objection is sometimes taken to this tax, because there is a little difficulty in making out the income tax statement. I am inclined to think that the benefits accruing to the agricultural class-speaking of that class only, because I believe they are the greatest offenders in not keeping proper books-the advantages they get from that training and from being compelled to keep books will repay for the inconvenience and sometimes the small cost they are put to in securing the services of those competent to fnake out the statements. As time goes on they will find less difficulty, and many of them now know where they are making and where they are losing money, largely because they have been compelled to keep some records. I believe they will derive considerable benefit from that.

If the income tax can be simplified or reduced in proportion as other forms of taxation are reduced, I would be very glad, but since it is the fairest form of taxation and cannot be passed on, I would be very sorry indeed to see it abolished.

Hon. J. W. EDWARDS (Frontenac-Adding-ton):

Mr. Speaker, I have only a few words

to say in regard to this matter. I am entirely in accord with the principle involved in the income tax, and I think it would be a very great mistake to abolish that tax as one source of revenue to the country. Adjustments may be necessary in order to make it more equitable and fair, but I would be absolutely opposed to its abolition.

There is no doubt, as the hon. member for Toronto Northwest (Mr. Church) has said, that the burden of taxation on the municipalities is at present extremely heavy. Speaking for the rural districts I can say that today the taxes on farms and farm property in eastern Ontario amount practically to a rent, and are bearing very heavily on the people. We must have a better system of roads than we formerly had, and the costs of education are much higher than they were a few years ago.

Mr. BROWN:

Would the hon. gentleman tell us about what the ordinary tax is on a well equipped, hundred acre farm?

Mr. EDWARDS (Frontenac):

I think on a good, well equipped farm of one hundred acres the tax would probably be between $260 and

Taxation in Canada

$300. I would not like my hon. friend to take that as definite, because there would be a very great variation, but the tax is heavy and there is no question that in Ontario-and I presume it is much the same in other parts of the country-municipal taxation has increased tremendously in the last eight or ten years. So I think my first statement may 'be taken as fairly correct, that a great many people in the country districts regard the present taxation on farm property as practically equivalent to a rent.

I have just one or two observations to make with respect to the remarks of the last speaker (Mr. Millar), as well as those of the Minister of Finance (Mr. Robb). I agree with the last speaker that the farmers of this country will be as willing to pay their share of taxation, whether it is income tax or any other tax, as any other class of the community. No other class of our citizens will play the game any fairer than the farmers will. It is true, I believe, that they are not paying very much in income taxation, and the reason they are not doing so is because they have not the income, and the reason they have not the income is to be found largely on the other side of the House in the policy pursued by the present government and backed up by hon. gentlemen to my left. I want to suggest this further thought, that if the government persists in the course which it has indicated a tendency to follow and submits to further dictation from these so-called free traders from the west, I do not think they will get any income tax from farmers in any part of Canada, because they are exposing the farmers of Canada unjustly to the competition of the world, and are not giving them a fair deal and a fair opportunity to make an income on which they might pay some income tax.

The figures presented by the Minister of Finance as to the amount of income tax collected in the last three or four years are very suggestive. I recall that prior to 1921 the Liberal party in this country were very loud in their condemnation of the Conservative government on account of the so-called war taxes, income tax and other taxes.

Mr. EULiBR: The Union government.

Mr. EDWARDS (Frontenac):

Well, the

Union government; that will bring my friend nearer to the condemnation. So strongly did the Liberal party feel in regard to this matter that in their platform of 1919 they put in a special clause condemning the government for non-enforcement of the income tax law. The convention on that occasion said:

This convention condemns the government because it ha3 not enforced the income tax law in such a

manner as to make it produce the revenue which such a tax sho-uld produce if properly collected.

I gathered from the Finance minister's remarks that he is not getting all the money he should from the income tax at the present time. His figures show that in the last three or four years there has been a steady diminution in the amount that has been collected in income tax. That must mean one of two things; either the government must be condemned for non-enforcement of the income tax law, for inefficiency in collecting the tax, or else the lessened revenue from the income tax is an indication of the extent of that prosperity which the government has been talking about as existing in this country and growing greater year by year. One would naturally suppose, if the country was becoming more and more prosperous as the years go by, that the amount derived from income tax would be increasing each year; an increased revenue from that source might be taken as a fair indication of prosperity. But taking the minister's own figures, I say we must conclude one of two things, either that there is gross inefficiency in the enforcement of the income tax law and the collection of the income tax, or else if they are collecting all they should collect, the reduced revenue from that source is an indication of lessened prosperity in this country as compared with a few years ago.

Mr. ROBB:

I would like my hon. friend

to remember that we have extended the exemptions under the income tax law.

Mr. EDWARDS (Frontenac):

I do not

think those exemptions would materially affect the figures which the minister gave. While it is true there have been exemptions in regard to the income tax which might contribute to a diminution in the revenue from that source, it is not true of the special war taxes that were imposed away back in 1917, and since. The Conservative and Union governments were very roundly condemned for the amount of money they were collecting from the people in those ways up to 1921, and while promises were made before the election of 1921 that a change of government would mean a material reduction in taxation along those lines, the fact remains, as has been pointed out by the hon. member for Ottawa (Mr. Chabot), that in the next four years the government which had promised relief to the people in reduced taxation from these sources collected something over $500,000,000 more than was collected by the Union and Conservative governments. .

Taxation in Canada