George Brecken Nicholson
It comes within the
municipal law. Every municipality comes within the municipal law. I think I am right when I say that. What the hon. member for North Waterloo (Mr. Euler) said with regard to the incidence of taxation touches the base of the whole thing. I think one of two principles should apply. Taxes should be paid in accordance with the service rendered, or in accordance with the ability to pay. The difficulty in relation to the latter tax, however, is that of collecting the tax from those who have the ability to pay. If it were possible to levy a tax and be sure you were at all times getting it from those who had the ability to pay, and if the income tax could be collected from those who have the ability to pay and that class alone, then it would be a perfectly fair and equitable tax, but so far we have not found a method by which that can be done.
In its general incidence there is nothing that has had such a blighting influence on business in this country as the income tax. In the main it is being paid, although we have not the opportunity of finding out who the particular individuals are who pay it. We have an opportunity of finding out the classes who pay it, and in the main it is being paid, as_ my hon. friend from Muskoka-Ontario (Mr. McGibbon) said, by the salaried class in this country. They are paying very much the larger proportion of the taxes. There are very definite and good reasons for that. For instance, it was shown here clearly by my hon. friend, speaking on this subject before, that the part of Canada where the greatest individual wealth is in proportion to the whole class of people, pays the smallest amount in income tax. The provinces west of the Great Lakes are the provinces where the greatest average wealth prevails, but they pay the least by way of income tax. We need not assume, from that, however, that the people west of the lakes are tax-evaders because it is quite reasonable to assume, from the character of their location, so many people in the prairie provinces being of the farmer class, that they have an average income that is fairly substantial but that does not come within the scope of the income tax law. On the other hand in the other provinces that are more industrial, people are divided into two classes, namely, those who-; pay income tax and those who do not.
Coming for a moment to the incidence of this tax in relation to business and to one or two observations that have been made, let me ;refer to what the hon. member for Lisgar (Mr. Brown) said as to a farmer and his wife pot being in the same position as a business man and his wife. There is not the slightest difference whatsoever. The wife of the business man is just as much a partner in that business and in spending her life to assist in that business as is the wife of the farmer or of the mechanic. Her position is exactly the same, and she gets no extra exemption unless she has a private income.
A great misapprehension seems to prevail in connection with the fact that taxes are not paid on dividends earned from business. There is the point where the tax injures business perhaps more than anywhere else. If a group of men have their business in an incorporated company, what happens? Ten and one-half per cent of the total income of their business goes in income taxes. If they distribute a sufficient amount of the earnings, if there are any, for them to live on, that amount is also taxed under the surtax and supertaxes which prevail and which in reality are the heavy portions of the tax. Let me give one or two illustrations that have come under my observations-and this has regard to the advisability, if the Minister of Finance can work out such a scheme, of taking a group of years instead of an individual year as the period over which the income tax should be levied. One particular case that came under my observation was of a group of men in business who in two years, 1920 and 1921, the deflation years, lost so much money that they had to go to the bank and borrow over $100,000 in order that they might be able to carry on. They have been paying interest on that money ever since. In 1923, 1924 and 1925 the business has been coming to a point where it is commencing to return a small amount of this money, thus enabling them to pay off what they had previously borrowed, but the income tax collector comes along and collects income tax just the same, with the result that on the money they have borrowed they are paying not only income tax, but interest to the bank. That is one of the most unfair phases of the income tax and one phase of it that more than any other is doing injury to business in this country.
As a general principle, looked at from the theoretical standpoint, the levying of income tax from those who are able to pay it is a fair method of taxation, but as it has been worked out in this country it is not a fair method of taxation: it is doing injury to business, it is
placing a burden upon a particular class that cannot get away from it. That is one reason why we are having such great difficulty in getting back to normal conditions. My opinion is that the question of the country's indebtedness should have been taken hold of resolutely and determinedly after the war period was over and after the time had passed when we were getting our men back into civilian life; the war debt should have been consolidated and the special taxes applied to a reduction of that debt instead of carrying on as we have been doing. Notwithstanding what the Minister of Finance has said about reducing expenditures, he knows that may look very well on paper; but when the question comes down to what the national debt is today as against what it was in 1920 or 1921, he knows the gross obligations of the people of Canada are much greater to-day than they were in 1920 or 1921. We should consolidate the war debt, earmark the special taxes to take care of it, keep the general expenditure within the general income of the country, and then we shall find some way whereby these taxes may be reduced.