Stanley Howard Knowles (Whip of the Co-operative Commonwealth Federation)
Co-operative Commonwealth Federation (C.C.F.)
Subtopic: INCOME TAX ACT
This example stuck in my mind when I was home the last time, because the annual report of one of the largest British Columbia's timber operations had just been released. They made a profit of $31 million, a very substantial profit. Well, the first thing that they did was to pay $16 million corporation tax, so the people of Canada generally got the major share of these profits. That was to the government here, the federal government, because British Columbia is an agreeing province, and so we collected all the corporation taxes. That left them with $15 million net profit. Of that $15 million profit only $3 million was paid out to the shareholders as dividends, the remaining $12 million was plowed back into expansion of the plant, a most desirable thing. Of the $3 million which was paid out as dividends a large part went to the principal shareholder, a very wealthy man, who pays a very high rate of income tax. His share of these net company profits was then of
course subject to the high marginal rates of personal income tax at the bottom of the last resolution. On the other hand that same company has quite wide ownership by actual employees who work in the mills of the company, a share here and a share there. When their share of the $3 million was paid to them, it too was subject to personal income tax, but as they were little people on comparatively small incomes, it would come under the low rates at the beginning of the schedule, because that is the income tax bracket in which the individual of lower income would find himself.
The one other thing we do is to give some relief to this double taxation which results from corporation tax on profits and income tax on dividends. That relief was given by the amendment of two or three years ago. We give a tax credit of 10 per cent of the dividends received from Canadian corporations.
It must not be forgotten that corporations are merely groups of people. We are apt to forget that corporations are after all just people, and only people pay taxes.
Shall we now take up
paragraph No. 5?
With reference to paragraph No. 5, Mr. Chairman, we are back to a discussion which the parliamentary assistant initiated during the general debate this afternoon, and which we later agreed to defer until we reached paragraph 5. I shall not re-open the discussion on procedure with respect to private members' motions, into which we were getting involved when you, sir, stopped us this afternoon.
I shall deal rather with the disappointment that many people in this country felt over the failure of the government to remove the four per cent floor under medical expenses, and I shall also try to deal with the substance of our plea in the hope that we can yet persuade the government that action should be taken at this session.
I indicated yesterday that this was one point where I wished we could have the minister with us, and that is in no sense a reflection on the parliamentary assistant. He demonstrated yesterday and today, whether we agree with him or not, that he is well acquainted with the subjects involved in the handling of these resolutions, and he also knows all the arguments on the government's side. The difficulty is that even if I might, to my satisfaction, and even to his, persuade him that a change should be made he, not being the responsible minister, has no
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alternative but to stand pat. However, since the minister is not here we shall have to make our arguments with the parliamentary assistant and hope that we can wear him down so that he will in turn try to wear down the minister.
The main argument that on other occasions the minister and the parliamentary assistant have put forward for retaining the four per cent floor is the contention that that represents the national average spent on medical bills. I think he will agree with me-
Medical, dental, nursing,
hospital and drugs.
Yes, all these items that come under that general definition. I think he will agree with me that that is stating his side of the case fairly. He argues that everyone spends on the average that much, and if you give an allowance for that amount you will have to make it up by raising the rate or by collecting it in some other way. As I see it, the fallacy in that argument is that there is no such thing as an average man. The average person is a statistical phenomenon that does not really exist per se. In other words, averages are deceiving. Four per cent may be the average that is spent on these various medical items, but every individual pays a different amount and a different percentage of his income. Many people in the course of the year are fortunate enough to have no medical expenses. Others may spend one or two per cent. Some will be somewhere around the average of four per cent. Then, there will be others who are away above the average.
As I see it, the aim of taxation relief in respect of medical expenses should be to assist, in so far as taxation relief can, in ironing out some of that spread. I firmly believe that there are better ways to do it. The parliamentary assistant probably agrees with me-but I am not asking for his comment just now-that a program of health insurance would be more desirable. However, at the moment we are dealing with this matter at the income tax level.
My contention, which I believe is well taken, is that to use an argument in respect of averages is to use an argument that is fallacious. What you have to do is to deal with an actual fact, that people's medical costs vary from nothing up to quite huge sums of money. So it follows that if you do grant medical expenses right from the first dollar up to whatever ceiling the government chooses to impose, as deductible for medical expenses, you do not thereby give a tax saving that is the same to everybody, whereupon you must collect that same amount from everybody, so that in the end
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your position is not changed. That is not what happens. Rather you give tax relief to those whose expenses have been in the higher reaches rather than to those who have been in the lower reaches, or who have had no medical expenses at all. And any loss to the treasury as a result of that relief which you have given in proportion to the medical expenses people have incurred is then made up on an across-the-board basis.
That is where I think the government needs to rethink this whole position through once again. I know that it was on the basis of unusual medical expenses that this deduction was first allowed when it was brought in by Mr. Ilsley in 1943. And when he changed the floor from five per cent to four per cent in 1944 he still based the whole idea upon the concept of unusual medical expenses, with reference to what he regarded as expenses above the national average.
I submit it is just possible that the finance department has been thinking in terms of that average concept for so many years that it has not stood off and taken a look at the problem in the different terms I am trying to portray now. I feel the point I am making is basic. I feel it meets the fundamental argument the minister and the parliamentary assistant have put forward, and I urge most strongly that consideration be given to changing the income tax bill based upon this resolution, even at this very session. I submit, as I have said on two or three occasions previously, that in asking that that be done I have a very good precedent. The precedent relates to this very question of the deductibility of medical expenses.
The parliamentary assistant knows this story very well now, namely that in 1944, at this very stage of debate, in committee of ways and means on the budget resolutions, we pleaded with Mr. Ilsley to drop the floor, which was then at five per cent, down to two or three per cent. It was a new idea, that the floor should be dropped. That idea originated on the floor of the house, mainly from the opposition side, but also with support from the government side as well.
Despite the fact that no such proposal had been forecast in the budget speech or in the budget resolutions, as a result of the discussion which took place at this stage of the debate Mr. Ilsley, when he brought in his Income War Tax Act amending bill, reduced the floor from five per cent to four per cent. It was not all that hon. members had asked, but at least it was something that had not been forecast in the original budget speech.
In this instance we will forget what happened on March 26, because every time we talk about it we get into an argument. Most
of us recall the vote that took place that day. Then, since that time there has been another vote-the vote on our subamendment. It went the other way. That vote expressed confidence in the government, despite the fact that it had not removed the four per cent floor.
A year ago the house voted against the deductibility of trade union dues, and then the government turned around and brought it in. Probably we can have that precedent followed too. We have had a vote against this proposal a short time ago, so now the government could bring it in. I submit the government's confidence has been endorsed by the majority of the house; but, meantime, this whole question has been threshed out considerably, and a good deal of feeling has been expressed with respect to it. Indeed, some members who support the government, speaking in the budget debate did express the hope, despite their position on the subamendment before the house, that the government would yet give consideration to the removal of the four per cent floor.
I dare to hope that there will be other members now who will join in this plea, and that the government will give consideration to it. I am refraining deliberately from saying too much about how we felt concerning the failure of the minister to meet our expectations in that regard. Rather, I am putting it to the government now on a straight basis of the justice of our plea.
Another of the arguments the parliamentary assistant used against this change-although perhaps he will interject by saying that it was just a point he was making-was its cost. He pointed out that it would cost, in his view, $48 million; but he did not say that that was the sole reason for objecting to it. That estimated cost of $48 million was the subject of correspondence to which the parliamentary assistant referred this afternoon, and which I was beginning to deal with when we agreed to defer the discussion until we reached this item.
As both of us agreed, we have given copies of our letters to the others involved in this correspondence, so all of us have the whole story. The parliamentary assistant, in reply to the gentleman over in Hull who started this correspondence, emphasized his point that to remove the four per cent floor was to remove from the taxation base four per cent of the taxable income. The gentleman who started this correspondence sought to make the point that there would not be a loss of four per cent of the total take of income tax, but only a loss of a percentage on a percentage.
1 will agree that the parliamentary assistant made a good point when he made it clear that the four per cent has to be considered in terms of the amount of taxable income that it removes from the taxation base.
And also where it is removed from.
Yes; the parliamentary
assistant dealt with that quite fully in the letter he wrote on April 30 to the gentleman on the other side of the river. In that letter, a copy of which I have because the parliamentary assistant was good enough to send it to me, he gave four examples of taxpayers in different income brackets. The point he sought to make by giving these different examples was that the loss to the treasury in every case would be determined by the rate applicable to the top bracket in which the taxpayer is located when he claims this extra 4 per cent. Having made a case that is strong to his satisfaction at any rate, and having pointed out that in some cases the reduction in tax payable is much higher than 4 per cent, he then goes on to point out that the rate of reduction declines as the income increases but that it will never decline below 4 per cent because the amount is based on net income, not taxable income. I merely want to say, so that we can have this all on the record, that in my last reply to the gentleman across the river I said in part: There may be something to his point-
1 was referring to the parliamentary assistant.
-that the 4 per cent relates to net income rather than taxable income: but by drawing attention to this aspect of the matter Mr. Sinclair has only emphasized the fact that the 4 per cent floor is very unfair. Indeed, the point that one has to reach before he can deduct medical expenses is not Just 4 per cent of his taxable income, but 4 per cent of what in most cases amounts to his total income. In other words, it is extremely difficult for the average person to get any advantage out of this supposed right.
As I see it, the major fallacy in Mr. Sinclair's argument is one that I drew attention to-off the cuff, as it were-as recorded in column 1 on page 1541 of Hansard for April 23. Even if Mr. Sinclair can assert that 4 per cent of total income is the average amount spent on medical expenses, surely he should know how deceiving averages can be. A great many people, even if the 4 per cent floor were removed, would still not claim a reduction in their taxable income by 4 per cent, so that I am satisfied that the alleged loss of revenue to the treasury would be considerably less than the $48 million indicated by Mr. Sinclair.
The point I wish to make is that the parliamentary assistant went to great trouble to show that the rate of reduction in the individual's income tax payment would vary from a high point down but that it would never get below 4 per cent. May I remind
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him that the amount of income tax deductibility that persons would claim starts from zero and never gets over 4 per cent. That is the reason I suggest that the parliamentary assistant is wrong in assuming that to wipe out the 4 per cent floor would automatically take 4 per cent of the taxable income out of the taxation base and cost the treasury 4 per cent of what it otherwise would receive from the personal income tax.
Four per cent is the most of one's taxable income that could ever come into that calculation. In most cases it would be less than that, in some cases it would be none at all. I am not going to pursue that further. I tried to do it, as I say, a bit off the cuff on April 23 when the point was first raised in the house, but I suggest that to remove the 4 per cent floor really would not cost the $48 million that the parliamentary assistant suggested. But even if it did I come back to my previous argument that in terms of justice and fairness-no matter what it would cost-a civilized community should make an effort to iron out if we can the incidence of medical costs. On that basis it is only fair to grant to people their medical expenses as deductible from income tax right from the first dollar.
I emphasize again the fact that the kind of argument the parliamentary assistant has used about the national average is not applied to charitable donations. The argument might just as well be made there. It might be said that average donations of Canadians to charities of one sort and another are a certain percentage, and therefore we will not exempt charitable donations for income tax purposes until they get above that particular percentage. That argument is not applied there. Why apply it to medical expenses? So much for that phase of the matter. I press it as strongly as I can, and I hope that even yet the change will be made at this session of parliament for I am sure that the people of Canada feel now more than ever the justice of our claim that the floor should be wiped out.
The resolution before us proposes two or three changes concerning which I should like to get clarification. It proposes that the ceiling shall be raised. At the present time it is $750 for a single person and $1,000 for a married person. These figures are to be raised to $1,500 and $2,000. In addition, the present law provides for $250 for each dependent with a maximum of $1,000. In other words, you could not charge for more than four dependents. The proposal seems to be to raise that to $500. However I gather from what is said in the resolution before
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us that the over-all ceiling of $2,000 which obtains in the act at the present time will still hold. I am not commenting on it. I am merely asking for clarification.
I am glad, however, to see the slight increase in the ceiling that is being effected by the resolution. Indeed, when we were debating this whole matter on March 26 the parliamentary assistant will remember that we got it straight between us that neither of us wants to see the ceiling abolished. The reasons for that were put on the record by the parliamentary assistant. However there is room for raising it, and I am glad to see that it has been done to this extent. I must point out, however, that this is more help to people who have money that they can spend on medical expenses than it is to the little fellow who just has the bills but does not have enough to get into the appropriate bracket.
I have one other question. In the latter part of the resolution before us it is suggested that another change be made, namely, that it will no longer be necessary for medical expenses to be both incurred and paid within the twelve month period. That is the way the law now reads. Expenses to be deductible have to be both incurred and paid during the twelve month period within the taxation year.
That is the old law.
Yes. Under the new proposal it will not matter when the expenses were incurred. I should like to know whether that is of any assistance to a person who has a big bill that he cannot pay all in one year. If he gets a big bill in 1952, shall we say, can he pay part of it in 1952, then part of it in 1953, and claim the whole of it in 1953?
Or must the actual paying be done within a twelve month period? I see the parliamentary assistant nodding his head. If that is the case it is some help, but not a great deal. To take the problem I presented on March 26 when this matter was before us, the plight of the person who has a heavy medical bill he cannot pay off within one twelve month period is serious. If he has to pay it in two periods, in neither of those periods does he reach 4 per cent of his income, so though he has had heavy medical expenses he gains no benefit. The same is true of the allowance for cortisone, insulin and these other new drugs. That is a fine gesture supposed to help a great many people who have heavy medical bills; but it is
not sufficient to get them over that 4 per cent floor, so they are denied the alleged benefit of this proposal.
This may be one of the little things; the number of dollars involved is not great, but there is a principle here which is pretty important. I hope even yet the government will accede to the wish of parliament and the wish of the people of Canada as a whole and remove this 4 per cent floor.
There is another matter in
connection with medical expenses which I have not heard discussed here so far. Take the case of a person in a district without a local hospital, or a person in a local hospital district who has something the matter with him that cannot be successfully treated at that hospital. He goes to Edmonton or Saskatoon; but because the hospitals there are not able to take care of all those who need attention, the patient has to pay hotel expenses in addition to his train fare while waiting to get into the hospital. I have had some letters in reference to this, and I wonder if the department would not also consider that as a medical expense.
If I might ask the parliamentary assistant one question, I think it would be interesting to know what percentage of the taxpayers made claims for medical expenses in the last taxation year.
I do not think that figure has been given.
It would be a very difficult figure to give; but on page 112 of the taxation statistics of Canada is a breakdown of deductions and the amount claimed in each and every group, with the total amounts claimed. The total amount of income claimed was $31 million. That is according to the most recent statistics to be put out.
While I am on my feet I might answer the other questions which have been raised. I do not intend to again go over the ground which was gone over first of all when we had the debate on the hon. member's resolution, when the minister and I discussed the matter. Actually we first had a discussion of medical expenses in the budget debate. After the debate in the house the matter was again reviewed in the light of the observations then made. Then in his budget speech the minister gave the decision he had reached. After that, of course, we had the vote on the want of confidence motion moved by the C.C.F. party. Now we have the resolution which, as the hon. member said, I am piloting. Finally, when the bill is before the house, the minister himself will pilot it through.
As far as the actual calculation goes, I tried to make it clear in the speeches I made that the actual amount of revenue concerned was
a minor point, though as far as principles are concerned the business of giving any broad exemption which would apply to all groups of taxpayers in the end had the result that this lost revenue had to be recouped in some other way by a tax which had its incidence on the same broad group of taxpayers. The hon. member mentioned the very interesting correspondence we had with this gentleman in Hull who took an interest in this matter. I was out in making the rather hasty estimate I gave in the house. I corrected my first error when the hon. member for Hamilton West was speaking. That was the fact that I had not allowed in that the part already claimed, the part just referred to by the hon. member for York West, the part over the average which had been claimed, the $30 million in some $6 billion of income. However, on receiving this letter I settled down to break it down. As hon. members know, I have no legal training, but I did have pretty extensive training in mathematics. I have done a great deal of work, for example, on this very interesting mathematical problem of averages and the weighting which should be given to averages. The thing here, of course, which makes this problem out of proportion as far as ordinary averaging is concerned is that the deduction is not taken off at the average rate of tax paid, but off the very top limit. In working out the four examples I gave, I showed that the actual incidence of this tax is very much higher than 4 per cent, so the loss of revenue being compensated for, the excess already claimed would be that.
The officials of the department thereupon became interested in the problem and did the job which I suggested to the correspondent and to the hon. member, the real job of breaking down every tax category, examining the rate of taxation on that, and then aggregating the sum. Again this is based on the premise that 4 per cent is the national average. The original figures supplied by national health and welfare indicate that this is less than the national average, which improves the argument. The hon. member says, of course, that there will be some individuals who do not claim 4 per cent, who may claim only 2 per cent. If 4 per cent is the national average, that means there are other individuals who are claiming 6 per cent, and in any tax category that will average out.
But they are now getting the portion above 4 per cent.
That is the compensation to which I referred. This is a very lengthy table; I do not propose to put it on Hansard, but it is certainly an accurate substantiation of the figures I supplied.
Could I see it?
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I shall be glad to send it to the hon. member. This also does not compensate for the excess percentage claimed, that $30 million not of tax but of income.
The next point was the meaning of the resolution as regards the maximum deduction which can be claimed by a husband, wife and family. That was $2,000. It is now $4,000, $2,000 for the couple and then the four dependents at $500 each. The hon. member rightly pointed out that an improvement has been made by allowing the exemption to be claimed not just as it was in the old act, in the twelve months which need not be a year but which might spell two taxation years, but in the twelve months in which the sickness occurred and the bills were paid. The special case which this legislation covers, of course, is the case of unusually heavy medical expenses. It may well be that the individual cannot pay off the heavy bill he has incurred in the one year. Under the old legislation he could not claim in the next year; under this he can. It is an advantage, too, in the case of a man who has an illness to such a degree that his expenses are more than even the present deduction, because if he then spreads it over two years he comes within the ceiling in those two years.
The last point, in regard to transportation, was raised last year and given consideration again this year. Again this is a matter which would be extremely hard to administer, because transportation would range all the* way from the taxicab or even the streetcar by which some people go to hospital to the ambulance, the train and the plane by which others go. Last year we had quite a discussion on that point with the hon. member for Macleod, I think it was. The government gave consideration to including transportation as a medical expense, and decided that it could not be done at this time.