Canadian Public Policy
The Taxation of Savings and Investment by Economic Council of Canada Review by: Richard M. Bird Canadian Public Policy / Analyse de Politiques, Vol. 14, No. 4 (Dec., 1988), p. 443 Published by: University of Toronto Press on behalf of Canadian Public Policy Stable URL: http://www.jstor.org/stable/3550415 . Accessed: 18/02/2013 11:56 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp
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The Taxation of Savings and Investment Economic Council of Canada. Ottawa: Supply and Services Canada, 1987. Pp.x, 150. $10.95. This report summarizes a three-year research program, carried out by a team at the Economic Councilin collaborationwith an impressive list of outside contributors. Serious students of Canadiantaxation will benefit from close study of this document, which ranges more widely than its title might suggest and covers virtually all taxes except those on labour income. The discussion of the property tax, for example, admirably summarizes the complex (and still evolving) state of the research art with respect to this ancient fiscal instrument. Only in its treatment of resource taxes that political keg of dynamite - does the report seem inadequate,being confinedlargely to a presentation of marginal effective tax rates (METRs)in the mining and oil industries relative to other sectors of the economy. Indeed, METRsare central to the report as a whole in two different ways. First, METRsare used as a concise way of characterizing the effects of both the existing (pre1987) tax system and such alternatives as the recently revised corporation income tax. Secondly, most of the recommended policy changes are intended to reduce the variance in METRs among different types of saving and investment. This approachis obviously attractive to economists, in part no doubt because of its quantifiability (albeit through simulations), and the Council has made a substantial contribution to the burgeoning cottage industry of METR calculation. Nonetheless, it is by no means clear that the 'level (effective)playing field' sought by most METR calculators, including the Council, is either desirable or feasible. For example, the conditions needed to make 'production efficiency' a useful policy goal seem unlikely to be met in the real world, METR calculations have little useful to tell us about a world of un-
certainty, some non-uniformities may be politically essential, and the 'effective' MTRin an open economymay be a US rate rather than a Canadian one. METR advocates may of course counter such objections in various ways, but as yet few policymakers seem convinced that the 'neutral' corporatetax recommendedby the Council is the best possible solution - and they are not necessarily wrong to hold this position. Perhaps the most novel contribution to the tax policy debate in Canada in this report is the case made for a 'lifetime' income tax, as opposed to either a reformed tax on annual income or a consumptiontax. Unfortunately, this argument too seems suspect, since in an important sense what it reduces to is the taxation of all transfers of wealth at death as income.The likelihood of such a proposal being implemented in Canada has hardly increased since the Carter Commission's somewhat similar proposal was greeted two decades ago by generalizedpublichorror- and subsequent political action resulting in the substantial reductionof taxes on such transfers. A personal tax reform along the lines suggested by the Council(e.g., expandedRRSPdeductions) might well result in these circumstancesnot in a lifetime income tax but a consumptiontax - a much more arguable change. RICHARD M. BIRD, Department of Economics, University of Toronto
The Future of Social Welfare Systems in Canada and the United Kingdom edited by Shirley B. Seward. Halifax, The Institute for Research on Public Policy, 1987. Pp.xxii, 313. $22.00. The custom of bringing together experts from different countries to exchange ideas is well-established and, like all good practices, worth repeating at regular intervals. This is the setting for the papers comprising this volume, a record of proceedings of ReviewslComptesrendus 443
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