04/09/2017

The 100th Anniversary Of A Wealth Destroyer

The Rev. Ben Johnson, Acton Institute

Like the United States, Canada instituted its federal income tax 100 years ago. In the states, the progressive income tax was a demand of the original Populist movement and, after being deemed unconstitutional, was adopted into the U.S. Constitution in 1913. But Canada – which marks the 100th anniversary of its income tax this year – saw the tax as a patriotic contribution to war. The origins and unforeseen growth of the personal income tax is the subject of a new collection of essays compiled by the Fraser Institute released on Thursday: From Zero to 50 in 100: The History and Development of Canada’s Personal Income Tax. (The full book may be downloaded as a PDF here.)

As the book illustrates, in its present form, the income tax discourages economic growth, investment, and initiative while punishing far more than those who pay Ottawa’s tax assessments each year.

War and “the conscription of wealth”

Unlike the United States, where the graduated income tax had been a matter of mere class contention and sectionalism, Canada adopted a Personal Income Tax (PIT) against the backdrop of physical warfare. From the first, the PIT came into policy cloaked in the guise of national unity. After three years of the Great War, Canada turned to conscription to fill its military needs. The Military Service Act passed in August 1917, and over the next two years 100,000 Canadian men aged 20 to 45 would be drafted. The armed forces swelled to an incredible 500,000 out of a total population of eight million.

The idea of conscripting able-bodied men to fight and die in World War I intensified calls for a “conscription of wealth.” Yet Sir Thomas White, the Finance Minister and a Conservative, rebuffed those efforts for years. William Watson of McGill University writes:

What changed Minister White’s mind? In a word: conscription. In the summer of 1917, the Commons debated and approved compulsory military service, which until then had been avoided. Quebec separation aside, conscription was the most divisive issue Canadian politics ever contended with. In the election of December 1917, it badly split both the Liberal Party and the country. Both morally and practically, however, conscription was key to the income tax.

Sir White finally bowed to pressure, introducing the Personal Income Tax (PIT) as a more modest alternative to levying a tax on private fortunes. The PIT received Royal Assent two months after its introduction, on September 20, 1917.

The “War Income Tax,” as it was known, affected few Canadians. Only two to eight percent of citizens had to file and, as Lakehead University’s Livio Di Matteo points out in his essay, the personal tax exemption in inflation-adjusted dollars was more than double what it is today.

In both the United States and Canada, the Roaring Twenties brought lower tax rates and prosperity. As U.S. Treasury Secretary Andrew Mellon slashed the top U.S. tax rate from 77 percent to 29 percent, Canadian Finance Minister James Robb cut the PIT by more than 60 percent in 1926 and 1927. In a perceptive essay, Watson sleights Robb for missing the opportunity to do away with the income tax altogether after the war, as Sir Thomas White had suggested upon its introduction.

Perhaps the most important service rendered by this book is the way it documents the wealth-destroying aspects of the personal income tax.

Yet the same historical development would mainstream the income tax as part of everyday life on both sides of the U.S-Canadian border: World War II. The original, four percent PIT rate ballooned to 44 percent, personal withholding began in 1943, and eligibility expanded as the state sought funds for the war effort. While the postwar years saw taxes pared back, they have substantially exceeded their pre-war level in Ottawa and Washington. After the war, Canada dropped the name “Wartime Income Tax” and with it the pretense that the system was tied to just one-half of the welfare/warfare state.

Read full article



You May Also Like:

Where Trumponomics Is Working Stephen Moore and Arthur Laffer, Washington Times

Trump Is Right About 401(k) Contribution Limits Jonathan S. Tobin, National Review

Why Are Federal Bureaucrats Buying Guns And Ammo? $158 Million Spent By Non-Military Agencies Adam Andrzejewski, Forbes.com

Donald Trump: King Of Deregulation? Peter J. Boyer, Weekly Standard

Et Tu, Steve Bannon? William Mcgurn, The Wall Street Journal

Vladimir Putin Warns About Super-Human Soldiers In Future Shivali Best, Daily Mail

How Iowa Became An Obamacare Horror Story Paul Demko, Politico

NFL Teams Play Before Empty Stadiums As Fan Backlash Spreads Dylan Gwinn, Breitbart News

A Clown In A Sequined Cowboy Hat Distorts Greatest Sacrifice Charles Hurt, Rasmussen Reports

How Democrats And Their Families Get Richer Adam Brandon, Freedom Works

Jimmy Carter Lets Loose: Knocks Obama And Hillary, Says Russia Didn’t Alter Election, Praises Trump Chris Enloe, TheBlaze

Rep. Frederica Wilson No Friend Of Vets, Voted Against Death Benefits For Soldier Families [Watch] Lukas Mikelionis, Fox News

EVENT: Leftists Plan To 'Scream Helplessly At The Sky On The Anniversary' Of Trump's Election Paul Bois, Daily Wire

10 Times CNN Told Us An Apple Was A Banana [Watch] David Harsanyi, The Federalist

California Tried To Seize Millions Of This Inventor’s Fortune. He Fought Back. And Won. [Watch] Zach Weissmueller, Reason

Trump’s Fed Picks? More Of The Same! Ron Paul, Campaign for Liberty

How Important Is International Trade To Each US State’s Economy? Mark J. Perry, American Enterprise Institute

Is Rand Paul The Only Fiscal Conservative In The Republican Party? [Watch] Andrew Moran, Economic Collapse News

Chicago Wants To Tax Lyft And Uber To Help Public Transit James Pethokoukis, Ricochet

For More go to the Home Page >>>

Search

Bookshelf

FreeMarket Central

Some titles recent, all recommended -

Special Video Feature

FreeMarket Central

Voices From The 2017 International Students For Liberty Conference

In Search Of History

When America Was Truly The Land Of Opportunity

For [early immigrants] America was truly the land of opportunity. For the first time in their lives, many were truly free to pursue their own objectives. That freedom released the human energies which created the United States. There were few government programs to turn to and nobody expected them. But also there were few rules and regulations. There were no licenses, no permits, no red tape to restrict them. They found, in fact, a free market, and most of them thrived on it. 

-- Milton Friedman,

Shadow Stats Snapshot


FreeMarket Central

ShadowStats alternate economic indicators are based on the methodology of noted economist John Williams, specialist in government economic reporting.

  • Unemployment:
    FreeMarket Central BLS: 4.22%
    FreeMarket Central Shadow Stats: 21.9%
  • Inflation:
    FreeMarket Central September Year-to-Year: 2.23% (CPI-U*)
    FreeMarket Central Shadow Stats: 10.0%

*[cpi-u is the Bureau of Labor Statistics inflation rate for all urban consumers]