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The Impact and Cost of Taxation in Canada: the Case for Flat Tax Reform / Edited by Jason Clemens

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The Impact and Cost of Taxation in Canada: the Case for Flat Tax Reform / Edited by Jason Clemens The Impact and Cost of Taxation in Canada The Case for Flat Tax Reform The Impact and Cost of Taxation in Canada The Case for Flat Tax Reform edited by Jason Clemens THE FRASER The Fraser Institute INSTITUTE www.fraserinstitute.org 2008 Copyright ©2008 by The Fraser Institute. All rights reserved. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. The authors have worked independently and opinions expressed by them are, therefore, their own, and do not necessarily reflect the opinions of the support- ers, trustees, or staff of The Fraser Institute. This publication in no way implies that The Fraser Institute, its trustees, or staff are in favour of, or oppose the passage of, any bill. Editing, design, and production: Lindsey Thomas Martin Cover design by Bill Ray Image for front cover: ©Adam Korzekwa, iStockphoto Date of issue: February 2008 Printed and bound in Canada Library and Archives Canada Cataloguing in Publication Data The impact and cost of taxation in Canada: the case for flat tax reform / edited by Jason Clemens. Includes bibliographical references. ISBN 978–0–88975–229–0 1. Taxation--Canada. 2. Flat-rate income tax--Canada. I. Clemens, Jason. HJ2449.I56 2008 336.2'050971 C2008-900683-6 Contents About the Authors d iv Acknowledgments d ix Foreword d xi Jason Clemens 1 The Impact of Taxes on Economic Behavior d 3 Milagros Palacios & Kumi Harischandra 2 Not All Taxes Are Created Equal d 33 Jason Clemens and Niels Veldhuis 3 Compliance and Administrative Costs of Taxation in Canada d 55 François Vaillancourt & Jason Clemens 4 Lessons from Abroad—Flat Tax in Practice d 103 Patrick Basham and Daniel Mitchell 5 A Flat Tax for Canada d 145 Alvin Rabushka & Niels Veldhuis Publishing information d 187 About The Fraser Institute & Editorial Advisory Board d 188 Supporting The Fraser Institute d 190 www.fraserinstitute.org d The Fraser Institute d iii About the authors Patrick Basham Patrick Basham teaches in the Government Department at the Johns Hopkins University. He is Founding Director of the Democracy Institute, a research organization based in Washington, DC. Mr Basham pre- viously served as a Senior Fellow at the Cato Institute, where he is currently an Adjunct Scholar. Prior to joining Cato, he served as the Director of the Social Affairs Centre at The Fraser Institute. He has written and edited books, scholarly articles, and studies on a variety of domestic and foreign-policy topics, including campaign finance, democratization, education reform, obesity, political marketing, and the regulation of risk. A frequent media commentator, his articles have appeared in the New York Times, Washington Post, Forbes, Sunday Telegraph, The Independent, Australian Financial Review, National Post, and Globe & Mail. Mr Basham earned his B.A., M.A., and Ph.D. degrees in Political Science from Carleton University, the University of Houston, and Cambridge University, respectively. Jason Clemens Jason Clemens is the Director of Research Quality and a Resident Scholar in Fiscal Studies at The Fraser Institute. He also acts as the Director of Strategic Planning and Budgeting within the Institute. He has an Honours Bachelors Degree of Commerce and a Masters’ Degree in Business Administration from the University of Windsor as well as a post-Baccalaureate Degree in Economics from Simon Fraser University. He has published over 40 major studies on a wide range of topics, including taxation, government spending, labour market regulation, banking, welfare reform, productivity, entrepreneurship, Public Choice economics, and economic prosperity. He has published iv d The Fraser Institute d www.fraserinstitute.org About the authors d v over 200 shorter articles, which have appeared in such newspapers as the Wall Street Journal, Investors Business Daily, National Post, Globe & Mail, Toronto Star, Vancouver Sun, Calgary Herald, Ottawa Citizen, Montreal Gazette, and La Presse. Mr. Clemens has been a guest on numerous radio programs across the country and has appeared on the CBC National News, CTV News, CBC Business Newsworld, CBC’s CounterSpin, Global TV, BCTV, and Report on Business TV as an eco- nomic commentator. He has appeared before committees of both the House of Commons and the Senate as an expert witness. In 2006, he received the prestigious Canada’s Top 40 Under 40 award presented by Caldwell Partners as well as an Odyssey award from the University of Windsor. Kumi Harischandra Kumi Harischandra is a Research Economist in the Fiscal Studies Department at The Fraser Institute. She holds a Bachelor of Social Sciences (Honours) degree in Economics from the National University of Singapore and a Master of Arts degree in Economics from Simon Fraser University. Since joining the Institute as a Research Intern in 2006 and subsequently as a full-time researcher in 2007, Ms. Harischandra has written on several policy issues such as taxation, government spending, foreign investment, poverty, charitable giving and business attitudes. Her recent co-publications include Beyond Equalization: Examining Fiscal Transfers in a Broader Context (2007) and contributions to Fraser Forum. Daniel Mitchell Daniel J. Mitchell is a Senior Fellow at the Cato Institute in Washington, DC. A top expert on tax reform and fiscal policy, Mr. Mitchell is a strong advocate of a flat tax and international tax competition. Prior to joining Cato, he was a senior fellow with The Heritage Foundation and an economist for Senator Bob Packwood and the Senate Finance Committee. He also served on the 1988 Bush/Quayle transition team and was Director of Tax and Budget Policy for Citizens for a Sound Economy. His articles can be found in such publications as the Wall Street Journal, New York Times, Investor’s Business Daily, and www.fraserinstitute.org d The Fraser Institute vi d The Impact and Cost of Taxation in Canada Washington Times. He is a frequent guest on radio and television and a popular speaker on the lecture circuit. Mitchell holds bachelor’s and master’s degrees in economics from the University of Georgia and a Ph.D. in economics from George Mason University. Milagros Palacios Milagros Palacios is a Senior Research Economist in the Fiscal Studies Department at The Fraser Institute. She holds a Bachelors degree in Industrial Engineering from the Pontifical Catholic University of Peru and an M.Sc. in Economics from the University of Concepción, Chile. She is co-author of the Measuring Labour Markets in Canada and the United States (2007), Fiscal Performance Index (2007), Tax Freedom Day (2007), Canadian Provincial Investment Climate Report (2007), An Empirical Comparison of Labour Relations Laws in Canada and the United States (2006), Union Disclosure in Canada and the United States (2006), Canadian Government Debt (2006), and Transparency of Labour Relations Boards in Canada and the United States (2005). Her recent commentaries have appeared in such newspapers as the National Post and Windsor Star. Since joining the Institute, Ms. Palacios has written regularly for Fraser Forum on a wide range of topics including labour regulation, fiscal issues, taxation, charitable giving, and a host of environmental issues such as air quality, Kyoto, and water transfers. Alvin Rabushka Dr. Alvin Rabushka, the David and Joan Traitel Senior Fellow at the Hoover Institution, works in the public policy areas of taxation in the United States and abroad, economic development in the Pacific Rim countries, and the economies of Central and Eastern Europe. He is the author or coauthor of more than 20 books in the areas of race and ethnicity, aging, taxation, state and local government finances, and the economic development of Hong Kong and the “Asian tigers” of Taiwan, Korea and Singapore. Dr. Rabushka has published numerous articles in scholarly journals and in such popular outlets as the Wall Street Journal, New York Times, and Fortune. He has consulted for, and testified before, a number of public agencies including the US Senate Committee on the Judiciary, The Fraser Institute d www.fraserinstitute.org About the authors d vii Joint Economic Committee of the Congress, House Ways and Means Committee, Senate Finance Committee, 1981 White House Conference on Aging, and the Agency for International Development. In 1980, he served on President Ronald Reagan’s Tax Policy Task Force. His books and articles on the flat tax (with Robert E. Hall) pro- vided the intellectual foundation for numerous flat-tax bills that were introduced in Congress during the 1980s and 1990s and the proposals of several presidential candidates in 1996 and 2000. He was recog- nized in Money magazine’s twentieth-anniversary issue “Money Hall of Fame” for the importance of his flat-tax proposal in bringing about passage of the Tax Reform Act of 1986. He has lectured on tax pol- icy in Hong Kong, Israel, El Salvador, Guatemala, Mexico, Argentina, Chile, Canada, the Czech Republic, Austria, Italy, Sweden, Switzerland, and other countries. His pioneering work on the flat tax contributed to the adoption of the flat tax in 1994 in Estonia, followed by Latvia, Lithuania, Russia, Ukraine, Serbia, Romania, Slovakia, and Georgia. The flat tax is also under consideration in Croatia, Slovenia, and the Czech Republic. Rabushka received his A.B. in Far Eastern studies from Washington University (St. Louis) in 1962, followed by his M.A. and Ph.D. degrees in political science from Washington University in 1966 and 1968. He spent 1963 in Hong Kong learning Chinese and 1966/1967 in Malaysia for research on his doctoral dissertation. He taught at the University of Rochester (1968–1976) and the University of Hong Kong (1973). He joined the Hoover Institution in 1976. François Vaillancourt François Vaillancourt has been a professor in the department of eco- nomic sciences at the University of Montreal since 1976.
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