Sunday, July 6, 2008

Allan J's Ancient Error

I have a bone to pick with Allan J. MacEachen.

It grieves me to say this, since “Allan J” – as he is universally known in his native Cape Breton – is a towering figure, and a much-loved one, with a record of public service stretching back into the mists of history. There are people now in retirement who were not born when Allan J. was first elected to the House of Commons in 1953. He was re-elected to the House eight times and retired as a Senator in 1996.

During his 43 years in Parliament, Allan J was Minister of Labour, of National Health and Welfare, of Manpower and Immigration, of External Affairs, and of Finance. He was Leader of the Opposition in the House and in the Senate, and Government House Leader three times. He ran for the leadership of the Liberal Party in 1968, and lost to Pierre Trudeau, who later appointed him Deputy Prime Minister.

None of this begins to capture MacEachen – his erudition, his charm, his capacity for political legerdemain. Think of him as Cape Breton's own Highland chieftain, complete with kilt, sporran and deadly little sgian dubh in his stocking top. During his years in public life, he moved through his riding just like a clan chief, smiling and inscrutable, dispensing favours, absorbing information, reassuring the troops. He greeted everyone by name, knew their families, their tastes, their fears, their occupations and preoccupations. I was among his constituents, and I owe him a favour or two myself.

Allan J is the only politician in my experience who generated his very own cliché; writers repeatedly referred to him as “the wily Cape Bretoner.” And wily indeed he was. It was MacEachen who engineered the surprise defeat of Joe Clark's government in 1979, and the immediate return of Pierre Trudeau from retirement. When the roof was about to fall in on the Liberals in 1984, MacEachen slipped upstairs to the Senate. After Brian Mulroney's landslide victory, MacEachen led the Liberal majority in the Senate, who were the only real opposition to the Mulroney juggernaut.

The new Government Leader in the Senate happened to be Lowell Murray, also a Cape Bretoner. The two faced some major issues – the Meech Lake and Charlottetown Accords and the imposition of the GST, for instance – and mighty was the clamour of their conflict. The venerable chamber rang with the clanging of claymores, the air was filled with smoke and Gaelic imprecations. The battle over the Constitution of Canada was being fought out by two Cape Bretoners, with the rest of the country as spectators. Wonderful.

But I still have my bone to pick. In 1981, as Minister of Finance, MacEachen introduced a budget full of sweeping changes to the taxation system, closing numerous loopholes and tax shelters. One of the provisions he abolished, however, was not a loophole, but a fundamental mechanism for fairness in the tax system. The provision was income averaging, and we've never been able to get it back.

Income averaging? Suppose you earn $30,000 a year for four years, and then you have a bumper year and earn $150,000. Under today's tax system, you're taxed in the fifth year at the top tax rate, as though you earned $150,000 every year. Under income averaging, you'd tot up your five-year earnings, which come to $270,000, and then you'd divide that by five. The result is $54,000, and your tax would be recalculated as though you had earned $54,000 a year for five years. You'd still pay tax on everything you earned – but at a rate which reflected reality.

The cultural community cares passionately about income averaging, because wild swings in income are common in the arts, where almost everyone is a self-employed freelancer. A novelist works in poverty for years – and then her book is sold to the movies. A painter struggles in obscurity, and then lands a major commission. The taxman swoops down and carries off far more than his fair share. And so, ever since 1981, the cultural community has been asking in vain for a return of income averaging.

But income averaging benefitted any taxpayer with an irregular income – farmers, fishermen, commission salesmen, and many others. Indeed, the problem can afflict almost anyone. Suppose you sign up for your employer's share-purchase program. Over the years, you accumulate a nice chunk of company stock. When you sell it, you probably have a big capital gain – and though the gain didn't occur in one year, it will be taxed as though it did.

The loss of income averaging harms thousands who know nothing about it. And every spring, when I wrestle with my taxes, I think, “Allan J, Allan J, you did so many things so well. How did you blow it on this one?” Twenty-seven years later, I still don't have an answer.

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