Finance committee  Perhaps I could just say something very quickly about that. Some of these will be in the nature of user fees—airport taxes, for example. I think that is a good thing to pursue, but there's an appropriate level for these things.

Finance committee  No. It depends a little on things like administrative costs and so on. In economists' language, we're in a second-best world and providing any government service for free is a little questionable. There could be an excuse for doing that, which is it may cost too much to collect these fees to really make it appropriate to do that.

Finance committee  I think, really, to answer your question about how much vertical equity you are giving up if you gain more efficiency, you need a good model that incorporates these things. We'd have to crunch some numbers, and clearly we don't have those numbers here today. On the flat tax thing, I was making the point that you need to consider the marginal tax rates that are coming from other taxes in addition to the personal income tax.

Finance committee  I don't have anything to add to that. I agree.

Finance committee  I'll have a crack at that. I think we should stay with our own approach, and I believe that very strongly. The way housing is treated at the moment is very good in terms of a consumption-tax approach. The argument is that even if you look at this from the income tax viewpoint, there's not only the capital gains but also the imputed rent.

Finance committee  In the short run, increasing credits and deductions is going to reduce revenue, so I think you have to do that very carefully. I was flagging that. I had some concerns about proliferating tax credits or whatever. There has to be a really good reason for them, right? So, yes, in the short run, it can be revenue reduction.

Finance committee  I think that's a really good point.

Finance committee  I think that's a really good point. Often things we introduce to try to achieve greater fairness or pursue goals that seem to be attractive add to the complexity. If you think about the situation with children, we have the Canadian child tax benefit, child expense deductions, the universal child care benefit, and a Canada child tax credit.

Finance committee  Yes, I agree with everything Professor Kesselman has said. I would also point out that some of these initiatives that both he and I were suggesting on the personal income tax side—increasing contribution limits for RRSPs or for TFSAs—of course would also have a revenue cost, and that could be part of a package of tax reductions if there was room for tax reductions.

Finance committee  That's another area in which we differ. I think a flat tax is a progressive tax as well, because there always is a basic exemption of a certain amount. If you look at Alberta, it's fairly healthy. Normally in flat-tax proposals what people put forward is an increase in the amount of basic income that's exempt, so that the proposals normally deliver a benefit to low-income people.

Finance committee  I don't think the number of tax brackets is that crucial, because if we wanted to flatten our structure—which I certainly advocate—we could reduce our 29% rate and our 26% rate. It's probably a good thing that the bottom rate went down over the years from 17% to 15%, but we still have this 29% top rate.

Finance committee  That's an interesting question. Most countries tax husbands and wives independently. In addition to the example of the French system, there's the U.S. system, where most husbands and wives are taxed jointly. For example, when teaching I find that a lot of people are aware that's how it's done in the U.S., and the question arises of whether we should we think of taxing the family unit rather than the individual.

Finance committee  Yes, I think you're making a good point. It's a complicated issue, because there are downsides as well as upsides. If you tax a husband and wife together and one of the partners has been out of the labour force and is thinking about perhaps taking a job, their effective marginal tax rate is the marginal tax rate of the family.

Finance committee  Clearly it is for the great majority of people, but what I would throw in is that the top percentage of people, for whom it's not truly a consumption tax, are very important in economic terms. Savings rates rise very steeply with income towards the top of the income distribution.

Finance committee  No. But I think you're picking up the nuance that there's a slight difference of opinion between us, right?