The Carter Commission
Progressive Conservative Prime Minister John G. Diefenbaker appointed a Royal Commission on Taxation in September 1962, in response to complaints about the high level of taxation in Canada. He chose Toronto accountant Kenneth Carter as chair and also appointed J. Harvey Perry, Executive Director of the Canadian Tax Foundation; A. Emile Beauvais, Executive Vice-President of the Québec City firm, Donohue Brothers; Donald Grant, General Manager of the Nova Scotia Trust Company; Charles Walls, a Victoria, BC, farmer and Executive Director of the Canadian Federation of Agriculture; and Eleanor Milne of Winnipeg, who had served as Treasurer of the National Council of Women. Chosen as Research Director was Douglas Hartle, who had worked for the Department of Labour before being appointed to the Department of Political Economy at the University of Toronto.
Carter took up the task agreeing with business people that the Canadian tax system was unfair and needed reform. Two years later, however, and with a professional staff of 150 accountants, lawyers, and economists at work, Carter was prepared to carry through a fundamental reconsideration of Canada’s tax system. He had discovered that marginal income tax rates as high as 80% meant very little because tax breaks sheltered much of the income of rich Canadians and that profitable resource companies paid little in the way of corporation income taxes. These findings convinced him, Hartle, and Commission Secretary Jack Stewart of the need for action. A book published in New York in 1961, tax expert Louis Eisenstein’s The Ideologies of Taxation, provided additional incentive to act.
Carter eventually came to believe that “A buck is a buck is a buck,” whether it came in the form of wages, salary, or gains on the stock exchange or through real estate transactions. There should be no exemption for capital gains, and Canada should base its taxes on all of the income people achieved. The report Carter, Perry, and Stewart wrote during 1964-67 recommended abolition of all the tax privileges the wealthy had achieved over the years and establishment of full taxation of capital gains, including estates (people might be allowed to average a large inheritance over five years). Resource companies should no longer be allowed to pay only 20% in taxes on their profits when other corporations paid at the average effective rate of 42%.
Such a tax system would mean higher taxes for some Canadians, especially the 633 people who had annual incomes of more than $300,000 but sometimes paid no taxes at all. They would face an average extra tax of $67,549. Given the larger tax revenues these changes would generate, however, it would be possible to reduce taxes for almost half of the people of Canada. If the reforms were to be revenue neutral, this would mean good news for millions of Canadians. When it became time to sign the report, Carter, Walls, and Milne did so, but Beauvais and Grant refused to recommend a tax system based on the comprehensive income concept.
After the report in six volumes was released in February 1967, it soon aroused fierce opposition from all the individuals and corporations who enjoyed tax breaks. Leading the attack were Canada’s resource companies. Liberal Prime Minister Lester B. Pearson heard enough to refuse $50,000 to pay for the publication of a mimeographed report that interested people around the globe. A graduate seminar at Harvard University, as Linda McCuaig has put it, “had to scramble to come up with one copy, to be shared among 25 students, of a government-financed document that had become an underground classic” (Behind Closed Doors: How The Rich Won Control of Canada’s Tax System . . . And Ended Up Richer [Toronto: Viking, 1989], 154-55).
And the final result involved the failure of Liberal Prime Minister Pierre Elliott Trudeau to see how this “Centennial gift” could be used to finance the Liberal Party’s “Centennial gift” to the Canadian people, Medicare. The consequences of that failure still ramify in the ruination Canadians are suffering today!
The Carter Commission saga has been well described in the book by Linda McCuaig noted above, especially in Chapter Five: “How A Nice Bay Street Accountant Ended Up Hated By His Neighbours: The Tale Of Kenneth Carter.”