A Temporary Historical past On The Disagreeable Topic Of Taxes – Tax

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Taxes are compulsory expropriations levied to support necessary
government expenditures. The law is complex, and the government has
large budgets to administer it. Tax disputes are expensive and
often involve protracted litigation. Hence, most persons consider
tax an “unpleasant subject”. However, they are necessary
for the public good and to maintain the rule of law in a democratic

Historically, taxes had some religious significance,
particularly in ancient Greece and in the Roman Empire. We see this
in the Brancacci Chapel in Florence, where the fresco
“Rendering of the Tribute Money” depicts the gods
approving the Florentine income tax. However, tax is also
associated with unpleasant events, such as, wars and

The religious association of taxes was replaced by the
sovereign’s rights to impose new levies. We see the origins of
the “newer” taxes in the medieval English feudal system
of landholding, where the King held all land through a complex web
stretching down from the monarch to the rural peasantry. Everyone
in this hierarchy had allocated feudal rights, which came with
obligations regulated by custom.

The King was entitled to many forms of payments. For example, he
could demand money from his tenants-in-chief on the marriage of
their eldest daughter, or when his tenants’ heirs inherited
their estates. He had the lucrative right of wardship over
tenants’ heirs who were minors, and he could control the
marriage of his tenants’ widows and heirs. The barons also owed
‘scutage’ to the King, a payment in lieu of military
service. The payments were compulsory appropriations; hence, they
were, in effect, “taxes”.

King John (1199-1216) repeatedly breached the bounds of
traditional practices by exploiting his feudal (taxing) rights to
excess. After many years of unsuccessful foreign policies and heavy
taxation demands, King John was facing down a possible rebellion by
the country’s powerful barons. In May 1215, a group of barons,
who were discontented with the King, rebelled. Led by Robert fitz
Walter (1162-1235), who called himself ‘Marshal of the Army of
God and Holy Church’, the rebel barons captured London on 17
May 1215, and the following month finally forced King John to sign
Magna Carta (“the Great Charter”) on June

Under duress, the King agreed to a charter of liberties that
would place him and all of England’s future sovereigns within
the rule of law. The barons then made peace with the King and
renewed their allegiance to him. The Magna Carta also
contained a clause that provided that 25 barons should oversee the
enforcement of its provisions. Over a third of the 63 clauses in
the 1215 Magna Carta dealt directly with rights defining and
limiting the extent of the King’s authority.

Though it was not initially successful, the document was
reissued (with alterations) in 1216, 1217 and 1225, and eventually
became the foundation for the English system of common law and the
rule of law.

Prior to 1798, the English revenue system relied primarily on
customs and excise duties. By then, the medieval system of taxes on
property contributed a very small proportion of general revenues.
However, after England declared war with France in 1793, it needed
to increase its revenues. Pitt the Younger introduced the first
income tax in England in 1800 to finance the fight against

Following the Battle of Waterloo (June 18, 1815), where the Duke
of Wellington (the “Iron Duke”) defeated Napoleon,
opponents of the income tax forced it to be abolished and even
demanded the destruction of all documents that referred to the law.
An official saved one copy in the basement of the English tax court
and it became the model of the modern-day tax system.

The story of income tax in the United States is similarly rooted
in war. The Boston Tea Party was essentially a revolution against
Great Britain’s Stamp Tax on everything from tea to legal
documents. The revolution gave birth to the phrase “No
taxation without representation”, which underlies the American
Constitution and is also incorporated in the Westminster
parliamentary tradition of Canadian tax law.1

Similarly, before World War I, the principal sources of Canadian
revenues were federal customs duties, excise taxes and revenues
from postal services. Prime Minister Sir Robert Borden introduced
the federal income tax on business profits in 1916 and a tax on
personal income on September 20, 1917. Both taxes were tabled as
temporary measures to finance the costs of World War I. By
1916, the cost of the war had reached $600 million, an enormous sum
at that time. In introducing the tax, Sir Thomas White – Minister
of Finance, speaking to the Committee of the Whole in the House of
Commons, said:

“Mr. Chairman, I desire today to lay before this committee
proposals for a national measure of income taxation. Hitherto we
have relied upon duties of customs and of excise, postal rates and
other miscellaneous sources of revenue. Canada has been and will
continue during the lifetime of those present today, to be a
country inviting immigration. I have, therefore, thought it
desirable that we should not be known to the outside world as a
country of heavy individual taxation.

We are, however, confronted with grave conditions arising out of
the war. The time has arrived when we must resort to direct
taxation. I am confident, Mr. Chairman, that the people of Canada,
whose patriotism during this war has been so often and so nobly
proven, will, in light of present conditions, which call for it,
cheerfully accept the burden and the sacrifice of this additional

We cannot see very far ahead in these days. We do not know how
long this war will last. We do not know what the attitude of the
people of this country will be upon the many questions, social,
industrial, financial and fiscal.

Therefore, I have placed no time limit upon this measure but
merely have placed upon Hansard the suggestion that, a year or two
after the war is over, the measure should be reviewed by the
minister of finance of the day, with a view of judging whether it
is suitable to the conditions which then prevail”.

It was not until 1949 that Louis St. Laurent finally made income
taxes permanent in Canada. The Income War Tax Act of 1917
was all of ten pages. It has since grown through several
reincarnations of “tax reform” to over 3,500 pages and
expands annually at a healthy pace.2 Of course, the
nature of the Canadian income tax system has also changed
significantly since its introduction. For example, in 1917, the
Income War Tax Act exempted the first $1,500 of income
— about $30,720 in 2020 dollars — from any tax
whatsoever. The top rate of 25% applied only to income over
$2,048,000 in 2020 dollars. The top federal marginal rate of 33%
now kicks in at $216,512 (2021).

The income tax was transformed after 1945 from war time revenues
to social, economic, and political objectives. Income
redistribution is now one of the dominant themes of tax
legislation. Tax law became a tool for behavioral finance. The law
is used to invoke behavioural responses from taxpayers to respond
to economic incentives and sanctions. Some examples: there are
special tax rules to encourage Canadian culture and foreign films
made in Canada (sections 125.4 125.5), discourage advertising in
foreign magazines (subsection 19(1)), provide labour credits for
journalism organizations (section 125.6) and digital news
subscriptions (section 118.02), and promote gender equality. The
February 2018 Federal Budget comprised 362 pages mentioned women
358 times).

“Tax reform” has become a mere trope, a phrase that is
trotted out every four years during elections. There have been
numerous studies of the tax law with the purported purpose of
“tax reform”. The most significant was the Report of the
Carter Commission (1966), which received universal acclaim
from informed scholars. As Boris I. Bittker, Southmayd Professor of
Law, Yale University said of the Report in The University of
Chicago Law Review, Volume 35, 637:

“The 1966 Report of the Royal Commission on Taxation,
established with a sweeping mandate to examine the federal tax laws
of Canada and to make recommendations for their improvement, has
few peers among modern proposals for income tax reform.”

Rare praise indeed from an American source for a Canadian
proposal. Regrettably, the acclaim did not capture the imagination
of Canadian politicians of the day. The Bill (tabled in the House
of Commons June 18, 1971, exactly 156 years later to the day after
the Battle of Waterloo) ignored the most significant proposals of
the Report, including the concept that “a buck is a
buck”. Instead, we chose to tax different sources of income
differently and devised a complex structure of rules for each

Since the Tax Reform Bill of 1971, there have been numerous
calls for “reform” and “simplification” of the
statute. Serious analysis of tax reform requires an analytical
examination of fairness, simplicity, and efficiency. There has been
no such effort.

The Income Tax Act is now incomprehensible to the average
person. As the Joint Committee on Taxation of the Canadian
Bar Association and the Canadian Institute of Chartered
Accountants, in addressing the House of Commons Committee on
Finance and Economic Affairs, said:

“For any taxpayer to pick up some of this legislation we
are looking at today and understand how these rules are going to
impact on him when he sits down to fill out his tax return is
almost impossible.

There is no quick fix to the complexity issue. It is a very
long-term problem, but I fear that the Government’s priority
for tax simplification has fallen down to the bottom of the various
objectives set out for tax reform.”

Tax professionals have abandoned any hope of tax simplification.
In 1997, for example, the Report of the Technical Committee on
Business Taxation reported:3

“(I)n a complex society that is part of a world economy,
where the form and processes of business activities are
increasingly sophisticated, and where the tax system is also used
for purposes other than raising revenue, it is unrealistic to
expect our tax system to be simple.”

That was in 1997. Today, in 2021, as we engage in digital
technology that crosses national boundaries, the size, scope and
complexity of our tax rules is exponentially greater. International
tax bureaucrats of the Organisation for Economic Co-operation and
Development (OECD), a club of 37 advanced economies, must balance
the politics of numerous states. They endeavour to reach
“consensus” on higher rates and new taxes, which results
in even more complex legislation (See, for example, the latest
effort in the Multilateral Instrument (MLI), which came
into effect in 2020). Their latest mission is to reach consensus on
global digital taxation.

Tax treaties are generally structured to allocate corporate
profits based on where the corporation creates value in bricks and
mortar economies. However, modern multinationals corporations
(MNCs) — particularly those with digital offerings, such as,
Amazon, Facebook and Google — can sell their products across
borders in ways that leave little taxable profit in the country
where their products are consumed.

Hence, the battle between technology companies and the new wave
of digital taxation. The U.S., on January 6, 2021, the U.S. imposed
tariffs on $1.3 billion of French imports,
including cosmetics and handbags. Washington has pending
investigations that could lead to similar tariffs on 10 other
countries, including the U.K., Italy, India and Spain.

Regardless of the ultimate outcome, taxpayers must live with the
complexity of domestic tax statutes and international tax treaties.
They pay for professional advice to comply with the ever-changing
law, and then pay legal counsel to resolve their disputes in the
courts. Tax litigation is slow, arduous, and expensive. Tax
litigation can drag on for 10-15 years.

Hence, the unpleasantness of taxes.


1. The Westminster system is a parliamentary system of
government modelled after that which developed in the United
Kingdom. The term comes from the Palace of Westminster, the seat of
the British Parliament. The system is a collective series of
procedures for operating a legislature.

2. Up from 2,000 pages since 2004.

3. Report of the Technical Committee on Business Taxation
(December 1997), A Report to the Minister of Finance, at

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