Policy Forum: The Case Against Boutique Tax Credits and Similar Tax Expenditures

Abstract

One of the distinguishing features of the Harper Conservatives' tax policy was the enactment of a series of so-called boutique tax credits. Although the Canadian income tax was riddled with tax expenditures before the election of the Conservatives in 2006, a number of reasons can be identified that explain the Harper government's particular fondness for boutique tax credits. In addition to reviewing these explanations, this article defends three claims. First, boutique tax credits, along with almost all other tax expenditures, impair the legitimacy of the tax system and hobble it in the pursuit of its primary functions -- raising revenue and redistributing income. Second, analyzed as spending programs, which they are, tax expenditures, particularly boutique tax credits, violate almost every criterion of a well-designed spending program. Third, the enactment of tax expenditures circumvents almost all of the accountability and control mechanisms of sensible budgetary policy making and thus imperils democratic governance for the common good. The article suggests that all tax expenditures should be subjected to analysis by a commission of public policy experts, to rationalize the spending done through the tax system. This process would increase the integrity of the Canadian tax system, the efficiency and equity of government spending programs, and the transparency and vibrancy of Canadian democracy, and would spell the end of the unprincipled use of boutique tax credits.

Keywords: tax expenditures, efficiency, equity, accountability, transparency, tax policy.