If the Trudeau government’s newly announced small-business tax cut is the beginning of the end of this past summer’s pathetic tax-reform saga, it will be a finale worthy of O. Henry.

The three small-business tax changes the government unveiled in July were framed as a down payment on its promise to close costly tax loopholes for high-earning individuals, a supposedly easy way for a government in dire need of revenues to raise some.

Well, it certainly hasn’t been easy. And now it looks like the effort won’t raise much, if anything. To appease those aggrieved by the proposed reforms the government seems set on forgoing more revenue than it sought to save in the first place. With its ham-fisted rollout of a largely sensible tax-reform package, it has squandered a great deal of capital, both political and actual.

Cutting the small-business tax rate to 9 per cent, from its current level of 10.5 per cent, was a Liberal campaign promise that went undelivered in Finance Minister Bill Morneau’s first two budgets. Morneau likely delayed in part because, as the government accumulated larger-than-expected debt, Ottawa simply couldn’t afford it. But perhaps, too, Morneau hesitated because the move is so controversial in policy circles.

Some argue that preferential small-business taxes encourage companies to stay small rather than grow and incur the much higher corporate rates. A number of countries, such as Britain, have done away with small-business tax benefits entirely.

There’s also mounting evidence that Canada’s small-business tax regime does not primarily benefit the sort of mom-and-pop operations it was designed to help. According to researchers at the University of Calgary, 60 per cent of Canada’s small-business tax break benefit is enjoyed by those who earn more than $150,000 per year.

Meanwhile, a recent report for the Canadian Tax Foundation found that those who make more than $2.6 million a year (that is, the top 1 per cent of the top 1 per cent) are over 10 times more likely to hold shares in a small business corporation than the average Canadian.

This tax cut appears to be a gift the government can’t afford that will benefit primarily those who don’t really need it.

Whatever the reason for the delay in making the cut, the government has clearly calculated that delivering on this promise is the best way to quiet the uproar over its badly managed tax proposals and attempt to undo the political damage of the past weeks. (It is also expected to announce a number of further tweaks to the proposals in the coming days.)

Of course, the uproar that Prime Minister Justin Trudeau is now attempting to quiet was largely avoidable. The proposed reforms are aimed at preserving an unassailable principle: that the small-business tax system should help small businesses thrive and grow, not make it easier for wealthy individuals to pay less than others in similar circumstances. But in its tone-deaf communications and sloppy policy design, the government turned what should have been manageable blowback into a major political headache – one that’s bound to grow as questions are raised about Morneau’s handling of his own business interests and financial disclosures. And so we get this cut.

The result is as absurd as the process that got us here. According to projections from the Parliamentary Budget Officer, the tax cut will cost Ottawa far more over the coming years than the closed loopholes were supposed to bring in.

This fiasco casts serious doubt on whether the Trudeau government has the skill or the will to raise needed revenues. Study after study has shown that our tax code is rife with regressive and ineffective loopholes that cost Ottawa billions of dollars per year without helping the government meet any larger policy objective. Upon taking office, Morneau claimed tax fairness as his top priority and promised to bring in $3 billion annually by reviewing the system and closing the worst of these loopholes. Some experts suggest it would be relatively easy to save twice as much as that.

Of course, this just and prudent project won’t work if every time the government tries to close a loophole it attempts to buy support with a costly tax cut. Is it competence or courage this government lacks? In any case, if the prime minister continues down this path, he will either have to scale back his progressive vision or continue to rack up debt indefinitely. Either way, that’s not the government we were promised.

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