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If the U.S. experience, cutting rates without closing preferences, offers one sort of cautionary tale, the Liberals’ first ill-fated foray into tax reform, the attempt to rein in the tax advantage enjoyed by owners of small private corporations, is another. With such a narrow focus, and without compensatory tax cuts, the whole thing was perceived as at best a tax grab, at worst an assault on small business. Broad-based tax reform is less likely to be perceived as unfair, and creates winners as well as losers.

There is another reason why reform might be timely. The Liberals are gingerly approaching their own Jan. 1 deadline for implementing a national carbon tax, likely without the help of most of the provinces, and all too aware of the risk that public opinion could turn hostile. There is speculation they will try to soften the blow by mailing out cheques to every household, in amounts sufficient to make up for the cost of the tax.

This would be unfortunate. Lump-sum payments, unlike tax cuts, offer no incentive for higher investment or productivity. The Liberals may fear that tax cuts would not be large enough, or visible enough, or too hard to implement, at least politically. (Would taxes be cut more in provinces that do not price carbon than in those that do? Would a uniform national tax cut be enough to compensate for the cost of the carbon tax in high-emitting provinces?)

But what if the carbon tax was implemented in tandem with broad-based tax reform? Could the two reinforce each other? Not only would there be that much more in the way of revenues with which to make meaningful cuts in corporate and personal tax rates, but the cuts might then be deep enough to make possible a more radical reform of the tax code than might otherwise be attempted. Sometimes the best policy is also the most practical.