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What the Liberals are now proposing is far more pervasive and, in some cases, draconian

The prime minister says that the rich will be asked to “pay a little more” to help the middle class, which shows that he has a sense of humour. Really, more than 70 per cent of families receiving dividends from small business CCPCs have household income below $200,000 (a majority of families have two-earners, so the practice of business owners income-splitting with a spouse is relatively minor). These are not Canada’s one-percenters.

A lot of middle-class taxpayers will be hit by the new rules. And it won’t be just doctors, dentists, accountants, lawyers and other professionals. Those groups account for just 12 per cent of federal small-business tax revenues. There will be manufacturers (12 per cent of small-business revenue), high-tech innovators (10 per cent) and construction operators (12 per cent), among many others.

Morneau’s new tax proposals are supposedly aimed at evening out the difference between corporate and personal taxes paid on income earned by private corporate income with other self-employed income, making the system “neutral.” In some ways they will, but in other ways they’ll actually make things less neutral. Under the new rules, public corporations and non-Canadian private corporations will be more favourably treated and certain other remaining disparities between business types will remain.

The proposals also introduce a new form of distortion

Under the existing system, the government gives preference to losses experienced in self-employed income — which can be deducted against other income — compared to corporate losses that are, in most cases, trapped in the company. In this way, the government helps itself to a healthy share of the corporation’s profits, but not its share of losses, penalizing risky investment more heavily for corporations than for the unincorporated. The proposals do little to improve the maltreatment of corporate risk.