Trust me

Let's see how long the wingnuts keep criticizing any potential tax on income trusts now that the Cons' strongest provincial base is planning on implementing the same policy:

Alberta is considering its own levy on income trusts -- as soon as next year -- to stanch the outflow of tax dollars from the oil patch, a senior cabinet minister says.

Greg Melchin, Alberta's Energy Minister and its former revenue minister, says the provincial government is concerned about the gap between the taxation of corporations and trusts, including the effect on the province's tax base...

Alberta has never publicly estimated how much corporate tax has been lost to the trust sector, but federal Finance Minister Ralph Goodale said last month that one Canadian province had told him privately that it was forgoing $350-million a year. Observers in the private sector say that province has to be Alberta, and Mr. Melchin said yesterday that the $350-million figure was a "plausible" estimate.

While Melchin does suggest corporate tax cuts as his preferred alternative (being the standard Con response to any issue), he seems to accept that taxing the trusts will likely be the way to narrow the current gap in incentives. Which is precisely the best way of dealing with the problem. The income trusts have evolved through a tax loophole, and the proper response is to close the loophole rather than to make major tax system changes in response to a relatively minor problem.

Now, you'd never get the idea that moderation is possible based on some recent commentary on the issue. Some commentators have taken to defending income trusts through sob stories, while ignoring the fact that any improved investing position is based on an obvious market distortion. Meanwhile, others have gone way too far in the opposite direction by equating tax planning with robbery.

It's entirely natural for some people to seek to find hidden advantages in the law. And by the same token, it's entirely necessary for government to respond by ensuring that any hidden advantages are minimized. In this case, the loophole has been allowed to stay in place long enough for the practice to seep into mainstream investment. That's not reason to avoid removing the distortion; rather, it's reason to remove it carefully, and to make sure that future loopholes are closed more quickly.