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Lawyers will pay our fair share of tax – if others do too

Selling more taxes is rarely a popular political move, especially in difficult financial times. But even if we don’t like them, taxes remain necessary.

Hand holding paper money

An effective justice system could be described as a hallmark of a civilized society. Without legal institutions, individuals and businesses lack effective conflict resolution systems. Not only does this create uncertainty for capital investment and commercial activities, but, at worst, these disputes can devolve into violence.

Maintaining a legal system that works effectively, however, does not happen without significant support from government in the form of administrative services and other funding. For this reason, there is a deep and necessary relationship between the legal profession and the payment of taxes.

Lawyers have another interest in the use of tax revenue. The social programs that governments fund create the infrastructure for a healthy, educated, and prosperous population. The social and economic determinants of legal issues are increasingly recognized as being interconnected.

The Gini coefficient, which is used to measure income inequality in society, has been steadily increasing in Canada over the past 20 years. This means there has been a greater concentration of wealth among the rich, and greater income disparities across the country.

Inequalities are more pronounced in Ontario and British Columbia and less so in New Brunswick and Prince Edward Island. These income gaps create economic inefficiencies and diminish economic growth because we fail to use all available skills and capabilities when social cohesion is undermined.

The Gini coefficient is often correlated with higher levels of social unrest, crime, and even general violence. As early as 2002, Pablo Fajnzylber et al demonstrated that inequality, as measured by the Gini coefficient, was correlated with homicide and robbery.

Social instability is not necessarily created by poverty itself, but by people’s economic status relative to those around them. In 2014, researchers Daniel and Joan Hicks found that the visible manifestations of inequality through conspicuous consumption gives rise to higher crime rates. In an era of social media where people flaunt or fake a lavish lifestyle online, these perceptions are magnified.

Where do lawyers fit in? In 2015, the median family income was $80,940, according to Statistics Canada, a figure that’s in the ballpark for many lawyers. Despite the public perception that all lawyers are rich, the average lawyer works in a small firm and could be fairly described as “middle class.” And yet many of the new tax changes proposed by the federal government do not appear to benefit them.

“What is determined to be appropriate in terms of what taxes someone pays differs depending on who you ask,” said Neil Gurmukh, a tax lawyer with Miller Thomson in Toronto. “The concern among lawyers and small business owners, including other professionals, is whether they should take on additional risk. They do not have the same risks as employees. Should tax policy reflect that risk?”

The Canadian Bar Association has been in the forefront of the fight against some of the new tax changes. A few of these proposals, such as taxing work-in-progress (WIP) would have had significant impacts on access to justice, in particular, in contingency fee arrangements and class actions that benefit marginalized populations.

It can be risky from a public perception point of view for lawyers to oppose tax changes by government. What might be overlooked is that our opposition doesn’t stem from a reluctance to pay our fair share; it’s that broader forms of inequality must be targeted in any reform of the system.

Tax avoidance strategies, though perfectly legal and often arranged by lawyers, cost the country billions of dollars yearly. Clients that benefit from these arrangements have a net worth north of $50-million. It is the clients of lawyers, not the lawyers themselves, who have the greatest amount of money and proportionately pay the least tax.

Lawyers have a shared interest and a stake in creating a more equal society. We support tax reform that would achieve that broader goal. But the manner in which it is implemented should carefully preserve incentives for small business owners, and focus more on where unfairness actually occurs.