Tax rage has been in the spotlight this fall ever since the federal government first proposed tax reforms relating to corporations. Before long, the debate had gone from how the changes would affect farmers and convenience-store owners to whether Finance Minister Bill Morneau stood to benefit personally and had acted appropriately, to whether the ethics commissioner had done her job. And that was before the Paradise Papers surfaced.
It was ever thus, according a group of historians who specialize in the arcane business of taxation. Indeed, tax and tax revolts tell a dramatic story of our nation often missed in other, more conventional narratives. For fights about taxes are, at heart, less about obscure financial loopholes than about how people live, and about the rich and poor of a nation, and who gets what.
Elsbeth Heaman is associate professor of history and classical studies at McGill University and the interim director of the McGill Institute for the Study of Canada. Her book Tax, Order and Good Government: A New Political History of Canada (1867-1917) was published this year by McGill-Queens University Press.
Shirley Tillotson is an Inglis professor at University of King’s College and an adjunct member of Dalhousie University’s department of history. She is the author of Give and Take: The Citizen-Taxpayer and the Rise of Canadian Democracy, out this month from UBC Press.
They spoke in Montreal.
ST: Everyone has been talking about tax recently, and there has been a lot of political noise, and often catastrophizing language. One of the things that we bring as historians to tax conversations is a long view. We can judge better whether a particular tax upset is a kerfuffle, a tempest in a teapot, or whether it’s a pivot, a turning point, like 1917, the year of the first federal income tax.
EH: Yes, 1917 was one of the most formative years in Canadian history. We’re not just marking the sesquicentennial of Confederation this year; we’re also marking the centenary of income tax. 1917 saw our most divisive election, and a bitter debate over military conscription, which was tied to the conscription of wealth. I see 1917 as a tax revolt.
ST: Maybe. Adding an income tax was certainly a big move. The federal government was used to getting its revenue quietly, from taxing consumption, via customs duties, the tariff. The tariff was supposed to be about protecting infant industries, but in fact it raised the price of goods in everyday life.
EH: Exactly. Canada wasn’t taxing fairly. What changed my mind about how to understand the First World War and income tax was a book on taxation in Russia by a Canadian, Yanni Kotsonis, which shows that Russia was way behind the rest of Europe.
ST: So you got into thinking about fairness in taxation in Canada because of reading about what was unfair in czarist Russia?
EH: Yes. Czarist Russia taxed more fairly than Canada on the eve of the First World War! It had a higher ratio of direct taxation—meaning that the government was trying to tax according to ability to pay, so that the wealthy pay more than the poor. Russia was the least modern taxing country in Europe—it taxed about 20 percent directly. The United States also had a progressive income tax by this point. But Canada has zero progressive federal taxation until 1917.
And this has made me reconsider Confederation. We often see 1917—this terrible, traumatic moment—as a deviation from what happened in 1867, when everybody decided to come together and build a great transcontinental nation. I realized that the language of 1917 is actually not a deviation from that of 1867; it’s what George Brown thought would happen in Confederation.
“Quebec must not rule the rest of Canada” is the language of George Brown and the slogan used by the Unionist supporters of Robert Borden. Confederation was about the supposed transfer of resources from English Canada to French Canada. That’s what George Brown was protesting. We hear it always as a story of “rep by pop,” or representation by population, but it was also representation by property. The fact that the poor were governing the rich seemed to Brown completely un-British, completely different from all political standards that he understood as successful.
ST: Right. Brown saw the shivering settlers of the Saguenay, his idea of French-Canadian consumers, as the poor. He was saying, These poor people have too much political weight, but if we organize this Confederation right, we in Ontario, who are developing the wealth that really will move the country forward—we will be free of domination from these poor people in Lower Canada. I think that’s right. There is a real continuity between 1867 and 1917 around what was then considered a racialized view of French Canadians.
EH: And all the years in between as well. In Canada tax questions are always identity questions: Who is transferring money to whom? The debates in B.C. regarding the Chinese are very similar. The tax resentments in Canada reflect racialized animosity; you can see this in B.C., you can see this in the French-English story—
ST: —and the Indigenous—
EH: And the Indigenous. What is the relationship between where the money is coming from and where it’s ending up? That’s why 1917 is a watershed: because you have new ways of talking about wealth.
So Borden’s Conservative government is leading the war effort, and Wilfrid Laurier, the head of the Liberal party, is saying, Hey, you guys are taxing in a very conservative, backwards way. You should fix your taxes. And he’s backed by farmers, socialist, feminist groups. But Borden’s party is able to say to Laurier, in reaction, Oh, you’re just French Canadian, that’s your problem. You’re just not manning up to the war effort. Borden’s message was that this was about fighting a patriotic war, and French Canada was not as interested in leaping to Europe’s defence.
ST: So the critics can be identified as French Canadian? The Liberal party is identified as French Canadian because Wilfrid Laurier is leading it?
EH: Yes, and hostility toward French Canadians rises to a crescendo in 1917. The Liberal party says you’re really hitting the poor hard because you’re funding the war with taxes on consumption and with borrowing. Both these things are inflationary and tend to put the war burden on the poor. This is ordinary partisan politics, but it’s remarkable that the historians have taken the Borden point of view.
ST: That is to say, historians have bought the Conservative line that this is a classic refusal on the part of French Canada to get with the project.
EH: Yes, and in April of 1917, the minister of finance is still refusing to introduce income tax despite tremendous pressure for it. Then suddenly he does an about-turn. The key factor is that his government introduces conscription, and all the progressive-leaning Liberals say we’re going to fight this unless you also give us conscription of wealth. So Borden introduces largely nominal conscription of wealth in order to get support for his war effort, to win over the progressive English-Canadian Liberals. He still can’t get French-Canadian Liberals. And then the whole thing blows up in the khaki election of December 1917.
ST: I totally buy your narrative that there is a tax revolt here from the left, though I emphasize conscription a bit less in my narrative, and I note that there’s a treat for big wealth in the income tax of 1917 because the Victory Loans of 1917 were sold as giving bondholders tax-free income. It’s going to be, in the long term, pivotal because it generates a fiscal tool that can grow and change to do more of the work it was intended to do. But in the short term, the 1917 tax was actually pretty gentle to the truly wealthy.
EH: So you have a government that has extraordinary success at borrowing, internationally and domestically, and extraordinarily backwards-looking tax laws that still meet popular grassroots resistance. And they’ve got to have an election in the middle of the war. This means the government might change hands, to people who don’t have the same vested interests. The grassroots resistance is organizing new political parties almost daily—united farmers parties, a labour party. Borden’s finance minister, Thomas White, is a Toronto financier. That the state might land in the hands of tax radicals is more than White can bear. The metaphor that I would give here is that in 2008, if a company like Bear Stearns could have avoided global meltdown by saying, Well, French Canadians aren’t very patriotic, it would have been highly, highly motivated to do so. And White, who has spent much of his career rejecting conscription, rejecting anti-French arguments, finally does say, This is what we have to do.
ST: In the current issue around tax, people talk a lot about the class questions in tax, the disrespect for small businesses. There seemed to be a kind of emotional or class-cultural dimension to this conflict. Certainly there has been an intensity that comes from people bringing their identity as small business people to the table and saying not only, You’re affecting how much money I can earn and keep—because everyone always talks about that in tax—but also, You have privileges as rich people, Bill Morneau and Justin Trudeau, that I don’t have as a small entrepreneur, and that means that you’re not only not making economically sound proposals but you don’t deserve to be my government because you don’t respect me and my way of life. That emotional intensity is part of what makes tax revolts a bit scary. They are disruptive.
EH: What are you thinking of?
ST: Here we are, in our books, telling stories about people resisting government and rejecting the levying of taxes. Many people like the story of Canada as a peaceable nation where there isn’t very much of this kind of conflict around taxes. Your book ends with a successful tax revolt, one that does good work and is a fight for fairness. But the 1917 election is really pretty ugly. That kind of conflict carries real risks, doesn’t it?
EH: Well, when you think of risk, what everybody had in mind in 1917 was the Russian Revolution. A huge overturning of the state. Is that what you’re talking about?
ST: Yes. Maybe people on the left are used to thinking of 1917 as a wonderful expression of a challenge to property, of which our income tax is a small echo and the Russian Revolution was this dramatic moment. But there were dire consequences in Russia later on. And it’s not entirely the question of unleashing the demons of revolution that worries me. The worry is about releasing the demons of anti-statism. We talk about the tax rebels of the English Civil War or the Boston Tea Party—and as soon as you mention the Tea Party you get into contemporary American politics, and Tea Party-ism as a kind of unrelenting and unthinking tax resistance. So in celebrating justice for small earners and small businesses, and the resistance of the poor to unjust taxation, we’re also giving a history to anti-statist tax resistance that aids and comforts some political projects that I don’t share.
EH: Yes, but taxes traditionally have been the best way, especially within in a British parliamentary system, by which people discipline the state. The historian Donald Creighton founded his early career on the complaint that French Canadians in 1820s Lower Canada don’t want to pay their taxes—Don’t they understand the demands of modernity? They refuse to vote taxes! In fact they were showing they had completely mastered the British parliamentary system. What is the ur-moment of that system? It’s the Magna Carta. The Magna Carta represents a tax revolt where the king has to say, Okay, okay, I’m going to have to respond in some way to some of your demands.
Now, the people that meet in that field in 1215 really are not the “people” of England. It’s a very small, very powerful, elite group. But there’s a way in which that gets generalized over time. I’ve been reading David Hume’s history of England. He says something really new happens at that moment so that you begin to see some sense of the modern public, a larger interest at stake than a few robber barons trying to make their claims. There’s an enlarging process to tax protests. And the ones we see today could go either way. Some tax revolts do broaden, and some look a lot more like rich people’s tax revolts.
ST: One of the ways I came to terms with the risk I mention is to consider that democracy consists both in constraining the state—the governed being able to resist what the government wants to do—and enabling the state: paying your taxes, signing up for the militia. Now, the welfare state programs that follow the Second World War come about because the new income taxpayers who are summoned into existence by the 1942 war income tax are low-income people. That tax hits subsistence-level incomes, and there’s resistance. It can’t be simply collected by force. There aren’t enough tax staff during the war to investigate every little tax evasion. So the government really has to recruit a new body of consenting taxpayers, because of that British tradition of answerability to the electorate. Those new taxpayers want an active state in return for their taxes.
EH: One reason we both like reading tax history is that public opinion really forcefully expresses itself, people taking to the streets. But the other side to it, one of the reasons 1917 is a watershed, is expertise and knowledge. Until 1917 the federal government has the momentum of John A. Macdonald, who liked to protect the privacy of individuals and businesses against the administrative knowledge, power, and reach of the state. His successors, Laurier and Borden, carry that on. But meanwhile, economists are pushing back, professionalizing in the university. It’s actually new economic theory that makes income tax irresistible.
ST: And not just economic theory, but facts, the kind of empirical data that economists collect. In 1917, we didn’t have a national bureau of statistics; it was founded during the war, but there was still great privacy for wealth. We didn’t tax capital in Canada during the interwar years. The United States did, so their tax statistics tracked capital. The Canadian government didn’t need to collect data on wealth, and, as you suggest, it kind of didn’t want to know. In the 1960s, we begin to get better tax debate because better data gave us a bigger picture, beyond our own narrow interests. Studying tax is really a good way of tracking the state of democratic engagement, and what it’s based on.
EH: How do we deal with the boredom question?
ST: Yes, are taxes really inevitably boring? This is serious stuff, but it’s not just narrowly economic or political; we’re both in some ways social historians…
EH: Well, I have three chapters on municipal taxation. Could there be anything more boring than that? But I had this moment in the municipal archives in Montreal, reading letters by people, and there was one in particular that was really foundational for me, somebody writing in to say: I can’t pay my municipal water tax. We are in a terrible way. We don’t have work. People are dying here. And if you withhold our water, if you force us to pay, then it will kill us. I found this an extraordinary moment —this invisible little whisper, a desperate plea only visible in the archives. I decided this is what the story is about.
ST: Yeah, you might think that studying taxes would be boring because it involves endless hours of reading tax registers and reports by economists. But taxes actually touch pretty intimately on people’s lives. I’m reminded of a moment when the finance minister in 1920, Sir Henry Drayton, was going around the country asking people about tax reform and one hot topic was a new tax on luxury goods. But what counts as a luxury? Silk as clothing, for instance, would be taxed as a luxury but silk as underwear would not.
A merchant tries to explain this to Sir Henry. Take a silk camisole, for example, he says. Sir Henry is puzzled. I confess I don’t know what that is, he says. Turns out that, even when the merchant describes it as one of those very pretty silk affairs that your wife wears over her corset, Drayton had to admit he still didn’t know! Sometimes the encounter between an individual and the state is like that, a very human interaction.
EH: For me the great discovery is that this material is telling a story about wealth and poverty in Canada. I don’t think people quite figured out how to talk about Confederation because it’s long been seen as dealing with railways and the like. But I see Confederation as an attempt by people like Macdonald and Brown to negotiate how you govern wealth and poverty. It is not remote from the real meat of society. It is the place where the state figures out what it’s going to do about wealth and poverty. And I think we bring something really quite new to the story of Canada in that respect.