Dealing with inequality, part I: The bottom 99 per cent

Stephen Gordon on why you should love the GST/HST

(Chris Young/CP)

I’ve made the point before that the debate about income inequality is something that occurs at more than one level, and I’ve also made the following distinction:

  1. First-order inequality is visible in standard measures such the gini coefficient, and shows up as an increase in the gap between average and median incomes. If income growth is concentrated in the top half of the income distribution, average incomes will increase, but median incomes will remain unchanged.
  2. Top-end inequality refers to the share of income that goes to those whose income puts them above the 99th percentile and beyond.

In this post, I’m going to talk about what we can do about first-order inequality. I’m going to ignore the top one per cent, because their numbers are too few to make any material difference in what follows.

The first thing is to deal with the question of why first-order inequality is a problem in the first place, and to make the distinction between levels of inequality and changes in inequality. I don’t have a lot to say about what the level of inequality should be, except that it should be greater than zero. Certain jobs require specialized training and skills, and we need some way of rewarding those who make the effort to acquire them.

Even so, we should be concerned when first-order inequality widens. Let me explain. There are a certain number of policy proposals that have the potential of increasing economic growth and the collective total income of all Canadians. But if it is widely believed that the gains will only go to a privileged minority, then we shouldn’t be surprised if those policies don’t receive broad support. As UBC’s Kevin Milligan noted, the British Columbia HST referendum is a good example of this: people voted against a policy that they believed would benefit BC as a whole, but not them personally. If inequality were stable, then, it would be more widely believed that everyone would benefit from policies that increase total income.

So how can we ensure that inequality remains steady? The best example here is that of the Nordic countries of Finland, Sweden, Norway and Denmark.

When one looks at market incomes—that is, before government redistribution in the forms of taxes and transfers—these countries look remarkably similar to other industrialised nations (including Canada, which, in the 2005 ranking below, falls somewhere in the middle of the northern European countries). Just take a look at this graph from a paper by Lane Kenworthy:

That’s because the Nordic countries don’t deal with inequality by trying to engineer more equal market outcomes, they do so by redistributing market incomes so that disposable incomes are more equal.

This redistribution can take two forms: taxes and transfers. But it may surprise many to learn that the tax systems of the Nordic social democracies aren’t particularly progressive: inequality in Nordic after-tax incomes is comparable to after-tax inequality in Canada and the U.S.

In the Nordic countries, the heavy lifting of reducing inequality is done by direct income transfers, not by taxes. Still, the tax system plays a crucial role in all this: those income transfers, after all, have to be financed somehow. But the primary goal of their tax system is not to reduce inequality, it is to generate the largest amount of revenue with the least reduction in economic growth. (Peter Lindert’s Growing Public provides a good summary of how the Nordic countries’ go about doing this; for some further reading see here.)

Taxes on income—corporate taxes in particular—are most harmful to economic growth, while consumption taxes like the GST/HST are less bad. So the high-growth, high-revenue tax strategy is to rely more on consumption taxes and less on taxes on capital income. For example, Sweden’s VAT rate is 25 per cent, and its corporate tax rate is 26.3 per cent. To put these numbers in perspective, the combined HST/GST rate in Quebec is now just under 15 per cent and the combined federal-provincial corporate tax rate after the last round of cuts is 26.9 per cent. The Nordic countries’ tax structures also rely more heavily on payroll taxes, which hit low-wage earners harder than high earners. (I’ll talk about personal income taxes when I cover top-end inequality. For now, I’ll just mention that taxing the top one per cent to finance these transfers is one of those great-sounding ideas that fall apart when you do the math.)

This is an important lesson that Canadian progressives have yet to fully absorb. Every time I point out the advantages of the GST/HST as a way to generate tax revenues to finance income transfers, someone will inform me that since the GST/HST is regressive, increasing the GST/HST is a bad idea. (I have this conversation so often that I have a special name for it.)

As far as the economics goes, dealing with first-order inequality is easy enough: increase taxes—the GST/HST is probably the best choice—and use the extra revenues to strengthen our system of income transfers. Too bad no party seems to think that this policy mix is likely to win votes.




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Dealing with inequality, part I: The bottom 99 per cent

  1. Plus, the GST is functionally a carbon tax.

    • The Harper Sales Tax in Ontario certainly is. It’s a hard incentive against people heating their homes…

      • I do not understand how Harper can have anything to do with a tax in a province. Please explain.

        • It was Harper’s initiative to bring the HST to ON and BC. In fact he bribed ON with $4.4B and BC with $1.6B to adopt the tax — and paid off QC $2.2B for retroactively NOT adopting the tax (according to Flaherty their sales tax system doesn’t fit the bill…)

          • But BC doesn’t have this tax so how can it be Harper’s fault that Ontario does?

          • BC doesn’t have the HST? What? BC has been paying a 12% HST since July 2010 … we return to the PST/GST this April.

            Harper dangled the $1.6B bribe to adopt the HST & a London high commission appointment in front of former premier Gordon Campbell & he jumped at the chance to leave the province before his dirty dealings caught up to him.

            We have supposdely paid back the $1.6, or not, … depending on who you talk to. It is impossible to get any factual budgetary information from the BC liberal government. Even our soon to be fired auditor general can’t seem to pin down their slippery financial records.

            We also have a carbon tax … but we’ll give Harper a pass on that one as it was all Campbell & company doings.

          • Ottawa had to offer 1.6 billion to offset taxes collected on products and services not taxed before the HST. It was not a bribe.

            Going back to the PST does not deserve a celebration. It depressing. I bet if a vote were held today, 60% of British Columbians would vote to keep the HST.

    • 6 bottles of UHU in a multipack — held together with plastic — are tax free.
      6 bottles of UHU purchased individually are taxable — even though they have less carbon intensity.

      The GST is in no way a carbon tax.

    • It provides essentially no incentive to reduce carbon intensity.

  2. I’ve always considered the GST/HST to be the most democratic of taxes – if you spend, you get taxed for it.

    I’ve always thought that richer people had it easier when you factor in GST/HST cuts. For lower income people like me, GST/HST influence my food, my necessities and not much beyond that. It saves me cents on the dollar. But when you’re buying a house, car, flatscreen TV. BLU-RAY player, or other high-priced items you’re saving larger chunks of change (2000, 500, 50 dollars). The higher the income, the more likely you’re spending on higher-priced items.

    I don’t see how the GST/HST can be labelled ‘regressive’ by anyone. The HST/GST rightly targets those who buy expensive things. I’ll buy, if I’m lucky, one house in my lifetime. Rich people, with oodles of money, could likely buy/sell/flip multiple houses during the time it takes me to finance/mortgage my one.

    • A VAT has its place, but it is in some ways regressive. The rich consume far less of their income than people of other income groups. So it’s no replacement for an income tax.

      (It also gets really regressive when expensive utilities are included like what Harper and McGuinty brought to Ontario…)

      What’s really insane is that in Canada there is no inheritance tax. That means everyone else is pulling the weight of people who didn’t earn their money. Canada should abandon aristocracy in favor of meritocracy (which is certainly more democratic — and adopt a democratic voting system, like the rest of the developed world, while we’re at it…)

      • Ron, when you tax inheritance, you are taxing the money twice.

        You are taxing it when the person earned it and then again when they left it to their loved one. Now that we have a lowered threshold for capital gains, even if the person earned the money through a business sale, it will be taxed. If the person is a farmer and they leave the land to their children who are non-farmers, upon sale of the land, there is capital gains taxes. Inheritance tax is unfair. That is why it was scrapped in the first place. You think it is about some imagined Canadian upper 1%. It is about your mom and dad who save their whole life to leave you and your siblings some little nest egg.

        • There are specific provisions for the family transfer of farmland to prevent capital gain expenditures (which is sensible in a high capital but medium to small income industry). And if I recall correctly (will accept corrections from authoritative sources) the inheritance tax was just transferred to the provnices who all whittled it down to nothing trying to compete against each other to attract rich dying people. There’s actually something to be said for a “you can’t take it with you” tax, although like anything else you have to put it in its proper place.

          And although it’s likely you knew this it should be pointed out regarding capital gains – it’s only the “gain” that is taxed, leaving out the adjusted cost base. The original money isn’t taxed twice, the gain is taxed, and at an extremely favourable inclusion rate.

          • Yes there is a specific provision for the family transfer of farmland IF the family members are farmers. IF the family members aren’t farmers, the capital gains is charged.

            Even though only the “gain” is taxed, the money the person used to purchase the business/farm/etc. has likely already been taxed, especially if it was earned through wages so no matter what if you tax the person receiving the money as an inheritance “gift”, you are taxing the money twice.

            Meanwhile, you are going to tax any interest that money earns the person who inherits it. You are also going to nail the dead person when the money is taken out of an RRSP for those taxes (if that is where some of the inheritance is located). Please don’t act like the government won’t be getting their share of the kitty.

        • Inheritance taxes are typically on estates of 1 million or greater. It’s unfair that rich people get free money tax free, while hard working people pay their share of taxes. Most developed countries have it. It was wrong to have abolished it.

          • Really? Since when were inheritance taxes on an estate of 1 million dollars or more? When they existed in Canada in the 1970′s, they were on much smaller estates.

          • Rich people are not getting free money free. Having you heard about the million dollar barber. People are saving that money and making investments. Take a look Ron at where the most millionaires live in the USA. Their salaries are $65K…hardly rich. If I make $65K and go on 2 or three trips a year, buy big screen tvs and new cars and end up with nothing to leave my children…I am a hard-working poor person. If my neighbor makes 65K and never goes anywhere and makes investments and saves until he has 1 million, he is a rich person and somehow I am paying his taxes? Explain that to me.

        • “You are taxing it when the person earned it and then again when they left it to their loved one.”

          So what? Applying that logic we would have almost no taxation at all. Money is taxed continuously as it changes hands. It’s taxed when you earn it and again when you spend it, then that person who received it pays taxes on it, etc.

          • So again you are going to penalize people who have saved money for their old age and their children?

          • Also lenny, we do not tax “gifts”. If you give your friend a gift, they don’t pay tax and you don’t claim it. An inheritance is a “gift”.

          • Ah, the “it shouldn’t be because it isn’t” argument.

          • So now you think we SHOULD tax gifts?

          • No, you’re not “penalizing” them. They’re dead.

      • Inheritance taxes aren’t going to generate much revenue. If you take the US estate tax and if you assume that the number of large estates is proportional (it isn’t), you get something like $3b/year. About half the revenue from of one GST percentage point.

        • $3B/yr is a lot of money. Unless you’re Stephen Harper. He has no problem wasting a lot of $3B/yrs here and there: social con baby bonus; TSFA tax haven for the rich; social con income sharing; other pointless boutique tax cuts.

          A fiscally responsible government carefully weighs all its options and allocates economic resources in the most efficient way possible. A billion dollars saved is a billion dollars earned…

          • The great thing is that there are ways around inheritance tax….start gifting your children with their inheritance before you die….they pay no tax and you get to spread out the investments so no one person is claiming the interest. That is likely one of the reasons why inheritance tax isn’t that great of an idea.

          • Yeah we should let drug dealers sell to kids because if we try to stop them they will just try to find some way to get around it…

    • There is not a definition of democracy that fits your description. It’s not even one of those principles like transparcency that are so closely linked to democracry they’re often intertwined.

    • A rich person buys a good pair of winter boots. Once. It costs them $200.
      A poor person can’t afford this. They buy a cheap pair of winter boots. It costs them $40. Except their boots wear out every couple years or so. A decade later, both the poor person and the rich one have spent $200 on winter boots. The difference is that the poor person needs to buy another pair.

      Here’s the other trick. A poor person spends all or more of their income — they have to to survive (if they didn’t, they wouldn’t be poor). Thus they’re spending 5% or more of their income in GST. A rich person doesn’t. A good chunk of their income gets put into other investments. So even if they spend more in absolute dollars, a lower percentage of their income is taxed through GST.

      Thus, regressive.

      • Except that a lot of of consumption is GST/HST exempt (notably basic food and rent). Since tax exempt items tend to account for a larger share of the income of the poor that tends to give the GST/HST an slightly progressive element. Also, you’re missing the point of Stephen’s post, even if the GST/HST were regressive, on it’s own, it’s possible to achieve the progressive results by transfering some of the revenue generated to the poor (as, in fact, we do with the GST/HST tax credit).

        • I was explaining to Brian how the GST can be considered regressive.
          That we have some specific exemptions in place to reduce that regressivity doesn’t change that it is *still* a regressive tax.

          If anything, it proves the point in that we needed to do these things.

      • Rent and food are exempt, and they also get a GST refund. In many cases after netting all these things out, the poor pay negative GST. You must spend ~$10,000 in taxable consumption to pay ANY net GST. For families with children, it is significantly more.

        tl;dr:
        POOR PEOPLE DON’T PAY GST.

        • See above to Bob.

          • Except, you know, your poor person pays no net GST.

          • Specifically because of the measures we put in to deal with how it’s a regressive tax. Yes. I know. None of that changes that it’s a regressive tax, all it says is that we’ve realized that and are taking steps to deal with it.

      • More to the point, why does it matter that a rich person puts some of their income into investment/savings? They don’t get any immediate benefit from this.

        Taxing consumption makes sense, because equity should be thought about as reducing the disparity between what the poor and rich consume. Who cares about income? If someone makes a productive investment rather than consuming, they are benefiting society as a whole.

        • Re-read the article, specifically the paragraph that begins “Even so, we should be concerned …”

  3. “Taxes on income—corporate taxes in particular—are most harmful to economic growth”

    Of course, there’s absolutely no evidence to support this claim. The 2000s was the decade of corporate tax cutting in Canada (by over 50%); it was also the worst decade for economic growth since the Great Depression. The 2010s will be even worse.

    “Sweden’s VAT rate is 25 per cent, and its corporate tax rate is 26.3 per cent. To put these numbers in perspective, the combined HST/GST rate in Quebec is now just under 15 per cent and the combined federal-provincial corporate tax rate after the last round of cuts is 26.9 per cent.”

    It’s true Canada has one of the lowest VATs in the developed world. But these numbers on Canada’s corporate tax rate are meaningless. According to KPMG, Canada has the lowest *effective* tax rate among all countries it surveyed:

    “Corporate income taxes are lowest in Canada (7.3 per cent effective corporate income tax
    rate), France (14.7 per cent), and China (14.8%). At the other end of the scale, effective corporate income taxes exceed 30 per cent in Japan (31.5 per cent), Brazil (36.1 per cent), and Italy (37.6 per cent).” (KPMG Competitive Alternatives 2012 — Focus on Tax)

    According the the US CBO, there are no corporate taxes. They are considered a tax on shareholders: the top 20% own 80% of the stocks. So corporate tax cuts are just more tax cuts for the rich that never “pay for themselves” (contrary to self-serving economic ideology…)

    • “Of course, there’s absolutely no evidence to support this claim.”

      There’s a lot of it, actually. I’m guessing you didn’t click on the link – here it is again – telling you where to find some of it..

      • The excessive corporate tax cuts in Canada have been a complete and utter failure. Corporations did not invest the tax cuts and “create jobs.” Both the Harper Government and Mark Carney chided corporations for hoarding “dead money.” They were also supposed to boost productivity. But productivity growth in Canada is at historic lows and we rank #17 OECD in productivity.

        Excessive corporate taxes might very well inhibit GDP growth. But excessive tax cuts for the rich accomplish nothing but skyrocketing government debt. Of the six developed countries with government debt over 100% debt/GDP, five of them are “low tax” countries (in the top ten OECD High Income nations): Japan #4, Greece #8, Portugal #10, Ireland #4, the US #1.

        Harper is clearly taking us down the same failed path. According to his 2009 budget, his pointless corporate tax cuts alone cost $14.9B/yr in revenues. He also brought in $17B/yr in boutique tax cuts according to Jeffrey Simpson. Add them up, and that’s the size of the deficit…

        • None of this constitutes evidence or analysis. It’s a bunch of unjustified statements and conjecture.

          • Nonsense. I presented a number of (easily verifiable) facts that solidly supported my position. Since you can’t provide a counter-argument to support your own you attempt to smear what I said with a ridiculous generalization.

            The reason macroeconomics is in shambles — as well as the global economy — is because of corrupt free-market ideologues who cherry pick evidence to support agenda-driven economic policy that fails time after time after time.

            In order for economics to become a science, economists with integrity will have to wage war against the charlatans like doctors and scientists did to weed out the quacks and crackpots. As Krugman pointed out, we live in a world of zombie economic policies: ones the evidence should’ve killed but keep shambling on in any case. Time to put an end to this reign of error that caused two global economic meltdowns and all the problems we are facing today.

          • Let me get this straight. Economics is bunk, but your economic argument is valid?

            The only cited claim came from a journalist…

          • I’m saying free-market ideology is bunk because of the results: 30 years of declining living standards, GDP growth, etc. that culminated in a global economic meltdown.

            No doubt free-market true-believers choose not to look at the elephant in the room, which is the huge mess their policy failures created. Fundamentalist Christians reject the theory of evolution for similar reasons: in the end they choose faith over facts and evidence.

            Corporate tax cut schemes are just more failed Reaganomics: trickle-down economics. No, tax cuts do not “pay for themselves.” Mr. Gordon, himself, said as much in another article, where he said the purpose of tax cuts was to manufacture budget crises to justify spending cuts (“starving the beast.”)

            BTW, spare me the authority fallacy. That’s the problem with ideologues, they can’t think for themselves. All the points and arguments I’ve made are not original, but one’s I’ve taken from newspaper articles which have pointed out Harper’s corporate tax cuts have been a colossal failure.

          • So if I showed you newspaper articles that claimed they were a huge success, you would be satisfied?

            You still didn’t answer my question: why don’t we just tax rich people?

    • “Of course, there’s absolutely no evidence to support this claim.”

      Daily Telegraph ~ Lets Give Polly Toynbee The Britain She Wants:

      We’ll have to raise VAT as well, of course: for this is something that people don’t seem to realise about Nordic tax systems. In many ways they are more regressive (yes, regressive, not progressive) than our own. This is because those countries follow the basic economics of taxation. You need low corporate and capital taxation, moderate income taxation and high taxes on consumption.

      As the OECD helpfully points out, all taxes have deadweight costs. These are economic activity that doesn’t happen because of the presence of the tax. Different taxes have different deadweights. The aim is obviously to collect the money you need while destroying as little economic activity as possible. For the amount of money you collect in tax, property taxes destroy the least activity, consumption taxes a little more, income more than that and the most destructive are taxes on capital and companies. So that’s what the Nordics do: low capital and corporate taxes, high VAT.

      http://blogs.telegraph.co.uk/finance/timworstall/100016459/lets-give-polly-toynbee-the-britain-she-wants/

      • It’s absurd to claim progressive taxation is regressive. Progressive taxation means wealthier people pay a higher rate. (Something free-market founding father Adam Smith was in favor of.) Regressive taxation means richer people pay a lower rate.

        Canada used to be progressive. But after 30-years of failed free-market reforms, the richest 1% now pay the lowest tax rate of all groups. I guess neo-cons are using “1984″ as a instruction manual: they say black is white and white is black hoping they will confuse enough people into not caring…

        CBC: Canada’s tax system less fair than it used to be, study says
        “By the centre’s calculations, the top one per cent of Canadian families — those earning at least $266,000 — paid 30.5 per cent of their income in taxes in 2005. That was less than any other income group — even the lowest.”
        http://www.cbc.ca/news/business/story/2007/11/08/taxfairness.html

    • Doug Saunders ~ Abolish Corporate Tax ….

      In fact, the strongest arguments against corporate tax come from the left. They were most eloquently expressed by Robert Reich, the economist who was considered on the far left of Bill Clinton’s cabinet during his tenure as labour secretary. Corporate tax, he noted, is fundamentally regressive: It shifts wealth to the rich. And not just because General Electric avoids it and corner shops don’t. Since corporations do not physically exist, corporate tax is ultimately paid by individuals – and, as many studies have shown, those individuals tend to be the company’s workers more often than its shareholders or executives.

      There is another strong argument against corporate tax: It gives businesses far too much power in politics, law and society. As “taxpayers,” corporations are given citizen-like rights in court and legislatures; as financiers of the state, they are given far too much lobbying power and influence over legislation – almost obligatory given their large taxpaying role.

      http://www.theglobeandmail.com/commentary/abolish-corporate-tax—it-has-been-a-worldwide-failure/article624107/

      • Robert Reich made those ridiculous arguments? He must have had a change of heart since then. In a recent blog he argued against corporate tax cuts:

        Robert Reich: Corporations Don’t need a tax cut, so why is Obama proposing one?
        http://robertreich.org/post/18079650906

        This is just more corrupt plutocracy. In the 2000s, Canada slashed corporate taxes to the bone while America slashed taxes on capital gains and dividends. Now there will be a role reversal: self-serving economists will peddle capital gain and dividend tax cuts in Canada and corporate tax cuts in the US… Just watch the prosperity trickle down!

        • If you want to tax the rich, why don’t you tax the rich, instead of trying to do it by proxy by taxing corporations?

          • You are advocating a 100% corporate tax cut?? Canada already has one of the lowest effective corporate tax rates in the world (over the past decade these taxes were cut by over 50%.)

            And what good has it done us? Over the past 6 years we have lost 500,000 good-paying manufacturing jobs and corporations are hoarding “dead money” instead of investing it and creating jobs. On top of that, the 2000s was the worst decade for GDP growth since the 1930s. On top of that productivity growth is at historic lows and we have fallen to #17 in productivity among OECD countries.

            There is absolutely no justification for lining the pockets of corp execs and wealthy investors by throwing away tens of billions of dollars a year in tax revenues which would shift the tax burden onto other people.

            This reckless ideology caused the recent global economic meltdown (with financial and mortgage deregulation.) Free-market economic anarchy is simple terrible economic policy (if evidence is anything to go by…)

          • You didn’t answer the question.

            Why not tax the rich, if that is the goal?

          • I certainly answered the question by pointing out how absurd your suggestion is that we eliminate all corporate taxes.

            The goal is not to tax the rich. Everyone pays taxes. If there is any laudable goal it would be to restore the progressive taxation of the post-war Keynesian era that was an economic success story unprecedented in human history.

            There are three forms of taxation related to corporations and shareholders: capital gains, dividends and corporate income taxes. Ideologues say eliminating one form produce efficiencies that “create jobs.” America slashed the first two; Ireland and Canada slashed the last.

            The only thing either approaches accomplished was skyrocketing government debt (less so in Canada because of fiscal initiatives undertook by the Liberals before the economic collapse.) No, these tax cuts most certainly did not “pay for themselves.”

            The best solution is to cover all the basis on this taxation. For example, corporate income taxes cover dividend and capital gains taxes that won’t be retrieved from foreign owners.

            Of course, unfocused tax cuts probably fail because they don’t focus on incentives. Businesses that exploit our resources and markets are not going to create any jobs if you cut their taxes. They will just pocket the profits.

            But tax incentives to businesses that sell goods and services on the world market makes sense because that would help companies that set up shop in Canada become more competitive and the room for expansion is virtually limitless. So we should reverse failed tax cuts on retail and resources companies, and cut them for innovation-based ones. That would have a shot of working…

          • I never said we should eliminate corporate income taxes, but I was wondering why you wanted to raise them. Your answer seems to be ‘just cuz’.
            If you don’t tax corporations, the foregone taxes are captured by some combination of consumers through lower prices, workers through higher wages, and shareholders through higher dividends/capital gains. You can capture this benefit to these groups through consumption taxes and personal income taxes. You can make personal income taxes strongly progressive, and give large GST rebates to lower income households to offset the regressivity of consumption taxes.

            Why is this so wrong? You seem more bent on punishing corporations than in generating revenues. Since corporations aren’t people, by trying to punish them, you can only in turn punish the three stakeholder groups I mentioned (consumers, worker, and shareholders).

          • Actually, I’ve seen a few studies now that seem to indicate that when corporate taxes go up, the bulk of the cost comes out of employee pay, but when they go down, the bulk of the gain goes to shareholders. Which really makes them a particularly regressive form of income taxation.

            That it happens this way should be no surprise to anybody who understands how our investment and market system work, and points to a fundamental flaw where the primary duty of a corporation is to the shareholders, and not the society that lets it exist in the first place. I used to think that the market might take care of this.. pay your employees too little, and competition for good employees will ensure your products fail, but I’ve realized that this notion is flawed because of the power differential between corporations and employees — employees need to eat, corporations need to compete.

            So I’m not sure of any good way to deal with this other than a wholesale change of attitude by society toward corporations — something which an amazing amount of resources has been and will continue to be directed against.

  4. “So how can we ensure that inequality remains steady? ”

    Why would we want inequality to ‘remain steady’, it is idiotic policy and keeps us poorer than we need to be. America have many billionaires, creating wealth is encouraged ( much less so now with socialist Obama in office), and those people don’t keep their $$$ in boxes underneath their beds. All the wealth that Gates or Jobs or Waltons have created gets recycled through the economy in many ways.

    Americans have enough wealth to give Vegas strippers and itinerant fruit pickers big mortgages, the chance at American dream while there are no other countries that can even think of offering crazy mortgages to less well off.

    Billionaires don’t steal other people’s money – they become wealthy by offering products or services people desire. The Waltons have done significantly more for poor and downtrodden than any pol or bureaucrat or sanctimonious socialist ever has.

    • I’m very confused by your comment, it’s like conjuring up something from nothing.
      A magicians trick of deception and illusion.

      • The economy is not a zero sum game, ie. If I have something it is because I took it from someone else. If I’m doing well in my business it means that I have a number of people working for me who also are doing well. It means my customers are investing. It means that people are buying my customer’s products, meaning they have jobs because someone hired them. Throw in all the secondary effects, the raw material manufacturers, the distribution networks, etc.

        If things are slow it means someone isn’t investing capital. Probably because the potential returns aren’t there due to high costs from some source. Maybe something as simple as your capital costs in bc are going to be 7% higher on real inputs come april. Or that there are far more welcoming jurisdictions somewhere else.

        This is basic free market economics. The article describes left leaning jurisdictions who found out a few decades ago that to have the social welfare you need economic growth to pay for it. Hence tax structures that don’t punish capital.

        • No. If things are slow it means people aren’t buying. The rest follows from that. Not from a lack of investment.

          • And where pray tell would people get money to buy things? Presumably because someone hired them. Guess what. To hire someone you need to invest.

            An economy that provides food housing transport etc. on a need basis would have 15-20% unemployment and would barely grow. Jobs would be scarce. What creates growth is someone invests money to do something. Open a business, build a house, etc. Then they hire people, who then spend their wages.

            If you penalize investment, you will get less of it, and you won’t get economic growth. Investment can be penalized by taxing too much of the proceeds, increasing the costs by regulation or scarcity. Those with the means will invest where they can get a return.

            This stuff was learned the hard way here in Canada and in the Nordic countries three decades ago. We all tried the government spending and borrowing route, and faces different levels of crisis that forced a reckoning. If you want generous social programs, you need a tax system that generates revenue, not ideological satisfaction. Low capital taxes, value added and middle class income taxes generate cash. Economies grow, generating more cash.

            I still think that Canada needs to drop it’s cost of government/gdp by another 5% or so to be competitive in the world market. There is a reason why the only economic activity where there is opportunity for working people is in the resource sector. There is no rational reason at all why in most cases someone would manufacture or even develop a good idea in Canada. Costs are too high, market is too small, a widely held belief that what you build belongs to someone else.

          • No. What creates jobs is someone having a desire for something.

            Look at it this way, no matter how much you invest into creating a food additive that tastes exactly like vomit, it’s still not going to create jobs because, at the end of the day, *nobody wants it*.

            Nobody invests in an area where they think there is no demand. Demand is the precursor and requirement for investment. If we want investment, we need to ensure there is sufficient demand to justify it happening.

          • What about all the jobs yobs you created making the vomit flavouring (already done, btw)? R&D, etc.

          • Except nobody would actually do that.. unless they were stupid. That’s kind of the point.

            I mean, unless you want to argue that what we need are stupid investors.

    • I’m kind of hoping that the data and economics will inform the politics part. Call me a hopeless optimist.

      • OK. You’re a hopeless optimist.

      • So you are basically saying that Harper’s 2% GST tax cut demonstrated that he doesn’t know the first thing about economics? It’s interesting how you support an increase to the VAT, but say nothing of Harper’s huge blunder that reduced tax revenues by $12B/yr for nothing.

        Harper’s corporate tax cuts were another huge blunder that cost $14.9B/yr and got absolutely no results. Before the cut Canada already had one of the lowest effective corporate income tax rates in the developed world (according to KPMG’s 2008 Competitive Alternatives Report: Focus on Tax.)

        Hopefully a Liberal/NDP government will form in 2015 and manage limited economic resources intelligently and effectively. Harper’s ham-fisted ideological approach has squandered the economic advantages he inherited from the previous Liberal government:

        “Much of the country’s resilience stems from policies—such as bank regulation and sound public finances—which predate Mr Harper.” (The Economist 2010.)

  5. “the GST/HST is probably the best choice—and use the extra revenues to
    strengthen our system of income transfers. Too bad no party seems to
    think that this policy mix is likely to win votes.”

    Unfortunately the Conservatives have poisoned that well (although as an economist Steven Harper should have known better). The Conservatives cannot now back track on a policy that they think helped get them elected — the other parties know that if they take up this cause they’ll be vilified as “enemies of hard working families”.

  6. Lets take gas as an example of why HST is bad. First there are a lot of hidden taxes on fuel to begin with, Gas transfer tax ect. The HST then implemented on this means they are taxing taxes… which is illegal but they do it anyways. The approximate tax on gas in ontario is 60% with the HST included. They also take anywhere from 18%+ income tax off your wage which means you are taxed over 75% to purchase a single drop of fuel. This is bad because while they explained it as a VAT tax, it is not. VAT tax would mean there are no other included taxes in the products sales. So 13$ should be the total tax on fuel. The HST also added tax to many products and raw materials that did not have tax before, promoting black market goods around purchases of raw material. It did not get rid of the double taxation of products either as it was supposed to. The cost of fuel quite literally changes the price of every product on the market, so them adding the extra percent they did, meant every product went up and continues to. This stagnates economies which we are going through right now. They were already in depreciative returns with our tax system, so they thought adding more tax would raise more money some how and yet of course they are getting less again. The reasoning to this is that if you make 30k a year and you have only so much disposable income, you purchase less when everything costs more. Meaning it flat lines if you are already taking the max a budget can handle. It also promotes the middle income person to go lower in living standards. People with disposable income are the ones that get hit hardest until they hit the depreciative mark meaning they are now in the low income bracket due to over taxation. The only people not heavily influenced and or effected would be those with high incomes and a lot of disposable income. However I know a few millionaires of Ontario personally and they are all selling their homes and downsizing their purchases because they can no longer afford to live like that. The living standard for them has gone down too. Are low living standards good for Canada? I think not.

    Here is an example, they added new taxes to purchases of movie tickets. They were already outrageously priced so many consumers have never returned to the theatre including myself because I no longer have the disposable income I did before since there are more taxes and higher prices on every single product. Does the gov get more tax when I am making less purchases across the board? nope. They get the same amount or less because I avoid over taxed products or go under the table so that I can afford my rent still at the end of a month. The gov thought we would go the way of America and all start living off credit. No thanks.

    A company can sell their goods to a retailer with taxes included and then the store resells to the consumer with their own mark up which then gets re-taxed. The tax rate on the product should stay the same after the product is complete and sold to the retailer. It will be passed on to the consumer as always of course but the added margin for the store adds more taxes.

    If you want an example of a really successful tax system, take taxed less Texas. If they were to become sovereign once again, they would be the 15th largest economy in the world. They do not tax income. This allows for investment and distribution of currency by the consumer rather than a government taking most of it and telling us where it is going which is most often their friends pockets through monopolization. When a government redistributes wealth and allows monopolies, or bails out companies without the public taking over the ownership, this is called socialist marxism.

    • I don’t understand. You say consumption taxes are bad, and point to Texas, which apparently doesn’t tax income (pretty sure they still have to pay federal income tax, though).

      So if you shouldn’t tax consumption or income, what *should* you tax? Land? A poll tax?

      • The reports seem to indicate that land is actually the best answer.

        Which makes sense in a way. When you think about it, money tied up in land is dead money. It contributes the least to our economy. So perhaps we tax it at the highest rates and thus encourage people to spend their money in other ways.

    • No it doesn’t. Low income earners get GST credits enough to offset the tax payable on over $10,000 of taxable consumption. That excludes rent and food.

      Fuel taxes in Ontario: ~1.20/L. 81.5 cents is the cost of fuel, 38.5 cents is tax.

      My math:

      81.5 cents + 24.7 cents excise tax = $1.062/L. Add HST at 13% and you get $1.20. That means gasoline is taxed at approx 47%.

  7. GST/HST again just punishes the people with limited and fixed incomes. Increase income tax for the top earners in the country. Stop giving write offs to millionaires and stop subsidizing profitable corporations with government hand outs. (corporate welfare)

    Start giving more write offs for companies that decide to bring off shored jobs back to Canada.
    Stop the foreign worker program, tim hortons franchises make enough money as it is.

    • No it doesn’t. Low income earners get GST credits enough to offset the tax payable on over $10,000 of taxable consumption. That excludes rent and food.

  8. What Canada needs is a combined (federal plus provincial) GST of about 20% along with a combined (fed & prov) flat-rate income tax of about 20%, without the various welfare payouts built into the income tax system.

    • Add in an $8000 guaranteed annual income maybe and a income tax rate closer to 35-40%.

  9. Here’s an idea: stop flooding Canada with 3rd world immigrants who compete with poorer Canadians and graduating Canadian students for the crucial entry-level jobs that they need to begin careers.

    • Heard of free trade?
      We’re going to be competing with them soon no matter where they live.

      Worse, we’ll be competing with them based on the rules (or lack thereof) in their countries.

      If anything, it’s better for us if they’re over here, at least then we get to compete with them with our safety and worker’s health regulations in place.

  10. Why is inequality the measurement? Why isn’t something like youth unemployment? I would suggest that youth unemployment reflects more accurately the potential for opportunity and income growth.

    • Re-read the article. Particularly the paragraph that begins, “Even so, we should be concerned …”

  11. I’m not sure why people think that pointing out that the GST is regressive somehow refutes a post that openly mocks that talking point.

    Yes, this goes to eleven. I get that. Everyone does. But that’s not the end of the story.

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