Tax freedom? What a lot of rubbish.

Only the Fraser Institute could see it as a bad thing that we spend less of our income on basics like food and shelter than we used to

Tax freedom? What a lot of rubbish.What is it about springtime that makes anti-government types go light-headed? As millions of Canadians from coast to coast were getting ready to celebrate the Victoria Day weekend by opening the cottage, firing up the barbecue, or—er—watching hockey, the Canadian Taxpayers Federation took the opportunity to declare May 14 “Gas Tax Honesty Day.”

Designed to “kick off the summer travel season for Canadian motorists” by reminding us of “the high tax component hidden in the price of gasoline,” this 11th annual holiday consisted—according to CTF propaganda—of “events” across the country. The highlight event was a jamboree down at the Ashbridges Bay Pumping Station in Toronto that featured CTF director Kevin Gaudet engaging in such summer-fun activities as . . . releasing a report on gas taxes . . . and . . . demanding that gas taxes be lowered.

Fun bunch, these libertarians. Anyway, don’t worry if you missed Gas Tax Honesty Day. In just a few weeks, the Fraser Institute will announce its always-anticipated Tax Freedom Day, an annual watershed that marks the moment when Canadians have collectively “paid off the total tax bill imposed on them by government and can finally start working for themselves.”

What these two holidays share is a rhetorical strategy designed to make taxation seem like something fundamentally alien, at odds with the interests of the average person. The underlying message is not that some taxes may be too high, or that the share of taxation may be unevenly distributed. Instead, it is that all taxes are essentially confiscatory, an unfair and probably illegitimate transfer of income to the state from its rightful owner, the private citizen.

It’s all a boatload of nonsense, resting on a mistaken premise that sees the private sector as the producer of wealth, and the public sector as the consumer: what the corporations produceth, the government taxeth away. Except—as University of Toronto philosopher Joseph Heath argues in his excellent new book, Filthy Lucre—it is people who produce and consume wealth. The market and the state merely coordinate—each in their own way—our production and consumption of that wealth. To put the point simply: the market is a device for providing us with private goods, like running shoes and maid services, while the state is there to provide us with public goods—like national defence and weekly garbage pickup.

Listening to the relentlessly shrill right-wing rhetoric, you’d forget that any Canadians ever derived a single benefit from their tax dollars. An especially egregious example of this grumbling was a pre-tax-deadline release from the Fraser Institute in late April, which lamented the fact that today, the average Canadian family spends nearly half its total income on taxes—“more than it spends on food, clothing, and shelter.”

At the heart of the study was an invidious contrast with similar figures from 1961, when Canadians spent barely a third of their total income on taxes. As Niels Veldhuis, the study’s co-author put it: “The tax burden faced by Canadians extends well beyond income tax. When you add up all the taxes Canadians pay to all levels of government, the typical family is sending more of its income to government than it spends on basic necessities.”

Only the Fraser Institute could see it as a bad thing that we spend less of our incomes on basics like food and shelter than we used to. But if it’s invidious contrasts you are after, why look only as far back as 1961? Today, the average North American spends about 10 percent of disposable income on food alone. In 1933 it was more like 25 per cent.

Meanwhile, the study notes, since 1961 the amount that Canadians spend collectively providing ourselves with national defence and other forms of security, health insurance, unemployment insurance, pensions, clean air and water, consumer protection, infrastructure, research and education, and other public goods has skyrocketed, increasing by 1,783 per cent per family.

The tax “burden” was so much lower then, wasn’t it? Sure, but so was life expectancy. Despite what the Fraser Institute wants you to think, this is what is known as progress, and only in the bizarro-world fantasies of anti-tax conservatives could a society where families spend over half their income on private necessities be considered preferable to the one we have today.

As it happens, the closest analogue to stunt holidays like Gas Tax Honest Day and Tax Freedom Day is the culture-jamming festival Buy Nothing Day. Held each November on what is supposedly the busiest shopping day of the year in the U.S., this annual celebration of anti-consumerist values exhorts participants to adopt a lasting lifestyle commitment to consuming less stuff and producing less waste.

Buy Nothing Day doesn’t make a lot of sense either, given the economic truism that for every consumer there must be a corresponding producer. Thus, Buy Nothing Day might as well be called “Earn Nothing Day”—though telling people with bills to pay to skip out on a day of work doesn’t quite have the same power as a rallying cry.

Indeed, with its mix of dopey populism and economic illiteracy, the anti-government right finds itself uncomfortably close to the anti-market left. Both are peddling economic half-truths and outright fallacies in the service of their competing but ultimately mirror-image ideologies.

The main difference of course is that while the left is generally expected to be economically illiterate, the right is supposed to know better. Their brand is economics, you might say. That is why, when it comes to the rhetorical strategies of Canada’s libertarian movement, it is hard to avoid concluding that the deception is deliberate.

Tax freedom? What a lot of rubbish.

  1. The underlying message is not that some taxes may be too high, or that the share of taxation may be unevenly distributed. Instead, it is that all taxes are essentially confiscatory, an unfair and probably illegitimate transfer of income to the state from its rightful owner, the private citizen.

    Care to point out where they make that point (that ALL taxes are "unfair" and "illegitimate transfer[s]")? Besides in your own imagination, that is. Thanks.

  2. Actually, the main "rubbish" about Tax Freedom Day is not that all taxes are evil. It's that there is no such thing as freedom from taxes if you are a law-abiding citizen. There is NEVER a moment when Canadians "can finally start working for themselves.” Does. Not. Happen.

    EVERY additional dollar of legal income earned is subjected to the marginal taxation rate, and don't think for a moment that productive people haven't hesitated over the bother of additional economic activity, given the real return such effort provides.

    EVERY legal purchase of consumer goods (yeah, yeah, not food or prescription drugs, etc., I know) is subjected to sales tax.

    EVERY new hire is subjected to payroll taxes.

    And no, I am certainly not spouting Mr. Potter's lame all-taxes-are-evil false lampooning. I am just saying he gets the complaint with the premise of "Tax Freedom Day" completely wrong.

  3. Excellent piece. Gad, the FIPD.

    That said, I'm of two minds. "Gas Tax Honesty Day" seems ridiculous to me, but I'd support a "Booze Tax Honesty Day." I got into making Pina Coladas last weekend and am now out of rum. If it costs this much when I'm unmarried, I can't imagine what it would cost to raise a family of four on Pina Coladas. Lowering the tariff on coconut cream would also help.

  4. After that, Mr. Potter, you can point out where anyone has ever claimed that water is wet.

  5. The underlying message is not that some taxes may be too high, or that the share of taxation may be unevenly distributed. Instead, it is that all taxes are essentially confiscatory, an unfair and probably illegitimate transfer of income to the state from its rightful owner, the private citizen.

    Care to point out where they make that point (that ALL taxes are “unfair” and “illegitimate transfer[s]“)? Besides in your own imagination, that is. Thanks.

    • After that, Mr. Potter, you can point out where anyone has ever claimed that water is wet.

      • Google (with safe search on) returns 77,000,000 hits for “water is wet claim.” Feel free to look araound.

        You’re welcome.

        • You don’t want to know what comes up without safesearch….

  6. Actually, the main “rubbish” about Tax Freedom Day is not that all taxes are evil. It’s that there is no such thing as freedom from taxes if you are a law-abiding citizen. There is NEVER a moment when Canadians “can finally start working for themselves.” Does. Not. Happen.

    EVERY additional dollar of legal income earned is subjected to the marginal taxation rate, and don’t think for a moment that productive people haven’t hesitated over the bother of additional economic activity, given the real return such effort provides.

    EVERY legal purchase of consumer goods (yeah, yeah, not food or prescription drugs, etc., I know) is subjected to sales tax.

    EVERY new hire is subjected to payroll taxes.

    And no, I am certainly not spouting Mr. Potter’s lame all-taxes-are-evil false lampooning. I am just saying he gets the complaint with the premise of “Tax Freedom Day” completely wrong.

    • The concept is somewhat unique but not unworthwhile, and its a perfectly legitimate exercise in tax theory. In fact, the “main rubbish” is the deceptive methodology used in arriving at the date in question.

      And the theoretical possibility of some people engaging in the luxury of turning down work is pretty small next to the actual reality of the diminishing utility of money. Rational economic actors? Never met one.

  7. Excellent piece. Gad, the FIPD.

    That said, I’m of two minds. “Gas Tax Honesty Day” seems ridiculous to me, but I’d support a “Booze Tax Honesty Day.” I got into making Pina Coladas last weekend and am now out of rum. If it costs this much when I’m unmarried, I can’t imagine what it would cost to raise a family of four on Pina Coladas. Lowering the tariff on coconut cream would also help.

  8. You miss the point of anti-tax folks. They are generally fans of garbage pickup, roads and other public goods. They are not fans of some of the goofier public expenditures and corrupt transfers of money.

    Elected officials are hopefully accountable for roads and real public goods. They are fewer complaints from the majority about frills and money for Cricket clubs. By reducing taxes, the government structurally has less money to waste while still providing the same or similar public goods.

    That's one theory at least.

  9. Google (with safe search on) returns 77,000,000 hits for "water is wet claim." Feel free to look araound.

    You're welcome.

  10. Andrew, the libertarian right is anti-tax because that is the best way to market an anti-government message. They would love to also roll back government spending given the chance.

  11. Tax Freedom day has already passed. The methodology used to calculate it would make the people who cooked Enron's books blush. Capital gains aren't counted as income, ridiculous public charges are made into family expenses, and they are highly 'flexible' with their use of medians vs. averages. Professor Neil Brooks wrote an excellent paper on it which can probably be found online somewhere.

    When you treat it seriously without pointing that it's falsified information, you're already giving it far more legitimacy then it deserves. And you're also spilling ink on people who don't think highly enough of you to be honest with you.

  12. The concept is somewhat unique but not unworthwhile, and its a perfectly legitimate exercise in tax theory. In fact, the "main rubbish" is the deceptive methodology used in arriving at the date in question.

    And the theoretical possibility of some people engaging in the luxury of turning down work is pretty small next to the actual reality of the diminishing utility of money. Rational economic actors? Never met one.

  13. It's really a bit of a marvel that the CTF are still invited to panels of serious-sounding discussion given that they are such kooks that take liberties with statistics, economics, and all-around logic. Much of what they do is gimmickry and misinformation.

  14. You miss the point of anti-tax folks. They are generally fans of garbage pickup, roads and other public goods. They are not fans of some of the goofier public expenditures and corrupt transfers of money.

    Elected officials are hopefully accountable for roads and real public goods. They are fewer complaints from the majority about frills and money for Cricket clubs. By reducing taxes, the government structurally has less money to waste while still providing the same or similar public goods.

    That’s one theory at least.

  15. Potter fails to make the distinction that while the public and private sector can both create things, only the private sector actually produces wealth. It is true that the private sector is the producer of wealth, and the public sector is the consumer

    Here's a thought experiment for Mr. Potter.

    Suppose the private sector can produce the outputs Y from the inputs X.

    Suppose the value on the open market of Y is more than X. That is called generating wealth. We, as a society, ended up with more than we started. If the value of X is more than Y, that is what we call a company that should go bankrupt, because it is a destroyer of wealth. Society would be better off if the company did not exist (for example, GM is currently such a company, albeit a company that wishes to hide how worthless their cars are by letting them languish in giant parking lots).

    Similarly, when the public sector takes X tax dollars and produces Y, and the market value of Y is less than X, then that is what is called destroying wealth.

    Why do I say market value? Because this is another area where simple-minded people like Potter get it wrong. The only way to determine the value of something is to find out what people will pay for it. In a communist society, one of the reasons everything goes haywire is because there is no way to measure the benefits of what people produce. Sure, producing rice can be a good thing, but not if there is so much rice already that nobody wants any of it. If that is the case, the production of the worthless rice is a destroyer of wealth because the resources that went into producing it are gone.

    Thank goodness we have a private sector, because that is the only way we can determine if the public sector is creating or destroying wealth.

    By comparing with the public sector, we can be certain that what we get back in return for our tax dollars is indeed worth less than what we paid for it, and thus the public sector is a destroyer of wealth.

  16. Andrew, the libertarian right is anti-tax because that is the best way to market an anti-government message. They would love to also roll back government spending given the chance.

  17. Potter also fails to notice that the increase in life expectancy has absolutely nothing to do with taxes. Life expectancy was increasing long before the income tax was invented, for instance.

  18. Tax Freedom day has already passed. The methodology used to calculate it would make the people who cooked Enron’s books blush. Capital gains aren’t counted as income, ridiculous public charges are made into family expenses, and they are highly ‘flexible’ with their use of medians vs. averages. Professor Neil Brooks wrote an excellent paper on it which can probably be found online somewhere.

    When you treat it seriously without pointing that it’s falsified information, you’re already giving it far more legitimacy then it deserves. And you’re also spilling ink on people who don’t think highly enough of you to be honest with you.

    • Ah. Neil Brooks. A great and very funny man.

  19. It’s really a bit of a marvel that the CTF are still invited to panels of serious-sounding discussion given that they are such kooks that take liberties with statistics, economics, and all-around logic. Much of what they do is gimmickry and misinformation.

  20. Potter fails to make the distinction that while the public and private sector can both create things, only the private sector actually produces wealth. It is true that the private sector is the producer of wealth, and the public sector is the consumer

    Here’s a thought experiment for Mr. Potter.

    Suppose the private sector can produce the outputs Y from the inputs X.

    Suppose the value on the open market of Y is more than X. That is called generating wealth. We, as a society, ended up with more than we started. If the value of X is more than Y, that is what we call a company that should go bankrupt, because it is a destroyer of wealth. Society would be better off if the company did not exist (for example, GM is currently such a company, albeit a company that wishes to hide how worthless their cars are by letting them languish in giant parking lots).

    Similarly, when the public sector takes X tax dollars and produces Y, and the market value of Y is less than X, then that is what is called destroying wealth.

    Why do I say market value? Because this is another area where simple-minded people like Potter get it wrong. The only way to determine the value of something is to find out what people will pay for it. In a communist society, one of the reasons everything goes haywire is because there is no way to measure the benefits of what people produce. Sure, producing rice can be a good thing, but not if there is so much rice already that nobody wants any of it. If that is the case, the production of the worthless rice is a destroyer of wealth because the resources that went into producing it are gone.

    Thank goodness we have a private sector, because that is the only way we can determine if the public sector is creating or destroying wealth.

    By comparing with the public sector, we can be certain that what we get back in return for our tax dollars is indeed worth less than what we paid for it, and thus the public sector is a destroyer of wealth.

    • With this kind of “logic”, you could work for the Fraser Institute!

  21. Potter also fails to notice that the increase in life expectancy has absolutely nothing to do with taxes. Life expectancy was increasing long before the income tax was invented, for instance.

  22. Potter, I can remember when you stood in for Coyne on his own blog years ago. You were excellent then. What happened?

    Do you really think that it's "all a boatload of nonsense" that high taxes are bad? Have you never read a book that lays this argument out logically? Try Adam Smith, the "Father of Economics" for starters. Maybe follow up with a little Thomas Sowell. If you still disagree, fine, but don't display your ignorance by suggesting that there are no good arguments to the contrary.

    Another canard: higher taxes are the reason for our longer life expectancies? Really. Medical advances (largely from the private sector) had nothing to with it, right? Cheaper food packaging due to free market competition also didn't make any difference, right? Make a case if you want, but your blithe dismissal of any possibilities other than the one you like best is juvenile.

    Here's one more consideration for you: our government collects far more than it needs for the basic services of national defense, infrastructure, police forces, etc. The rest is spent on entirely optional things chosen by the government for our well-being: fancy architecture in Shawinigan, huge gun registries, the CBC, etc. Which is better in a free society: people choosing what their money is best spent on, or bureaucrats taking people's money by force and choosing for them?

  23. Potter, I can remember when you stood in for Coyne on his own blog years ago. You were excellent then. What happened?

    Do you really think that it’s “all a boatload of nonsense” that high taxes are bad? Have you never read a book that lays this argument out logically? Try Adam Smith, the “Father of Economics” for starters. Maybe follow up with a little Thomas Sowell. If you still disagree, fine, but don’t display your ignorance by suggesting that there are no good arguments to the contrary.

    Another canard: higher taxes are the reason for our longer life expectancies? Really. Medical advances (largely from the private sector) had nothing to with it, right? Cheaper food packaging due to free market competition also didn’t make any difference, right? Make a case if you want, but your blithe dismissal of any possibilities other than the one you like best is juvenile.

    Here’s one more consideration for you: our government collects far more than it needs for the basic services of national defense, infrastructure, police forces, etc. The rest is spent on entirely optional things chosen by the government for our well-being: fancy architecture in Shawinigan, huge gun registries, the CBC, etc. Which is better in a free society: people choosing what their money is best spent on, or bureaucrats taking people’s money by force and choosing for them?

  24. There may be anti-tax groups out there – the CTF is not one of them. You need to go only the the former CTF President John Williamson’s article -Why we should pay taxes. They are however, adamantly opposed to wasteful, irresponsible and nepotistic spending of our tax dollars. Every month, without fail, governments, politicans and bureaucrats at all levels provide the CTF with myriads of examples of their failure to respect our tax dollars in the manner that they should. ADSCAM happened because there were people in government who felt they could get away with defrauding the Canadian public. Some of them went to jail because groups like the CTF refused to accept their behavior a business as usual.

    Mr. Potter may not grasp the concepts behind Tax Freedom Day and Gas Tax Honesty, but his failure to do so does not make the need for government accountability any less necessary.

  25. There may be anti-tax groups out there – the CTF is not one of them. You need to go only the the former CTF President John Williamson’s article -Why we should pay taxes. They are however, adamantly opposed to wasteful, irresponsible and nepotistic spending of our tax dollars. Every month, without fail, governments, politicans and bureaucrats at all levels provide the CTF with myriads of examples of their failure to respect our tax dollars in the manner that they should. ADSCAM happened because there were people in government who felt they could get away with defrauding the Canadian public. Some of them went to jail because groups like the CTF refused to accept their behavior a business as usual.

    Mr. Potter may not grasp the concepts behind Tax Freedom Day and Gas Tax Honesty, but his failure to do so does not make the need for government accountability any less necessary.

  26. Tax Freedom Day serves an important purpose. It gives Canadians a clear understanding of how much tax they pay in a highly concrete manner. That can only be a good thing.

    And then it compels us to ask “How much taxation is reasonable?” and “Are we getting value for our money?”

    I suspect that Potter’s real problem is that he doesn’t want those questions asked.

  27. With this kind of “logic”, you could work for the Fraser Institute!

  28. Tax Freedom Day serves an important purpose. It gives Canadians a clear understanding of how much tax they pay in a highly concrete manner. That can only be a good thing.

    And then it compels us to ask “How much taxation is reasonable?” and “Are we getting value for our money?”

    I suspect that Potter’s real problem is that he doesn’t want those questions asked.

  29. Ah. Neil Brooks. A great and very funny man.

  30. You don’t want to know what comes up without safesearch….

  31. Buy Nothing Day is about ecology, not economy.

  32. Buy Nothing Day is about ecology, not economy.

  33. Buy Nothing Day is about ecology, not economy.

  34. I agree with some of what Andrew Potter wrote and I agree with some of thewhat the criticssaud. What makes the Fraser Study report somewhat valid is that there is an agreement on the left and the right that, at some point, the decreasing marginal benefit of higher government spending and the increasing marginal cost of increased taxes cross. Where there is disagreement, naturally, is over that point.

    Those on the left argue that point is government spending of 40% of GDP while those on the right argue that it is around 20% of GDP (they used to argue 30%).

    The reason for the disagreement naturally has to do over each side having different assumptions. To the right, taking money away from the 'productive' productive people in society and giving it to a person on welfare is seen as waste. To the left, taking money away from a person who was going to buy their 5th (foreign made) yacht and giving it to a person so that they can get back in the workforce is seen as very productive.

    This debate is more of an American thing though as clearly even the Conservative Party here has made little headway in arguing for significant spending cuts. To be sure, the Republican Party in the United States made little headway there either, but they simply argued that 'deficits don't matter' (at least they didnt' matter before Obama became president) and passed major tax cuts that mostly benefited the wealthy while driving up the deficit at a rate of about $500 billion a year during mostly good economic times.

    So, to that degree, I would simply have to ask "where has Andrew Potter been all these years?" This debate has been going on for over 30 years with many on the right arguing that all government spending is essentially 'wasteful'.

    Old line Republicans like Gerald Ford, Richard Nixon and Eisenhower were the type of people who didn't believe in high taxes but believed in government spending in what is known as 'non excludable' goods. They believed that government had a role and didn't agree with the notion expressed by one person here that government spending can't increase productivity. Government spending in research, roads and education certainly does increase productivity.

    However, that faction of the party got defeated in 1980 and they were taken over by a person who didnt' believe in much government spending beyond the military. Even in the supposedly 'anti government and anti tax' U.S we've seen that that party has fallen off a cliff pretty much reduced to being a regional party and even supposedly intelligent Republicans like the governor of Louisiana, Bobby Jindal, think that government spending on non excludable goods like 'something called volcano monitoring' is a waste.

    BTW, Niels Veldhuis, the author of the Fraser Institute study, was my first year micro economics instructor. I agree the study is of somewhat dubious value, but he is definitely well read on economics on all sides and he was probably the most creative instructor I've ever had. Such a shame he's a right wing loon! :D

  35. I forgot to address one other thing:
    "The main difference of course is that while the left is generally expected to be economically illiterate, the right is supposed to know better. Their brand is economics, you might say."

    Actually, there is no evidence what so ever that the right has any expertise on economics, beyond the fact that they like to think they do. As I've written elsewhere: "Milton Friedman got one thing right on inflation 30 years ago, and since then, every conservative, no matter how stupid, thinks they're an expert on economics."

    Spouting things like "I know how to spend my money better than the government" and "the free market works and socialism sucks" doesn't make you an expert on economics, it just makes you a well loved caller on the Roy Green show.

  36. I forgot to address one other thing:
    "The main difference of course is that while the left is generally expected to be economically illiterate, the right is supposed to know better. Their brand is economics, you might say."

    Actually, there is no evidence what so ever that the right has any expertise on economics, beyond the fact that they like to think they do. As I've written elsewhere: "Milton Friedman got one thing right on inflation 30 years ago, and since then, every conservative, no matter how stupid, thinks they're an expert on economics."

    Spouting things like "I know how to spend my money better than the government" and "the free market works and socialism sucks" doesn't make you an expert on economics, it just makes you a well loved caller on the Roy Green show.

  37. The pervasive obsession this country has with calling taxes a good thing absolutely baffles me. A few Canadian groups get together and decide to promote the idea of lower taxes and lower government spending, and the journalists and academics can't wait to deride them as brainless extremists.

    But be LOGICAL for longer than the two minutes it takes to write journalistic tripe like this. There is nothing extreme, foolish, illiterate, or negative whatsoever with the belief that taxes and government spending should be lower. Only in Canada does such an opinion offend.

    And by the way, the spurious correlation of tax rates with life expectancy is probably the single most dishonest claim I've ever seen in journalism. Shame, shame, shame.

  38. The pervasive obsession this country has with calling taxes a good thing absolutely baffles me. A few Canadian groups get together and decide to promote the idea of lower taxes and lower government spending, and the journalists and academics can't wait to deride them as brainless extremists.

    But be LOGICAL for longer than the two minutes it takes to write journalistic tripe like this. There is nothing extreme, foolish, illiterate, or negative whatsoever with the belief that taxes and government spending should be lower. Only in Canada does such an opinion offend.

    And by the way, the spurious correlation of tax rates with life expectancy is probably the single most dishonest claim I've ever seen in journalism. Shame, shame, shame.

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