Cutting the right taxes

by Aaron Wherry

Scott Clark and Peter DeVries propose a new tax plan to fix the government’s structural deficit.

First, the current plan has only slightly reduced the high effective marginal tax rates imbedded in the personal income tax structure, which seriously inhibit labor force participation. Without getting into detail, what is required is a lowering of the marginal tax rates. This could be expensive. Lowering all rates by 1 percentage point could cost $5 billion annually. Getting rid of all the special tax preferences introduced over the past five years would be a start.

Second, the government should restore the two points to the GST bringing back the $13 billion that was lost. This would more than pay for the cut in tax rates for all Canadians but would also allow a larger reduction in the corporate tax rate than is currently planned.




Browse

Cutting the right taxes

  1. Silly economists….what do ANY of these ideas do for the Conservative Party of Canada??

    • Funny, wasn’t it Conservatives who brought in the GST initially? And wasn’t it the Liberals who made it out to be the boogey man tax?

      The lefties made that bed when old mister mumbles, Chrétien, was elected on the promise to scrap the GST and then went on to reap the rewards that it provided.
       
      Yeah, silly economists.

      • No, it was the Progressive Conservatives, not the present Conservative Party.

        • Ah, right, but feel free to toss around the old leftie favorite that the Conservatives are just the old Reform party.

          • Well, D’oh!

          • The Reform party certainly did oppose the GST.

          • Yeah, they probably saw the writing on the wall. Lucky for them the PC’s went ahead with it otherwise they may have remained a rump party.

          • @Turd_Ferguson:disqus 

            That was the funniest exchange I’ve seen on here in a long while.  Too bad you weren’t actually trying to be amusing.

      • So why cut the GST then? 

        • To appeal to the same illogical fears created by the Liberals.
           
          Basically, politics.
           
          Irrational? Yup. Effective? Yup.

          You can’t ever say Harper hasn’t learned to play the game, he basically uses the same weapons Chrétien used.

           

          • There is difference between putting a gun into the hands of an elite marksman and putting it into the hands of a neophyte.

          • So which is which? Haper seems to have pretty good aim if killing off opposition is the goal.

          • “Haper seems to have pretty good aim if killing off opposition is the goal

            Surely, Turd, you see the problem with that.

          • “Surely, Turd, you see the problem with that.” – TJCook

            I’m not saying I like the rules of the game, I’m just saying he’s good at the game.

          • His whole schtick is that he is the steady hand of a conservative economist who is the only one who can weather us through these stormy waters.  So first up he creates a structural deficit.  As if this won’t catch up with him? 

          • In recent months, our federal deficit has been heading down.  So it may not catch up with him.  We’ll just have to wait and see.  If we get a double-dip recession, then it may well catch up with him.

  2. Consumption taxes are regressive by nature.  Put simply, people without much money tend to be forced to buy cheap items of lower quality, meaning they have to replace them regularly, getting taxed each time. People with money tend to buy high quality items once. They pay a bit more in the initial tax hit, but that’s it.

    Now if the GST rebates are increased in tandem with the consumption tax increase, that deals with the problem.

    • Please give actual examples of these items. Do you mean shoes? Alcohol? Microwave ovens? Cars?
       
      I know when I didn’t have much money during university I rented a house (tax free), drove an old car (tax free), and wore the same shoes for years.
       
      People with money, spend money, and pay taxes on that money. They buy big houses (lots of taxes), fancy cars, (lots of taxes), and they often replace their stuff more frequently as newer and better things become available. The more they spend, the more tax they pay, simple.

      • Wow. Now if the whole world were populated with people just like you, you’d have a point.

        If you want examples, go to any good will store and watch what people buy. 

  3. Ideally, yes, low corporate and income taxes combined with higher consumption taxes makes the most sense.
     
    However, it takes an incredibly brave politician to actually move ahead with a plan like that, just look at what happened to Mulroney and the PC’s when they brought in the GST. That memory is still far too fresh in the minds of Conservatives to risk repeating, regardless of the reality.
     
    The majority of Canadians still have an irrational hate on for consumption taxes, just look at B.C. for example.
     
    No, although it’s a good idea, this isn’t happening anytime soon.

    • I’m personally in favor of high corporate taxes. It’s really just another form of consumption tax but gives even more options for how it’s paid. Does the corporation just let it come from shareholders profits? Do they take it from management? Do they take it from workers? Or do they pass it on to the consumers?  When there are choices available, competition can then work it’s thing to determine the best way.

      Of course, I also support basing corporate taxation on the economies of scale a company has, so as to be able to encourage competition in the marketplace.  Good luck ever seeing that in play though.

      • It will always be passed on to consumers.

        • With enough choice, consumers can choose not to buy.

        • In which case, it’s the same as a consumption tax, only more salable to the public. Sounds like a win-win.

      • I am in favor of controlling the amount of tax I pay, and the only means of that is through consumption tax.
         
        I can choose to buy a smaller house, a smaller car, to not buy all the newest and best toys out there and thus reduce my tax burden while at the same time inadvertently helping the environment. Wow! Isn’t consumption tax great?
         
        Too bad the Liberals took a $hit on it and made it so unappealing to the average Canadian.

        • Which Liberals would those be?  I’m pretty sure we were against LOWERING the GST rate, and the Liberals in Ontario and BC can hardly be said to be against the tax (that would be the PCs).  So, when/where did the Liberals do such a thing? 

          • When it was first introduced. They ran an entire election against it with the promise to scrap it. Remember?

          • Reading Wells piece this mornng, I see Kenney claims this government is acting conservative and cites cutting the GST as proof.  There seems to be some confusion on your tax policy.

          •  - In response to JanBC

            No confusion. The GST is a poison pill and the Conservatives are playing politics with it.

            Name one Government, federal or provincial, that has raised their consumption tax and survived an election since the GST was introduced.

          • @Turd__Ferguson:disqus We’re not talking about Harper cutting it – I don’t remember any huge public demand for him to do that, he chose to do it thinking he could buy votes.  It was a stupid thing to do economically.  And now, he would look lke an idiot to backtrack and put it back or raise it.  He’d have to admit he’d made a mistake and we know that will never happen. He’s now got to do a lot of cutting to fill the void. 

          • - In response to JanBC

            I agree. It was a dumb move to buy votes from people who are still angry about the GST. My point is, if the Liberals hadn’t turned the GST into a boogey man that type of move wouldn’t work and we’d be free to actually look at the merit of the tax.

            Sadly, Mulroney didn’t sell it very well and the Chrétien marketing team did a great job of manipulating the electorate into believing that it was an evil plot. Harper is just taking advantage of the now entrenched fear.

            Sadly, we’re stuck with high income tax.

          • Do you stop time in all your decisions?  For example, if you bought milk two years ago, would you scoff at a family member suggesting a purchase of milk? 

            Liberals were against it at first because a) they were in opposition and are supposed to provide an alternative viewpoint but mostly b) it was new, untried, and suggested at 9%.  That was 1991.  Since then, we have seen the value of the GST.  Since then, it has been the Conservatives giving the tax a bad name.  But you blithely skip over that and speak about twenty years ago as if it were today.

          • 2Jenn, reality check:  In the federal Liberal Party’s Red Book campaign platform in the 1993 federal election, there was an explicit promise that they would get rid of the GST.  Jean Chretien and company repeated this promise throughout the election campaign.

            Once elected, Chretien did not get rid of the GST.  Ergo, he lied.  So did the rest of his caucus and party.  Sheila Copps said she’d resign if they didn’t get rid of the GST.  She didn’t resign when it became quite evident that the Liberals had lied their faces off and were keeping the GST.  It was only when there was a firestorm of public anger at Copps at her bald-faced mendacity that she finally relented, “resigned” her ultra-safe seat in Hamilton, promptly ran again in the same ultra-safe seat and got re-elected.  Most of us didn’t share Copps’ self-serving interpretation of the word “resign”.  We thought it meant, you know, leave.  For good.  Like she should have done had she had any integrity.

          • Don’t you know, Jenn and Jan have selective memory when it comes to Liberal lies.

          • Or maybe once he had a serious look at the books he knew that good governance was more important than good politics. 

          • Of course as a typical Conservative Turd would have preferred that the country defaulted, that we tripled the debt to pass on to our children.  Don’t worry Turd, with Conservatives back in government, we’re on track again.

          • Turd, have a look at p. 32 of Conservative platform:

            “A Conservative government will…preserve income trusts by not imposing any new taxes on them.” 

            Selective memory is widespread, don’t you think?

            Diane Francis: 
            “The income trust fiasco has created $2 billion a year in tax leakage, and counting, instead of stemming it as promised; it disrupted the junior oil and other markets by removing competitors for their assets; it blackened Canada’s reputation to offshore investors…many of whom were in the UK and banked on Harper’s promise and, worst of all, has spawned a spate of foreign leveraged buyouts of Canadian assets and corporations.”

        • And if it’s a corporate tax, doesn’t all the same still apply?

    • Sadly, for maybe the first time, I must agree with this Turd_Ferguson.

      • I will do my best in the future to avoid that. :)
         
         

    • Actually what happened in B.C. was a rational hatred of Gordon Campbell.  Had he introduced it the way McGuinty did, he wouldn’t have had the problem with it.

  4. I’m completely onside with getting rid of tax credits.  I’m also okay with the HST hike, except for the fact that some provinces have moved to fill the gap, and I don’t think a 17% HST should be inflicted on anyone during an economic whateveryouwanttocallthis.  But how about we talk about sources of income and taxation rates that change with the source as well as the amount? 

    • “But how about we talk about sources of income and taxation rates that change with the source as well as the amount?”

      We have that.  That’s why there’s income tax, capital gains tax, dividend tax etc…

      I hope that’s what you mean, and not have different income tax rates depending on the source of your employment income, because that would be the biggest mess of all time.

      • That was what I mean, but now I want to know what you were thinking about with “source of employment income” unless you were thinking about something dumb like “Canadian Tire employees are taxed at this rate while Home Depot employees have to pay this rate.”  That would be a mess, indeed. 

        There are credits that apply to dividends, and a calculation for capital gains, but after that it is “income” and all streams come down to one tax on income.  But that’s a good point, too, in that those ‘extra’ calculations are needlessly complicating.  I mean, who thought up “grossing up” in order to provide a credit?

  5. I don’t think I could agree more with a tax package that eliminated all these stupid tax credits, lowered personal and corporate income tax rates and raised consumption taxes.

    So long as the G/HST credits to low-income households are increased to offset the effects of an increased GST, this is got to be the best way to go.

    Clearly the CPC won’t ever implement such a package because of the GST and the NDP doesn’t understand that the GST doesn’t have to be regressive, nor would they ever think of reducing corporate taxes.

    Take note, potential Liberal leaders.  This is how you get my vote.

    • I think it would be wonderful if a major federal party (with an actual chance of winning power) took up the kind of tax reform you’re talking about.  It’s what I would like to see happen.  However, I’m not holding my breath.

      I think the federal Liberal Party got completely spooked by what happened at the polls when Dion was leader and proposed the Green Shift.  I think they concluded from that that anything that even looks like a tax increase is toxic at the polls.  I would love to be proven wrong on that.

    • Noted, and I so completely agree with you that I’d be delighted to bring it forward if I could.  I don’t suppose you’d consider becoming a Liberal in order to help me?  Not that all Liberals would currently be against it (in fact I think it would pass) but it takes the passion of several to get the policy to the point of a vote.

Your email address will not be published. Required fields are marked *