In praise of VAT

Stephen Gordon tries to reconcile progressives with sales taxes.

Outside Canada, it is generally accepted that high VAT rates are an essential component of social policy: see the accompanying graph. Of the 21 OECD countries that spend more on social programs than does Canada, 19 have higher VAT rates. There are no rich countries that have pulled off the trick of sustaining high levels of social spending with low VAT rates … One of the more convenient features of the GST/HST is that it has already set up the infrastructure for transferring income to low-income households. The GST/HST tax credit can be used as a basis for an even more ambitious system of transfers at almost no additional administrative cost. All that is required is the political will to use it.




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In praise of VAT

  1. I was unaware the NDP were considered ‘progressives.’

    • Oh, they certainly think they are.  “Progressive” is the new cocktail-party-acceptable synonym for “left wing”, don’t you know?

      • Jeez, strikes me as an abuse of the language.

        I always think of the NDP as a party of the 30s, 40s, 50s….the height of the industrial age….very big on the ‘working man’, unions, farmers, being anti-trade, certainly anti-globalization and all that. A party that would throw up a wall around Canada.

        Certainly not my idea of ‘progress’…which would be moving forward.

  2. “Progressives” don’t want logic. They just want to hate Harper, and it has nothing to do with competent governance.

    • Well, I hate the commenting system. Far too easy to accidentally click on Like.

      anyway…

      There is a difference between Rationalization and Logic. 

      And what would be the antonym to “Progressive” anyway?

      I find most “Regressives” prefer rationalization to logic.

      • Ya, you gotta watch those mouse clicks. They’re a very tricky and hard to use device. Oh wait, I mean… Blame the comment system! And while you’re busy blaming the system for your own mistake, try clicking the Like button again, you’ll be pleasantly surprised at what happens.

        You’re welcome.

    • Harper also hates VAT and logic, so….

    • Harper cut the GST.  Given the argument Gordon makes, how does that fit in with logical,  competent governance?

      • At no point in that article does Gordon say that GST/HST/PST/VAT/WTF should be increased. By saying that a VAT is not bad, he’s not saying that it should be as high as possible.

  3. “There are no rich countries that have pulled off the trick of sustaining high levels of social spending with low VAT rates …. ”

    United States doesn’t have VAT. Might have to introduce one soon tho.

    I would like guaranteed income for underclasses, some sections of working class and mothers with young children.

    Best way to reduce poverty is to stop taking people’s money away from them but Prof Gordon wants even higher regressive taxes and then transfer back money. When does that ever happen tho?

    Technocrats are keeping more and more money for themselves while poor get poorer. Why don’t we employ fewer expensive and witless public employees and we can reduce or eliminate taxes on poor entirely.

    • I very much like the idea of a ‘living income’ as well, but in addition I think we also need a middle class.  We need an upper class, too, but I’m not so sure an excessive, over-the-top multi-billionaire class is required.  So even though I’m a progressive, I don’t have a problem with the HST, but I would like to see an additional tax bracket, say somewhere in the 500,000 to possibly even the 750,000 range.

      • There are not many people in Canada between 500k and 750k in income.

        If you look at the people who earn over 1 million, it is mostly c-suite executives and professional sports players. Both groups will likely be able to get their employers to increase their pay so that their after tax income remains competitive with other jurisdictions. Thus, the increase in taxation on the income of these people will not fall on those individuals, but of the customers or other workers of those firms. Ie, sports fans pay more for tickets.

        • We have about 200,000 millionaires, and 23 billionaires.

          • Huge difference between people with a million in assets and a million in taxable income each year. The vast majority of those millionaires are house-rich upper middle class individuals in the GTA and Vancouver.

          • No, I’m not talking about the guy next door whose house went up in value since the 40s.

            And most of them are self-made millionaires.

        • Yeah, and that was a good argument two years ago.  I don’t think it is so much now.  If you are a professional sports player, most leagues (as I understand it, not a sports fan) have caps now and while the winning percentage of Canadian teams vs. their U.S. counterparts may suffer, uh, when’s the last time we won anything NOW?  Are players going to refuse to play when the alternative is not to play in the major leagues at all?  I think not.

          If you are an executive, the shareholders may have a thing or six to say about that, and since more shareholders are speaking out about executive salaries after the recession, it may not be as smooth sailing to get such a raise.

  4. In my case, Stephen Gordon is preaching to the converted.  Ever since I took taxation courses in university, I’ve been convinced of the utility and superiority of consumption taxes.  And I agree that “progressives” are essentially shooting themselves in the foot when they oppose them, as the federal Liberals and NDP did when Mulroney introduced the GST, and as the BC NDP most recently did when they shot down the HST.

    Last time I was in Denmark — which is usually considered a model society among North American “progressives” –  the VAT rate there was 25%, as it is today.

    Sadly, VATs in North America are a classic example, probably the most shining example, of great policy, lousy politics.  And unfortunately, some left-leaning politicians and activists can’t resist the temptation to attack them.

    • Denmark just elected a centre-left party and here is their mandate:

      “Ms. Thorning-Schmidt wants to protect the welfare system by raising taxes on the rich and extending the average working day by 12 minutes.”

      http://www.theglobeandmail.com/news/world/europe/left-wing-blocs-victory-gives-danes-their-first-female-pm/article2167826/?utm_medium=Feeds%3A%20RSS%2FAtom&utm_source=World&utm_content=2167826

      If I remember correctly, think I paid $8.00 Cdn for a Tuberg in Copenhagen in 1988!!

      • No question, all those Scandinavian countries are extremely expensive places to buy consumer goods, and especially to eat and drink in bars & restaurants.  Generous welfare states don’t come cheap.  Norway, of course, has the advantage of sitting on that huge puddle of oil.

        • Norway, however, has a sovereign wealth fund for it’s oil money.

    • Alberta is the only province without a PST or the HST. 

    • How come Hudak’s exempt from your example?

      • I think everyone who opposes a VAT, generally speaking, is an idiot, or at best ill-informed, or, charitably, wrong.   I only mentioned left-of-centre types because that’s what Gordon was discussing in his article that Aaron linked to.  There’s the added thing that “progressives” are supposed to believe in a meaningful, rigorous role for government — so it’s doubly stupid for them to be opposing the most superior form of taxation that exists.  Especially when, as in the BC HST case, these “progressives” jump into bed with Cro-Magnons like Bill Vander Zalm in order to get the tax killed.  I think it might the US neo-con Grover Norquist who said something like “I want government to be so small that I can drown it in a bathtub.”  That’s what severe-right wingers like The Zalm are up to when they’re opposing VATs — they just want to shrink government and starve it of revenue.  It’s a shocking abdication of common sense, intelligence and social responsibility that the BC NDP jumped into bed with Vander Zalm in order to kill the HST.  But of course they did it for cheap political advantage, nothing more.

        • And yet, you’ve exempted Hudak from your example again, even though he isn’t supposed to be a “severe right-winger” and as you have agreed, it isn’t only progressives who oppose VATs.

          Gordon (and then you) have a point that opposing a tax when you want to raise taxes is, uh, counter-intuitive, however for most progressives opposing VATs the issue is that VATs impact most heavily on those who can least afford them.  I personally think they are compensated for that (either through the rest of the tax system, OW, ODSP, CPP and EI or the HST credit) but I do acknowledge that there may well be individuals falling through my ‘compensation’ cracks.  I just think on the whole its best, depending on the rate, of course.

          But right-wingers opposing the VAT is also rather counter-intuitive precisely because it does tax everyone the same regardless of their ability to pay.  Isn’t that what right-wingers want?  Even the most rabid neo-con wants a military so unless they expect they can get people to die for them for free while packing their own lunch and equipment, we need taxes.  The VAT should be the last one they argue against.

          • Ron Paul is on the right and he wants to essentially eliminate the military.

            On another topic, the rebate seems ridiculous to me, because it has no connection to the actual taxes incurred, it’s just a guess.  You could not possible create something so inefficient and inaccurate.  Why on earth they would call it a rebate I don’t know.

  5. I’ve never had a problem with luxury taxes.  I have a problem with tax on essentials (such as shelter, utilities, food, clothing).  I guess the biggest problem is how to define “essential”, and my trust in the mechanism of measuring and returning taxes to low-income Canadians when they are taxed on essentials.  After all, the lower your income the higher your percentage of income spent (hopefully) on essentials rather than luxuries.

    To put it bluntly, I don’t think the likes of Mulroney or Martin ever had the ability to comprehend how much of an impact adding 7% to the price of essentials affected the budgets of low-income families.

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