Canadian Capitalist

11 responses so far ↓

• 1 Dave // Dec 2, 2005 at 12:19 am

  Just saw this article earlier today on the CBC about how some economists (such as the biased right-wing Fraser Institute) don’t think it’s a good idea. They don’t go into detail about WHY the tax is a bad idea. It does mention that the non-partisan Canadian Taxpayer’s Federation likes the idea.

  It would seem odd that the Conservatives would propose a reduction in the sales tax which is largely a regressive tax (even with the GST rebates I would guess/argue). You would expect this kind of thing from the NDP which is supposed to be more socialist. I think Alexa McDonough used to be a champion of this idea. Well we’ve seen parties stealing each other’s ideologies before, so I guess it should come as no surprise.

  I personally don’t mind if we reduce a regessive tax. But personal income tax cuts can be towards a more progressive or more regressive policy depending on how they are done, so it’s not apples to apples. Haven’t looked at the Liberals’ tax cut proposals in detail so can’t really comment there.

• 2 Anshu // Dec 2, 2005 at 7:54 am

  Consumption taxes are, generally, preferable to income taxes. However, that doesn’t automatically make the Liberal proposal superior to the Conservative one.

  In Canada, we are overtaxed. That’s a simple statement of fact based on the massive surpluses, shuttling of funds into foundations with no oversight (over $7B last I heard) and unnecessary government expenditures (adscam, gun registry, HRDC boondoggle, etc) we’ve seen for years.

  So clearly, there is room for massive tax reduction in Canada with no discernbile decrease in services. Therefore, it is possible to reduce both income and consumption taxes.

  Another statement of fact would be that the Canadian populace, as a whole, is not very economically astute. As a result, the advantage of a decrease in consumption taxes is that it is visible to all Canadians, and is therefore more difficult to increase in the future. In that sense, it can almost be considered permanent, whereas payroll taxes, as we’ve seen in Ontario via health care “fees”, can be added back quite invisibly.

  The other factors in this debate are that the Liberal tax decreases are very small, and that the Conservatives have not ruled out income tax cuts of their own. Historically, the Conservative position has been to increase the personal exemption and make it 100% transferable between spouses. They have also championed a flatter tax rate across income levels, as well as removal of surtaxes currently applied to those making over about $60K. Those changes would represent a far greater reduction in income tax than the Liberals have proposed.

• 3 Canadian Capitalist // Dec 2, 2005 at 9:28 am

  Anshu: I agree with you that we are overtaxed and I for one will gladly take any tax cut I can get. Also, the Tory tax-cut may not be economically sensible, but it is certainly a good political strategy.

  And Mr. Harper has said that he has more tax cuts announcements to make as the campaign progresses. My guess is the GST cut would be on top of the Liberal tax cuts.

  My complaint against cutting the GST is that it encourages consumption and penalizes saving. The savings rate in Canada is already negative and the last thing we need is to encourage consumption.

  But, like you point out, I think that more tax cut proposals will be announced by the Tories. In the last election, they had a tax-prepaid savings plan (no tax deduction for contributions, but withdrawals are tax-free), which would be a great idea for everyone and especially lower-income Canadians.

• 4 Canadian Capitalist // Dec 2, 2005 at 9:36 am

  Dave: I disagree that the GST is a regressive tax. It is a tax on consumption. The more you spend, the more tax you pay. Rich people spend much more than the middle class (think yachts, Porches) and pay more. It does hurt the poor. So, hiking the GST credit would help them more.

• 5 Dave // Dec 2, 2005 at 10:09 am

  It is regressive because a larger portion of poor and middle-class incomes goes towards expenses which are sales-taxable.

  The income elasticity of demand is less than 1 for most things (needs), however, you are right that the IED is greater than 1 for luxury items, but income elasticity of savings (I just made that up) for the rich is probably greater than 1, which I think would imply IEDregressive, but it’s hard for me to say because I don’t know which items (some essentials I believe) aren’t taxed by GST. Even if some essentials aren’t taxed, I’d say that brings the IED closer to 1, but still

• 6 Canadian Capitalist // Dec 2, 2005 at 11:59 am

  Dave: I agree that the poor are hurt disproportionately by the GST (I know from experience having been a penniless grad student). A bigger GST credit would take care of the problem. Otherwise, it is not regressive at all. Remember, we pay the GST out of our after-tax dollars.

  In fact, it could be argued that our tax system is currently regressive. Compare someone making $40,000 who has to pay the full EI premium and CPP contributions with another making $80,000 who pays the exact same EI and CPP amounts.

• 7 doctoth // Dec 2, 2005 at 5:55 pm

  REgressive? both the 40,000 and 80,000 contributors can collect the exact same amount from cpp and ei in the event they use the programs because they have paid the same amounts…..what’s disproportionate about that? EI is an insurance and cpp a pension… you get what you put in simple
  now if you are proposing that the 80,000 contributor should be required to pay more but would also collect more that would be a different story…this is one of my biggest pet peeves about discussions about taxes and entitlements, people never look at both sides

• 8 Canadian Capitalist // Dec 2, 2005 at 9:58 pm

  doctoth: I am looking at it from the point of view of payroll taxes. Both EI and CPP are mandatory, like a tax. You can’t opt out of it.

  Let’s take the EI premiums. The govt. has been running massive surpluses in the program. Both the 40K and 80K earners are overcontributing. But, who gets hurt more in the pocketbook?

  Lower income Canadians benefit more than they put in through taxes. For example, the 40K earner and 80K earner would get the same healthcare, though the 80K earner has paid more. That is the price of being in a more caring society.

• 9 Ray // Dec 3, 2005 at 6:06 am

  In the Business section of the Toronto Star this morning (Saturday) James Daw takes a look at the impact of the Liberal and Conservative tax cuts for different income levels, both one earner and two earner. It looks like for the 40k to 80k ranges of income the Liberal cuts give a bigger cut than the announced Conservative cuts. Actually, reading the article a little more closely what he is measuring is the average increase in disposable income based on some Stats Can data.

  Anyway, I think it will be interesting to see if Harper announces any more tax cuts. Personally I would like to see a slight GST tax cut (maybe 0.5% or something) with a plan to reduce it as much as 3% total over 10 years or something like that. Maybe some sort of plan to reduce it at the same rate that the federal debt goes down (since that was the reason for the GST in the first place). Also, increasing the GST rebate for lower income levels I would consider a good move (I am currently in one of the higher tax brackets so I’m not suggesting this for my own good).

• 10 Canadian Capitalist // Dec 3, 2005 at 8:45 am

  Ray: Here is the link to the Star article.

• 11 Urban Onramps » Blog Archive » who woulda thunk it? Canadians mull over competing tax cuts // Dec 6, 2005 at 9:20 am

  [...] The Canadian Capitalist sez I never thought I would ever be discussing which tax-cut idea is better but a close election race can do strange things. [...]

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