The Myth of Tax Cuts and Public Spending (A Comment on “It’s still time for an adult conversation about taxes”)

Tax Dollars

In the end, it’s still our money.

I came across this article by Max Fodor and Michael Laxer a little while ago and thought it interesting enough to comment on it. It looks at the glaring disconnect the voters (and the pandering politicians that chase them) have between taxation and services. Services are great as long as someone else pays for them, preferably someone who makes much more than we do. The voter expects (and the politician promises) a tax cut in every budget. This trend has severely depleted the public purse and disproportionately benefited the same “rich people” who were expected to pay more taxes.

I find it useful to think about taxation in much the same way as crowd-funding. You can hold on to your $20 and you’ll be able to get some services with it, like a short taxi ride. Or, you could put it in a pot with lots of other people and that aggregate amount could be used to fund better transit that you could use repeatedly to get to your destination. Tax cuts, the ones that politicians of all stripes like to trot out at election time, provide very little real benefit to the individual families that get them:

A CCPA report, Canada’s Quiet Bargain, found that more than two thirds of Canadian households receive more than 50 per cent of their income in public services, a far better deal than the market and far more than they pay in taxes.  (It’s still time for an adult conversation about taxes BY MATT FODOR MICHAEL LAXER)

The services that get cut or strangled by underfunding in order to pay for this tax cut have a much greater impact on those same families. Middle income voters that find tax cuts so popular seem to miss the point when they have trouble finding a family doctor or need to wait in long lines to renew their driver’s license.

The myth seems to be that all taxes are bad or that only corporations should pay them. In a recent interview, the leader of the federal New Democratic Party (NDP – a left-wing, quasi-socialist party we have in Canada, both provincially and federally), Thomas Mulcair,  stated that he would raise the corporate tax level to the level it was at in 2006 when the Conservative took power federally (22%, it’s currently 15%). Obviously, corporations need to pay their fair share of taxes but Mulcair emphatically states that the taxes of individuals would not change, “Companies are not paying their fair share and individuals are, so yes we’re going to ask companies to pay their fair share and get back to something that resembles the U.S. level.” I’m not certain that the point that individuals are paying their fair share of taxes is accurate. All those who benefit from services a government provides should bear the burden of taxation within their means to pay for them. That taxation is an unfair burden on the “middle class” is somewhat misleading:

“Also, these ideas underestimate the highly disparate nature of “need” within the so-called 99 per cent. They equate the desire of a household with an income of $100,000 a year to finance the mortgage on a large house, or buy a second car that they feel they “need”, with the ability of a family with an income of $35,000 a year to send their kids to “public” summer programs (which are no longer free in most centres), to access increasingly expensive higher education, to have properly government funded daycare, or any number of other programs that would fundamentally alter their lives and social mobility.  These “needs” are highly different morally and ethically.” (It’s still time for an adult conversation about taxes BY MATT FODOR MICHAEL LAXER)

The other consideration to make is around consumption taxes, like the Harmonized Sales Tax (HST) here in Canada or the Value Added Tax (VAT) in Europe and elsewhere. Consumption taxes are a very egalitarian method of raising revenue as it is completely proportional to what an individual spends or can afford to spend. Consumption taxes, like fuel taxes or taxes on alcohol and cigarettes, can also be used to fund projects, like public transit or healthcare, that offset the environmental impact of using fuel as well as encouraging individuals away from excessively consumptive or damaging behaviour. There are cases where such taxes would be too high for a person’s income to support or this person is in a situation where they can’t avoid paying the tax (e.g. a rural dweller who needs to use their vehicle as transport as well as for work). For these cases, a system of rebates can be put in place to reduce the impact on these citizens.

A final argument that isn’t addressed well in this article, is the one of efficiency of government in delivering services that are paid for by taxes. There is a feeling among the public that government is very inefficient and doesn’t deliver services very well. While there are examples of government waste, in general, services are delivered in as efficient manner as possible. Privatization of public services, like healthcare, is felt by some to be the solution to “government inefficiency”. The problem with this argument is that a profit must be derived from delivery of a service or there is no point in privatizing it; no company would bother bidding for the work. Many services delivered by the government don’t generate a profit. If anything, the cost to the end user would go up in order for a profit to wrung from the service; or, the level of service would be reduced in order to cut the cost of delivering it. Either way, the impact will be negative to the citizen trying access that service.

In conclusion, this article does a good job of outlining what we need to do as a society when considering taxation. We can cling to the simplistic mantras of “tax the rich” or “tax cuts for everyone” or , as the article concludes, “…we can grow up.”

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